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Theranos investor's lawsuit alleges 'series of lies'

Hedge fund accuses troubled blood-testing company of lying to attract its nearly $100 million investment, according to a letter seen by the Wall Street Journal.

A hedge fund is accusing Theranos CEO Elizabeth Holmes' company of lying about its product to attract its investment.
Gilbert Carrasquillo/Getty Images

Blood-testing company Theranos is being accused of deceiving a major investor to attract its nearly $100 million investment.

The charges were leveled against the embattled company in a lawsuit filed Monday by hedge fund Partner Fund Management in Delaware Court of Chancery, according to a letter to investors seen by the Wall Street Journal.

"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 letter said, according to the newspaper.

The Palo Alto, California-based company dismissed the lawsuit as baseless, accusing Partner Fund Management of "engaging in revisionist history.

"Most of the company statements the plaintiff has cited in its suit were made after the time the plaintiff invested, and could not possibly have been the original basis for investment," Theranos said in an unsigned blog post. "This wholesale reliance on post-investment statements, therefore, negates the claim that the plaintiff was misled."

It's the latest twist in a downward spiral of a once-promising company that set out to innovate blood testing. Two years ago, it was valued at $9 billion. But it has faced increased scrutiny, along with civil and criminal investigations, since a Wall Street Journal report in October 2015 suggested Theranos' blood-testing devices were flawed.

In July, the CMMS revoked the company's Clinical Laboratory Improvement Amendments certificate, an action that prohibits Holmes from operating a lab for two years. Less than a week ago, Holmes announced plans to shut down all its clinical labs and Theranos Wellness Centers, closures that will result in 340 employees being laid off.