Balwani, 53, and Holmes, 34, are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud.
Federal prosecutors indicted Holmes on criminal charges Friday afternoon, alleging that the Theranos founder defrauded investors, doctors and patients with their micro-blood-testing service that never really existed.
Shortly before the indictments were announced on Friday, the company said that Holmes would step down as chief executive officer.
"This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives", Special Agent in Charge John F. Bennett said in a statement. David Taylor, the company's general counsel, will take over as CEO.
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Investors were subjected to further falsehoods when Holmes and Balwani told them their company had a profitable and revenue-generating relationship with the Pentagon, and that Theranos' system had been deployed to the battlefield, when in fact the firm had "limited revenue" from military contracts and its technology hadn't seen the field of battle.
Regulators claim that at the same time, Holmes was using the company's glowing profile in the media to raise more money.
Since then, she has been seeking funding for a new venture, a Wall Street Journal reporter who wrote about numerous company's controversial activities told the magazine Vanity Fair. The SEC alleged that she had lied and exaggerated for years about what the company's technology could do.
"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.