A San Francisco-based hedge fund filed a civil lawsuit Monday against Palo Alto, Calif.-based blood test startup Theranos, the company announced in a statement.
The lawsuit is filed under seal in the Delaware Court of Chancery, according to The Wall Street Journal. However, the hedge fund, Partner Fund Management, provided the newspaper with the letter it sent to investors regarding the legal action.
"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 reads, according to The Wall Street Journal. PFM invested nearly $100 million in the company in 2014, and alleges it was deceived into investing by false claims that Theranos blood test worked and was near regulatory approval, according to the report.
Theranos asserts that the lawsuit is without merit and that PFM "is engaging in revisionist history." A statement from Theranos reads, "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. This wholesale reliance on post-investment statements, therefore, negates the claim that the plaintiff was misled."
Just last week founder and CEO Elizabeth Holmes announced plans to layoff more than 40 percent of its workforce, while the company refocuses on a new blood-testing device called miniLab. This technology was presented by Ms. Holmes in August at a meeting for the American Association for Clinical Chemistry.
The startup also faces three potential class action lawsuits and another that alleges a faulty blood test led to patient harm. Over the past year, the company was also slapped with an investigation by the Department of Justice and another by the Securities and Exchange Commission. It lost partnerships with Walgreens and Safeway, recalled tens of thousands of blood tests and CMS banned Ms. Holmes from owning and operating medical laboratories for at least two years. The company's troubles began almost exactly a year ago following a pair of investigative reports that ran in The Wall Street Journal alleging the company overstated its technologies' capabilities.
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