A turning point came in October 2015, when investigative reporter John Carreyrou of The Wall Street Journal questioned the validity of Theranos' technology. Since then, the company has faced a string of legal and commercial challenges from medical authorities, investors, the U.S. Securities and Exchange Commission (SEC), Centers for Medicare and Medicaid Services (CMS), state attorneys general, former business partners, patients, and others. By June 2016, it was estimated that Holmes' personal net worth had dropped from $4.5 billion to virtually nothing. The company was near bankruptcy until it received a $100 million investment from Fortress Investment Group in 2017. By 2018, the company was again close to going bankrupt.
In July 2016, Theranos received sanctions from the CMS, including the revocation of its CLIA certificate and prohibition of Holmes and other company officials from owning or operating a lab for two years. Theranos announced it would close its laboratory operations and wellness centers to work on miniature medical testing machines. In April 2017, Theranos said it had reached a settlement agreement with CMS. Following the CMS sanctions, the Walgreens pharmacy chain terminated its contract with Theranos and filed a lawsuit claiming continuous breaches of contract. The suit was settled out of court, with Theranos compensating Walgreens for a much smaller amount than the claimed $140 million, reported at about $30 million.
On March 14, 2018, Theranos, Holmes, and former company president Ramesh "Sunny" Balwani were charged with "massive fraud" by the SEC. One section of the complaint says Holmes falsely claimed in 2014 that the company had annual revenues of $100 million, a thousand times more than the actual figure of $100,000. Theranos and Holmes agreed to resolve the charges against them, with Holmes paying a fine of $500,000, returning the remaining 18.9 million shares that she held, relinquishing her control of the company, and being barred from being an officer or director of any public company for ten years. According to the agreement, if Theranos is acquired or is otherwise liquidated, Holmes will not profit from her ownership until more than $750 million is returned to investors and other preferred shareholders. Theranos and Holmes neither admitted nor denied the allegations in the SEC’s complaint. Balwani did not settle. On June 15, 2018, the U.S. Attorney for the Northern District of California announced the indictment of Holmes on wire fraud and conspiracy charges. Balwani was also indicted on the same charges.
While at Stanford University, Elizabeth Holmes had an idea to develop a wearable patch that could adjust the dosage of drug delivery and notify doctors of variables in patients' blood. She started developing lab-on-a-chip technology for blood tests, and had the idea for a company that would make testing cheaper, more convenient and accessible to consumers. Holmes dropped out of Stanford and used the education trust from her parents to found the company that would later be called Theranos, derived from a combination of the words "therapy" and "diagnosis". The company's original name was Real-Time Cures, which Holmes changed after deciding that too many people were dubious about the word "cure".
Theranos raised millions of dollars in its first years. In 2004, Theranos was based in a rented basement located near the Stanford campus. By December 2004 the company had more than $6 million from investors at a valuation of $30 million. The company had about $45 million total fundraising after Series B and Series C funding in 2006. Theranos raised an additional $45 million in 2010 at a valuation of $1 billion. The company moved to the former headquarters of Facebook in June 2012. The company had significant news coverage starting in September 2013 after profiles in the San Francisco Business Times and Wall Street Journal. By 2014, Theranos had raised more than $400 million with an estimated value of $9 billion. In 2016, Forbes revised the estimated net worth of the company to $800 million taking into account the $724 million of capital raised.
In September 2013, Theranos partnered with Walgreens to offer in-store blood tests at more than 40 locations. Walgreens announced plans to expand the "wellness centers" across the United States. Theranos blood tests were used on drug trial patients of GlaxoSmithKline and Pfizer. Each company stated that there were no ongoing active projects with Theranos in October 2015. In November 2016, Walgreen Co. filed suit against Theranos in a federal court in Delaware, for breach of contract. Theranos reported to investors on June 21, 2017 that the suit, which originally sought $140 million in damages, was settled for less than $30 million.
Cleveland Clinic announced a partnership with Theranos to test its technology in order to decrease the cost of lab tests. Theranos became the lab-work provider for Pennsylvania insurers, AmeriHealth Caritas and Capital BlueCross, in July 2015.