Theranos claimed its innovative blood testing device would give quicker results using just a single drop of blood.
After the SEC charged her and the company with fraud earlier this year, Holmes was stripped of control and is barred from serving as an officer or director at any public company for the next decade.
Elizabeth Holmes, the founder of the embattled health startup Theranos, on Friday was charged in federal court with wire fraud with prosecutors alleging that the company was a "multi-million dollar scheme to defraud investors".
Holmes will remain chair of the privately held company's board and David Taylor, the firm's general counsel, has been appointed its CEO, Theranos said. If convicted, Holmes and Balwani face a maximum prison sentence of 20 years, a $250,000 fine and restitution for each count of wire fraud. She and Balwani repeatedly duped investors about the company's products, its business relationships, and its prospects for long-term growth, according to the SEC complaints.
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"Today's indictment alleges that through their company, Theranos, CEO Elizabeth Holmes and COO Sunny Balwani not only defrauded investors, but also consumers who trusted and relied upon their allegedly-revolutionary blood-testing technology", the Justice Department said in a statement.
Holmes, a one-time media darling clad in her trademark black turtlenecks, has become a well-known corporate villain.
Much of the allegations in the indictment have been previously reported by The Wall Street Journal.
The federal indictment claims that Holmes and Balwani engaged in a plan to "obtain money and property by means of materially false and fraudulent pretenses". Their case has been assigned to Judge Lucy Koh, who's handled a number of high-profile cases involving Silicon Valley.