Theranos Redux? Feds Target New Silicon Valley Diagnostics Start-Up Investment Scam

Case: Federal prosecutors have filed criminal charges against the co-founders of a San Francisco biotechnology start-up firm with defrauding investors by making bloated claims about a revolutionary diagnostics product. No, it’s not Theranos, but uBiome Inc, a business created in 2012 to develop and commercialize tests to detect microbiomes in the gut and other parts of the body. uBiome’s Gut Explorer, Smart Gut and SmartJane were sold in mail order kits that patients could use to collect samples from home, complete surveys and get results online in a few weeks. According to prosecutors, uBiome’s co-founders Zachary Apte and Jessica Richman were able to raise over $76 million in a pair of fundraising rounds by misleading investors about the firm’s revenue growth and ability to secure coverage from payors even though many tests weren’t clinically validated or medically necessary. uBiome filed for bankruptcy in 2019.

Significance: Acting U.S. Attorney Stephanie Hinds is in charge of the criminal prosecution. If the name sounds familiar, it may be because Ms. Hinds’ office is also prosecuting Elizabeth Holmes and Theranos. “The innovation that emerges from our Bay Area companies is unparalleled,” noted Ms. Hinds, “but all innovation must exist within the boundaries of the law.” In addition to the criminal charges, Apte and Richman have been hit with civil charges of stock fraud from the Securities Exchange Commission (SEC).