Theranos Sued for Alleged Fraud by Robertson Stephens Co-Founder Colman
November 28 2016 - 4:10PM
Dow Jones News
Robertson Stephens & Co. co-founder Robert Colman accused
Theranos Inc. in a lawsuit filed Monday of making false and
misleading claims about its operations and technology while
soliciting money from investors.
Mr. Colman, a pioneering Silicon Valley deal maker, invested in
the blood-testing company in late 2013 through venture-capital fund
Lucas Venture Group, according to the lawsuit. The suit was filed
in federal court in San Francisco and seeks class-action
status.
The lawsuit alleges that Mr. Colman agreed to invest in Theranos
after Lucas Venture Group founder Donald A. Lucas wrote in a Sept.
9, 2013, letter that Theranos invited the venture-capital firm to
purchase $15 million in stock.
Mr. Lucas said it was part of a "follow-on extension" of a
funding round that began in 2010, the lawsuit states.
On the same day in 2013, Theranos and Walgreens announced in a
joint news release what they called "a long-term partnership to
bring access to Theranos' new lab testing service through Walgreens
pharmacies nationwide." Walgreens is now a unit of Walgreens Boots
Alliance Inc.
The news release said Theranos had "the ability to run its tests
on micro-samples" and to "minimize human error through extensive
automation to produce high quality results."
Monday's suit alleges the company was misleading and cites
inspection findings by federal regulators. After the inspection
results, Theranos voided two years of test results run on its
proprietary testing platform and shut down its laboratory
operations.
Theranos has said it is appealing the regulatory sanctions and
cooperating with federal civil and criminal investigations,
including of whether the company misled investors.
Mr. Colman, who has retired from investment banking and lives in
Idaho, declined to comment through his lawyer. Theranos and Lucas
Venture Group didn't immediately respond to requests for comment.
Walgreens declined to comment.
The lawsuit also includes a second plaintiff, Hilary
Taubman-Dye, who alleges that she bought Theranos shares on the
online exchange SharesPost Inc., which acts as a broker for shares
of private companies.
Ms. Taubman-Dye allegedly agreed to buy Theranos stock at a
price of $19 a share in August 2015. She tried to cancel the
transaction after The Wall Street Journal published in October 2015
its first article detailing problems at Theranos.
At the time, Theranos, founder Elizabeth Holmes and an
unidentified third party all had a legal right of first refusal
giving them a chance to buy any shares an investor chose to sell in
a secondary transaction, the suit alleges.
According to the suit, Ms. Taubman-Dye was told by SharesPost
that Theranos, Ms. Holmes and the third party had declined to
purchase the shares. Ms. Taubman-Dye's purchase was completed Dec.
7, 2015, the suit claims. She declined to comment through her
lawyer.
On its website, SharesPost warns investors that private
companies are high-risk investments and that users "must be
prepared to withstand a total loss."
Reed Kathrein, a partner at law firm Hagens Berman Sobol Shapiro
LLP in San Francisco who represents Ms. Taubman-Dye and Mr. Colman,
said there might be several hundred plaintiffs who could be
represented in a potential class-action suit against Theranos.
Theranos allowed just a handful of investors to buy shares
directly from the company when it issued stock several times
between 2006 and 2015, according to people familiar with the
transactions. An unknown number of shares could have changed hands
in secondary deals.
Mr. Kathrein said Mr. Colman and Ms. Taubman-Dye cumulatively
invested "hundreds of thousands of dollars" in Theranos, based in
Palo Alto, Calif.
Robertson Stephens, a boutique investment bank that specialized
in technology deals, was shut down in 2002 by owner FleetBoston
Financial, now part of Bank of America Corp. Robertson Stephens
forged its reputation underwriting billions of dollars in tech
deals that helped fuel the dot-com boom of the late 1990s.
A separate money-management firm in San Francisco now operates
under the name Robertson Stephens LLC.
Monday's lawsuit is the third filed by Theranos investors since
Oct. 10 and the first suit to seek class-action status. In
November, Walgreens sued Theranos in a federal court in Delaware,
seeking $140 million in damages.
That is equal to the amount Walgreens invested in its
partnership with Theranos, including convertible-debt instruments,
according to people familiar with the matter. Theranos has said
that the earlier lawsuits are without merit and that it would fight
them.
Write to Christopher Weaver at christopher.weaver@wsj.com
(END) Dow Jones Newswires
November 28, 2016 15:55 ET (20:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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