Gavel and Magnifying Glass

The Lessons of Theranos: Mixing Business and Misrepresentation

In 2013, the world of medicine seemed to be on the verge of a miracle. Theranos, a medical technology and research laboratory, announced they had developed a device that could run thousands of tests using only a single drop of blood. Elizabeth Holmes, the CEO of Theranos, performed demonstrations on national TV and promised a medical revolution that could help both patients and physicians. Forbes Magazine tagged the value of Theranos at $9 billion and named Holmes as the youngest and wealthiest self-made millionaire in the US.

But all of this came crashing down when in March 2018 the Securities and Exchange Commission (SEC) charged Holmes and Theranos of fraud. It turned out that their device used technology from other companies and that their claim of finding vast amounts of data with a single drop of blood was impossible, according to one Stanford professor.

Holmes had attracted thousands of investors who injected a considerable amount of money into her company. She was able to take in more than $700 million from investors, which included Hillary Clinton and Henry Kissinger. Theranos is a classic case of fraud and misrepresentation.
Woman holding a balance scale statue

Many businesses and investors face this risk, and the only way they can protect themselves is through an agreement. Agreements and contracts will spell out the obligations and terms between your company and business partners, suppliers and clients. A significant number of business owners rely entirely on the honesty and goodwill of the parties in a contract.

But the other party can use falsehood to persuade you into entering a contract. When you find your business involved in such a situation, ask the help of the litigation firms near your offices in Vancouver, British Columbia. They will explain the different forms of fraud and misrepresentation in the business world.

Fraudulent Misrepresentation

In this case, the other party in your contract makes a false declaration which sways you to sign the contract. It also arises if the other party makes a hasty statement regarding the contract’s terms. If you think you are a victim of fraudulent misrepresentation, you should meet with a lawyer to discuss the kinds of damages you can receive and what you can do to cancel the contract.

Negligent Misrepresentation

All parties in a contract owe a duty to the other to ensure that all the promises they make when convincing the other party to enter a contract are factual. If one party does not do everything to ensure this, they are guilty of negligent misrepresentation. The aggrieved party can have the contract rescinded and recover damages.

Innocent Misrepresentation

In this case, the defendant makes an untrue statement to sway you into signing a contract with good reasons to believe that it is a fact at the time the statement is made. Victims of innocent misrepresentation can recover damages but no revocation. If you want to recover damages, you should prove you suffered loss following the misrepresentation.

Most people might dismiss the above forms of misrepresentation as minor business setbacks, but like the Theranos case, it can be a serious decision that can harm your business and investors.