Prosecutors said that Holmes and Balwani used advertising and solicitations to encourage doctors and patients to use its blood testing laboratory services despite knowing the company could not produce accurate and reliable results consistently.
A statement by the board of the California startup said only that Holmes "has stepped down as chief executive officer" and that David Taylor, the company's general counsel, has been appointed CEO.
"This indictment alleges a corporate conspiracy to defraud financial investors", said John F. Bennett, special agent in charge of the Federal Bureau of Investigation in San Francisco.
The founder of a U.S. start-up that promised to revolutionise blood testing has been hit with criminal charges.
Theranos claimed its innovative blood testing device would give quicker results using just a single drop of blood.
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Peter Henning, a former senior attorney in the enforcement division of the SEC, said Theranos' statement came close to breaking a stipulation in its agreement with the SEC that prohibits it from denying the agency's allegations. Known within Theranos as a mercurial and easy-to-anger manager, he left the company in 2016, as the company's troubles were building amid sanctions from federal regulators and a darkening storm of bad press.
The Securities and Exchange Commission brought civil fraud charges against Holmes and Balwani three months ago.
"Investors large and small from around the world are attracted to Silicon Valley by its track record, its talent, and its promise", Tse said.
The two also told investors their company was financially "strong and stable", and would generate more than $100 million in revenue and break even in 2014, then generate about $1 billion in revenue in 2015, according to the indictment."In truth", the indictment says, "Holmes and Balwani knew that Theranos had and would generate only modest revenues, roughly a few hundred thousand dollars or so, in 2014 and 2015".
The company began to tumble after The Wall Street Journal poked holes in the testing, and Friday's indictment is the latest blow. Mr. Balwani also did not demand a round of employee layoffs to reduce the risk of default by the company.
Lawyers for Holmes and Balwani didn't immediately respond to requests for comment.