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Theranos faces lawsuit from former investor Partner Fund Management

Hedge fund was a major investor in Theranos, backing it with a $96.1 million investment in 2014.

Jeff Lagasse, Associate Editor

Theranos founder Elizabeth HolmesTheranos founder Elizabeth Holmes

Partner Fund Management, a San Francisco-based hedge fund, is suing Theranos for securities fraud, even as the embattled blood testing company is attempting to shift away from the proprietary blood testing technology that regulatory agencies have cited as gravely inaccurate and dangerous.

The hedge fund was a major investor in Theranos, backing it with a $96.1 million investment in 2014. Since then, Theranos has been subject to regulatory ire; this summer, the Centers for Medicare and Medicaid Services banned Holmes from the blood testing business for two years and issued a number of other sanctions in response to Theranos' alleged failures, including inaccurate blood tests that may have caused some physicians to administer incorrect treatment for their patients.

Other sanctions included a limitation of the laboratory's CLIA certificate for the specialty of hematology; a civil monetary penalty; a plan of correction; suspension of the laboratory's approval to receive Medicare and Medicaid payments for any services performed for the specialty of hematology; and cancellation of the laboratory's approval to receive Medicare and Medicaid payments for all laboratory services.

[Also: Theranos shuts down labs, wellness centers, lays off more than 300 workers]

Theranos founder and CEO Elizabeth Holmes is currently appealing the sanctions, but the company has since announced they are closing their clinical labs and wellness centers in California, Arizona, and Pennsylvania. In a recent statement, the company said it has shifted its focus to a "decentralized" miniLab blood-testing system.

In a letter obtained by the Wall Street Journal, Partner Fund Management accused Theranos of "fraudulently inducing" it to invest in the company.

Theranos shot back with a statement on its website Tuesday, saying the suit " is without merit, the assertions are baseless, and the plaintiff is 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," the statement reads. "This wholesale reliance on post-investment statements, therefore, negates the claim that the plaintiff was misled."

Twitter: @JELagasse

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