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The Morning Brief: Partner Fund Management Sues Theranos
Theranos was founded by Elizabeth Holmes, a charismatic Stanford University dropout who emulated Apple founder Steve Jobs and cultivated an image as a biotech visionary. The company reached a valuation of $9 billion in 2014 on the promise that her firm’s cutting-edge technology could glean accurate results for a variety of medical tests using just a few drops of blood. Holmes was the toast of Silicon Valley and the subject of several flattering magazine profiles before the Wall Street Journal published a series of reports in October of last year revealing that the company’s technology did not live up to its claims.
The paper’s investigation found that Theranos used its technology for a small number of tests, gave questionable results to patients and used devices made by other (more conventional) manufacturers. Theranos last week announced plans to lay off 40 percent of its work force and shutter its blood testing facilities. This follows news that a regulator revoked its blood testing license at a California laboratory because of unsafe practices. In another blow, drugstore chain Walgreen’s ended its relationship with the company, closing several blood testing stations at its retail locations. Theranos also has had to void tens of thousands of test results, according to the Journal. Holmes has been barred from the lab industry pending Theranos’s appeal, and the company is facing criminal and civil investigations.
Outside investors had poured some $800 million into Theranos, including nearly $100 million from Partner Fund Management, the Journal reports. The hedge fund firm said Holmes claimed Theranos had developed “proprietary technologies that worked” and that regulatory approvals were imminent, according to the report.“Through a series of lies, material misstatements, and omissions, the defendants engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company,” the firm said in a letter to investors, according to the report.
Theranos said in a statement to the paper that “the suit is without merit and Theranos will fight it vigorously. The company is very appreciative of its strong investor base that understands and continues to support the company’s mission.”
The Securities and Exchange Commission is also looking into accusations that Theranos misled investors, according to the report, which cited people familiar with the situation.
Employees of Raymond Dalio’s Bridgewater Associates were evacuated from the company’s headquarters in Westport, Connecticut on Wednesday after the company received a “nonspecific bomb threat,” the Wall Street Journalreports. The threat was received at 3:15 p.m., but thankfully no bomb was found. “We had a routine bomb threat and handled it accordance with our well-established protocols,” a Bridgewater spokeswoman said. Bridgewater is the world’s largest hedge fund firm and manages a total of about $150 billion.
Paris-based asset manager Lyxor reports that its hedge fund index returned 0.14 percent in September, with five of the ten strategies it tracks finishing the month with gains. Event driven and long-short equity strategies led the way, while market neutral, fixed income arbitrage and CTAs were the biggest losers. Lyxor’s composite index is now down about 2 percent for the year.