Elizabeth Holmes (L) and Alan Murray speak at the Fortune Global Forum at the Fairmont Hotel on Nov. 2, 2015 in San Francisco.
Elizabeth Holmes (L) and Alan Murray speak at the Fortune Global Forum at the Fairmont Hotel on Nov. 2, 2015 in San Francisco. Kimberly White—Getty Images for Fortune

Theranos Investors Accuse Startup of Pressuring Them to Drop Lawsuit

Apr 20, 2017

As Theranos continues to spiral downward, its investors are now claiming the company threatened to file for bankruptcy protection if they don’t give up their rights to sue the startup over its faulty blood-testing business, Bloomberg reported.

Partner Investments LP sued Theranos in October, saying the company used "a series of lies" to gain its $96 million investment, and other investors filed similar suits accusing Theranos of misleading them about its technology. Now, Partner and two other investment funds say Theranos suggested the investors should accept more equity or it would seek Chapter 11 protection, according to Bloomberg.

The claim was made in a Delaware court filing unsealed on Tuesday. Theranos representatives denied the investors’ allegations, according to Bloomberg. The startup says it discussed the share-exchange plan with investors before their lawsuit was filed.

While the funds suing Theranos in Delaware say the blood-testing startup talked to them about the share offer in September 2016, according to Bloomberg, they then found that Theranos designed the offer so that investment funds would not obtain "any recovery" in a bankruptcy filing. This meant the bankruptcy threat would force the funds to choose between accepting the share offer or suing Theranos, Partner Investments’ lawyers said in their filing.

Elizabeth Holmes, the founder of Theranos, had said her company could accurately perform a wide range of tests using a only a few drops of blood. But after a Wall Street Journal investigation revealed significant flaws in its technology and test results, the company has voided tests, stopped operating labs and has been mired in settlements and lawsuits.

Partner Investments filed another lawsuit earlier this month aimed at stopping Theranos’ share-exchange offer. A Delaware judge temporarily blocked the exchange plan on April 11, according to Bloomberg, and a hearing on the issue is scheduled for June 26 in Wilmington, Del.

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