Theranos played the bankruptcy card in a class-action against the company, but it was a bad play that derailed a proposed deal.
In documents unsealed in Delaware Chancery Court, investors said the company threatened to file for bankruptcy protection if they didn't accept a deal to dismiss their claims. A Theranos lawyer tried to pressure Partner Investments LP and two other funds, which invested more than $96 million in the company, to accept more equity instead.
According to reports, the plaintiffs said Theranos' attorney "sent the unmistakable message" that the company would declare bankruptcy if the investors turned down the deal. The plaintiffs then discovered that Theranos engineered the deal to make it impossible for the funds to obtain "any recovery."
Judge Travis Laster has stopped the proposed deal for now and set a hearing on the matter for June 26.