Ken Alltucker

The Arizona Republic

PHOENIX — Theranos will pay Arizona consumers $4.65 million under a consumer-fraud settlement Arizona Attorney General Mark Brnovich negotiated with the embattled blood-testing company.

More than 175,000 consumers who purchased Theranos tests at Arizona retail locations since 2013 will be eligible for a refund from the restitution negotiated by Brnovich's office. Palo Alto, Calif.-based Theranos also will pay a $200,000 civil penalty, $25,000 in attorneys fees to Arizona and the cost of a claims administrator to distribute refunds to consumers.

The Arizona agreement comes one day after Theranos announced a settlement with the Centers for Medicare and Medicaid Services, resolving federal regulators' efforts to revoke that company's laboratory certificate after finding the company's operation in Newark, Calif., posed an "immediate jeopardy" to consumers.

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Under both the Arizona and federal settlements, Theranos agreed to a two-year ban from the blood-testing business. Theranos also agreed to pay a $30,000 civil penalty as part of the federal settlement.

Neither settlement affects the numerous civil lawsuits filed by consumers, investors and Theranos' former retail partner, Walgreens, in Arizona and other states.

In January, Brnovich's office published a notice soliciting bids for outside counsel for a legal action against Theranos for violations of the Arizona Consumer Fraud Act. However, the attorney general did not hire outside counsel, choosing to handle the case with his own staff.

"We had a company that we alleged violated the consumer fraud act," Brnovich said. "We thought it important to be proactive and aggressive in protecting Arizona consumers. My highest priority was making sure everybody who had a test received a full refund."

Arizona served as the main testing grounds for Theranos in 2013 when it began to roll out its unproven technology at Walgreens stores across metro Phoenix. The company opened 40 Theranos Wellness Centers in the Valley, and operated a laboratory at Arizona State University's SkySong office complex in Scottsdale.

Theranos also courted legislators and Gov. Doug Ducey, and the company successfully lobbied for a bill that allowed consumers to order any test without a doctor's orders. Ducey joined Theranos founder Elizabeth Holmes for a bill-signing ceremony at Theranos' lab in Scottsdale.

That happened before media reports and government regulators raised questions about the company's testing procedures.

Federal regulators eventually moved to revoke the company's laboratory certificate after finding multiple deficiencies at its California lab and evidence that some test results were inaccurate. They proposed to bar founder Elizabeth Holmes from the laboratory business for two years.

Last October, Theranos announced it would shut down its Scottsdale lab and its standalone retail locations. Walgreens had earlier shut down its Theranos locations.

Theranos, a privately-held company, was once valued at $9 billion based on investor beliefs that the company's finger-prick technology would revolutionize the lab-testing business. That was before it faced civil lawsuits from consumers, Walgreens and investors.

Brnovich said his chief concern was that Arizona consumers were reimbursed for the tests.

"Theranos may have not only had some erroneous test results, but they may have misread my rising blood pressure level as well," Brnovich said. "They said that about 10% of the results were inaccurate. The problem is, as an Arizona consumer, you don't know whether you were part of that class or not."

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