Consequences of misleading investors: case of Theranos

Exclusive advice to our subscribers is coming from Greenberg, Whitcombe, Takeuchi, Gibson & Grayver, LLP this week. The partners of the firm Michael J. WeinbergerLeonard Grayver, as well as its litigation associate Dimitry Lensky prepared a thorough advice on potential conflicts between investor and its portfolio companies, since the tech industry has seen several lately: Zenefits, Fisker, Theranos and other companies are all in a process of litigation.

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"In light of this topic, we thought it would be relevant to examine some of the struggles recently faced by the private health tech company – Theranos, Inc. As you may have heard, Theranos is under investigation by federal prosecutors and the SEC, and is also now a defendant in a serious class action complaint due to claims that it allegedly misled investors by representations about its blood-testing technology. We believe that investors and entrepreneurs can both draw a number of interesting and immediately actionable lessons from the matter.

1. Make sure you see the line between self-promotion and misleading statements entrepreneurs can make when soliciting funds.

2. Work with highly knowledgeable consultants in your industry - have outside consultants review provided business plans.

3. Executives and Directors should understand their fiduciary duty to the company and to shareholders.

The attorneys expand on each bullet point for our subscribers.