The Delaware Court of Chancery has stopped for now a tender offer that investors said would allow Theranos Inc. to “insulate itself” and hinder their ability to claw back a $96 million investment in the embattled blood-testing company. Vice Chancellor J. Travis Laster on Thursday granted the motion of a San Francisco hedge fund seeking a temporary restraining order to halt the deal, which had been scheduled to close on Friday.

According to court documents, Theranos circulated the tender offer to certain investors last month in an electronic format designed to “disappear” in seven days.

The offer, court papers said, purported to give the investors, including PFM, nonvoting shares from CEO Elizabeth Holmes and a liquidity preference, should the company file for bankruptcy. In exchange, the investors were required to sign a broad release of claims against Theranos.

Partner Fund Management, which sued Palo Alto-based Theranos for fraud in October, filed a complaint on April 6 to shut down the offer, saying the offer was a ploy to escape liability for allegedly misleading the firm into funding a now-abandoned business model.


“Instead of facing the music in light of the mounting evidence in the fraud action, defendants shirk responsibility and seek to ensure that even if PFM gets its day in court, it will never recover its fraudulently induced investment or the damages it sustained as a result of defendants’ conduct,” wrote PFM’s attorneys at Gibson, Dunn & Crutcher.

The sides argued over the TRO in a Tuesday afternoon teleconference, just days before the deal with investors was set to close, according to a hearing transcript. At the hearing, Laster referenced the “cloak-and-dagger” nature of the offering and expressed concerns about its intent and effect, at one point calling it the “equivalent of investor Snapchat.”

“And what I mean by that is this disappearing disclosure, disappearing offer thing that becomes inaccessible within seven days. If you want to do something that hangs a sign around your offer and says ‘this is sketchy,’ do something that self-explodes after a limited period,” he said according to a transcript.

“I mean, what better way is there to say, ‘Oh, we really don’t want anybody looking into this or examining it too hard’ than to have this type of ‘Mission: Impossible’ ‘this tape will self-destruct in 10 seconds,’” he added.

A Gibson Dunn representative declined to comment, and Theranos’ press office did not immediately respond to a request for comment.

Reed Brodsky of Gibson Dunn argued the motion for PFM. Theranos was represented by Gregory P. Williams of Richards, Layton & Finger and Timothy J. Perla of Wilmer Cutler Pickering Hale and Dorr in Boston.

PFM sued Theranos in October 2016, accusing Holmes and Theranos’ former president of making “misrepresentations, misleading statements and material omissions about, among other things, the company’s technology, methods, regulatory interactions and business plan.”

PFM said it relied on false statements from Theranos when it made its $96 million commitment to the startup in 2014. But had it known the “troubled reality” of the company, it never would have made the investment, PFM said.

Theranos has accused PFM of engaging in “revisionist history,” saying the statements cited in PFM’s complaint were made after PFM had invested its funds and thus could not have been a basis for the investment.

According to court documents, Theranos claimed that it could run a full battery of lab tests using just a few drops of blood taken from a patient’s finger—a development that was seen as revolutionary when the company publicized its launch in September 2013. The hype brought in a wave of backing from high-profile players, including PFM.

However, it later became clear that Theranos was unable to deliver on its fundamental promise, eventually leading to a public unraveling of the company. In reality, PFM said, about 90 percent of Theranos’ samples were run through the so-called “Jurassic Park” room in Theranos’ Newark, California, lab, which housed only the traditional lab machines Theranos said it was making obsolete.

Meanwhile, Holmes and Ramesh Balwani, former president and chief operating officer, continued to misrepresent the company’s progress in obtaining vital approvals from the U.S. Food and Drug Administration and its success in establishing locations in pharmacies and grocery stores, PFM has said.

To date, Theranos had invalidated “tens of thousands” of test results, and Walgreens Boots Alliance Inc., a key partner, has withdrawn its support.

In July of last year, federal officials banned Holmes from running labs for at least two years, and Theranos is also reportedly facing investigations by the U.S. Department of Justice and U.S. Securities and Exchange Commission. Holmes announced on Oct. 5, 2016, that Theranos would close its labs and lay off 340 employees in Arizona, California and Pennsylvania.

The company is also facing an investor suit in U.S. District Court for the Northern District of California, as well as a breach of contract lawsuit by Walgreens in Delaware federal court.

PFM and Theranos’ attorneys are expected to appear again before Laster next month to argue PFM’s forthcoming motion for a preliminary injunction. A five-day trial in the underlying fraud lawsuit is slated to begin June 26.

The case is captioned Partner Investments v. Theranos..

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