The indictments, on nine counts of wire fraud and two counts of conspiracy to commit wire fraud, completes the startup's fall from Silicon Valley darling to cautionary tale.
The founder of a USA start-up that promised to revolutionise blood testing has been hit with criminal charges.
Holmes and Balwani allegedly knew of the product's faults when they pitched their services to doctors and patients, but continued to try and sell the incredible powers of their analyzer, which they referred to as the TSPU, Edison, or minilab, to users and investors.
The government says Ms. Holmes' blood testing method not only had reliability and accuracy problems, but was also slower and less capable than existing methods.
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Peter Henning, a former senior attorney in the enforcement division of the SEC, said Theranos' statement came close to breaking a stipulation in its agreement with the SEC that prohibits it from denying the agency's allegations.
"Ms Holmes remains with the company as founder and chair of the board", the statement said.
Holmes's departure as CEO marks the end of a saga that began when she dropped out of Stanford as a 19-year-old sophomore to found Theranos.
Lawyers for Holmes did not respond to requests for comment.
Jeffrey B. Coopersmith, Balwani's attorney, said in a statement his client "committed no crimes". "Mr. Balwani looks forward to trial because he did not defraud anyone, and it will be an honor to defend him vigorously", he said. In reality, Theranos's analyzer had a far more limited application than it led investors to believe, and the company fudged results for years by using commercial analyzers from other companies to secretly run tests.
The Wall Street Journal reported in April that Theranos would cut its workforce "from about 125 employees to two dozen or fewer", according to sources familiar with the matter.