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Theranos Just Reached a Deal With Investors to Avoid Lawsuits

May 16, 2017, 9:28 PM UTC

Theranos has taken one step in a long—and challenging—road to redemption, according to a Tuesday release by the company. CEO Elizabeth Holmes’ beleaguered blood testing startup says that it has closed a deal to give some of its investors new stock in the company while the shareholders have agreed to release potential legal claims against it.

“Holders of more than 99 percent of the shares eligible for the transaction elected to participate,” said the firm in a statement (not all shares or the people holding them were eligible for this arrangement—just Theranos’ “most recent investors,” according to the release).

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Holmes had to give some of her own stock and equity back to the company in order to make sure that investors who didn’t participate in the exchange wouldn’t see their shares diluted diluted. This plan appears to have been in the works for a while. In April, reports emerged that Holmes owed her company $25 million and would reward investors with some of her shares in exchange for them avoiding lawsuits against Theranos. “The transaction unifies the support of Theranos’ major investors as the Company moves toward commercializing its innovative technologies. All participating shareholders provided a release of any potential claims against the Company,” read Theranos’ statement on Tuesday.

One major investor, the hedge fund Partner Investments LP, claimed in lawsuits last year that Theranos used “a series of lies” to deceive the outfit and win a $96 million investment, and that it threatened bankruptcy to pressure plaintiffs to drop legal proceedings. Those suits were resolved at the beginning of this month.

Another settlement with U.S. health regulators at the Centers for Medicare & Medicaid Services (CMS) in April would allow Theranos to return to the blood testing business after a two-year ban and $30,000 in civil penalties. Theranos also announced it would pay $4.65 million to all Arizona customers who used its services because many received faulty blood test results.

But these recent resolutions still don’t address the fundamental issue dogging the company: a lack of trust after Holmes’ claims about Theranos’ ostensibly revolutionary blood testing techniques, which could perform diagnostics with just a tiny bit of blood. The company has now turned to a new technology called the “miniLab.”