![]() However, a company planning to eventually go public starts working toward the requirement of having at least two years’ worth of audited financial statements by the time it files for an IPO. Private companies are generally not required to pay for an outside audit until they’ve made a registration with the Securities and Exchange Commission to offer debt or equity to retail investors. The unaudited financial statements that the SEC said Balwani created also projected Theranos would reach approximately $1 billion in revenue in 2015.Ĭonspicuously absent from the package that went to investors are income statements, balance sheets and cash-flow statements audited and signed by a qualified public accounting firm. Materials within the binders stated that Theranos would generate over $100 million in revenues in 2014 and break even, according to the SEC complaint against Balwani. There were also lots of copies of articles and profiles about Theranos, including glowing profiles of Holmes from 20 by the Wall Street Journal, Wired and Fortune. ![]() The package included a cover letter drafted and signed by Holmes, a company overview slide-deck presentation, reports of clinical trials Theranos performed with pharmaceutical companies, and financial projections on spreadsheets created from scratch by Balwani. The SEC’s complaint against Balwani describes the binder provided to potential investors. See: Here’s the blueprint for how ICOs are getting off the ground without SEC vetting Companies can use a Form D to tell the SEC about their fundraising from investors, usually without further scrutiny, as long as the money only comes from “accredited investors.” Accredited investors are either individuals whose net worth exceeds $1 million or who consistently have made over $200,000 per year in income companies that have more than $5 million in assets also qualify. Sunny Balwani accurately represented Theranos to investors to the best of his ability.”Īll of the money Theranos raised came from private placements, fundraising that’s restricted to wealthy investors and disclosed to the SEC via an exemption from registration under securities laws called Form D. Coopersmith of Davis Wright Tremaine, provided this statement: “We believe the enforcement action by the SEC is unwarranted. An attorney for Elizabeth Holmes from Cooley LLP declined comment.īalwani’s attorney, Jeffrey B. ![]() Balwani became the company’s president in 2009, after guaranteeing a line of credit for Holmes, who had run the startup for five years but was on the verge of running out of cash, according to the SEC’s complaint against Balwani.Īn attorney for Theranos from Wilmer Hale did not return a call requesting comment. Balwani was charged by the SEC in the scheme but is fighting the allegations. On March 14, Holmes and Theranos, the blood-testing startup that was once valued by investors at $9 billion, settled what the SEC characterized as “massive” fraud charges. ![]()
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