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Theranos accused of duping investors about tests, performance

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Theranos Inc and founder Elizabeth Holmes were accused in a lawsuit of duping investors about the embattled medical-testing firm's performance and technology to raise about US$100 million in funding for the startup.

[NEW YORK] Theranos Inc and founder Elizabeth Holmes were accused in a lawsuit of duping investors about the embattled medical-testing firm's performance and technology to raise about US$100 million in funding for the startup.

Partner Investments LP sued Theranos in Delaware state court Monday seeking to rescind a stock-purchase agreement in the wake of scandals involving the Palo Alto, California-based company's blood-testing capabilities.

The hedge fund claims Theranos officials lied about the firm's performance to raise funding.

The suit comes days after Ms Holmes moved to close Theranos' blood-testing labs and lay off 340 workers.

The company has been plagued by questions about the accuracy and viability of its technology and is the subject of federal and state probes.

In August, Theranos withdrew an emergency request for the US Food and Drug Administration to sign off on its Zika-virus test after regulators found problems with how the firm gathered patient data.

"Theranos and its principals knowingly and repeatedly lied that they had developed proprietary technologies that worked, were on the cusp of receiving all necessary regulatory clearances and approvals, and concealed the truth about the commercial viability of their technologies and methods," the hedge fund said in a statement.

The complaint in Delaware Chancery Court suit was filed under seal. Filings that accompanied the suit showed the fund, which does business as Partner Fund Management LP, accuses Theranos and Ms Holmes of fraud as part of the case.

"The suit, filed by a hedge fund, is without merit and Theranos will fight it vigorously," the company said in an e-mailed statement.

"The hedge fund is engaging in revisionist history, making claims that are not rooted in facts. The company remains committed to its mission and is appreciative of its strong investor base that understands and continues to support those efforts."

San Francisco-based Partner Fund Management manages about US$4 billion and made a US$96.1 million investment in Theranos in Feb 2014, said a person familiar with the matter who asked not to be identified.

Ms Holmes has said Theranos is shifting its business focus to the miniLab, a 95-pound diagnostic tool that can fit on a tabletop.

The company generated questions in August when scientists and researchers gathered in Philadelphia to hear a presentation on Theranos's blood-testing technology - and instead got a product-launch pitch for the miniLab.

US officials sanctioned Theranos and Ms Holmes in July after finding systematic failures in lab testing that potentially jeopardised patients' health.

Ms Holmes was banned for two years from owning or operating laboratories and the company lost its eligibility to get payments from federal health insurance programs for lab services.

BLOOMBERG