A U.S. judge ruled May 31 investors who claimed Theranos defrauded them through its false promises of a revolutionary blood-testing technology cannot join together in a class-action lawsuit against the embattled company, Reuters reports.
Theranos was once valued at $9 billion and seen as a rising star in Silicon Valley. It had promised a device that offered quicker blood test results through a single drop of blood, but a 2015 Wall Street Journal report alleged its products were flawed and inaccurate. The company garnered millions of dollars in indirect investments.
The proposed class included more than 200 people who invested in Theranos between July 29, 2013, and Oct. 5, 2016 with the aim of buying shares in the health-tech company. A number of high-profile investors — such as Rupert Murdoch and the family of U.S. Secretary of Education Betsy DeVos — said they've collectively lost more than $600 million.
Although indirect investors to private companies can't sue under federal securities laws, the investors hoped to sue under California state law. However, U.S. Magistrate Judge Nathanael Cousins ruled only individual lawsuits were OK, as some investors might not be able to show they relied on Theranos' alleged falsehoods.
"It is easy to imagine, for example, that someone invested simply because a friend suggested it, or because all that percolated down the grapevine was vague insight that Theranos was a fast-growing company, or had promising [but unspecified] technology," Mr. Cousins wrote in a court order.
A lawyer for the plaintiffs said he may appeal or seek reconsideration.
The U.S. Securities and Exchange Commission charged Theranos founder and CEO Elizabeth Holmes and former COO Ramesh "Sunny" Balwani March 14 with "massive fraud," and in a settlement, Ms. Holmes ceded majority control of the company, agreed to pay a $500,000 fine and forfeited her right to serve as an officer or director of any public company for 10 years. However, Mr. Balwani did not settle.
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