The Legendary Fall of Theranos

[Kaitzilla]

There is so much meat in this story, it is being made into a movie starring Jennifer Lawrence in 2019.
Elizabeth Holmes, founder and CEO of Theranos, is the female supervillian of our age.

The whole story was gradually uncovered by WSJ reporter John Carreyrou and turned into a bestseller book Bad Blood.
https://www.amazon.com/Bad-Blood-Secrets-Silicon-Startup-ebook/dp/B078VW3VM7

It started with the idea to get a blood test done with a small amount of blood instead of the huge amounts currently required.
This revolutionary idea, which lead to a $9 billion company, didn't quite work.

But Elizabeth Holmes kept telling investors that it did.
For 10 years.

This is the story about how all the smartest people, investors with billions of dollars, and workers kept the business going for a bit over a decade on tech that didn't work.

The fraud was blatant back in 2006.
https://www.kqed.org/futureofyou/442098/book-excerpt-one-execs-tumultuous-last-day-at-theranos

Elizabeth was back from Switzerland a few days later. She sauntered around with a smile on her face, more evidence that the trip had gone well, Mosley figured. Not that that was unusual. Elizabeth was often upbeat. She had an entrepreneur’s boundless optimism. She liked to use the term “extra-ordinary,” with “extra” written in italics and a hyphen for emphasis, to describe the Theranos mission in her emails to staff. It was a bit over the top, but she seemed sincere and Mosley knew that evangelizing was what successful startup founders did in Silicon Valley.

You didn’t change the world by being cynical.

What was odd, though, was that the handful of colleagues who’d accompanied Elizabeth on the trip didn’t seem to share her enthusiasm.

Some of them looked outright downcast.

Did someone’s puppy get run over? Mosley wondered half jokingly. He wandered downstairs, where most of the company’s sixty employees sat in clusters of cubicles, and looked for Shaunak. Surely Shaunak would know if there was any problem he hadn’t been told about.

At first, Shaunak professed not to know anything. But Mosley sensed he was holding back and kept pressing him. Shaunak gradually let down his guard and allowed that the Theranos 1.0, as Elizabeth had christened the blood-testing system, didn’t always work. It was kind of a crapshoot, actually, he said. Sometimes you could coax a result from it and sometimes you couldn’t.

This was news to Mosley. He thought the system was reliable. Didn’t it always seem to work when investors came to view it? Well, there was a reason it always seemed to work, Shaunak said. The image on the computer screen showing the blood flowing through the cartridge and settling into the little wells was real. But you never knew whether you were going to get a result or not. So they’d recorded a result from one of the times it worked. It was that recorded result that was displayed at the end of each demo.

Mosley was stunned. He thought the results were extracted in real time from the blood inside the cartridge. That was certainly what the investors he brought by were led to believe. What Shaunak had just described sounded like a sham. It was OK to be optimistic and aspirational when you pitched investors, but there was a line not to cross. And this, in Mosley’s view, crossed it.

So, what exactly had happened with Novartis?

Mosley couldn’t get a straight answer from anyone, but he now suspected some similar sleight of hand. And he was right. One of the two readers Elizabeth took to Switzerland had malfunctioned when they got there. The employees she brought with her had stayed up all night trying to get it to work. To mask the problem during the demo the next morning, Tim Kemp’s team in California had beamed over a fake result.

Mosley had a weekly meeting with Elizabeth scheduled for that afternoon. When he entered her office, he was immediately reminded of her charisma. She had the presence of someone much older than she was. The way she trained her big blue eyes on you without blinking made you feel like the center of the world. It was almost hypnotic. Her voice added to the mesmerizing effect: she spoke in an unusually deep baritone.

Mesmerizing CEO with a deep voice, heh.
Lying to investors though?
Well, you have to fake it to make it right?
With their money, the technology could be made to work!

If Elizabeth shared any of these misgivings, she showed no signs of it. She was the picture of a relaxed and happy leader. The new valuation, in particular, was a source of great pride. New directors might join the board to reflect the growing roster of investors, she told him. Mosley saw an opening to broach the trip to Switzerland and the office rumors that something had gone wrong. When he did, Elizabeth admitted that there had been a problem, but she shrugged it off.

It would easily be fixed, she said.

Mosley was dubious given what he now knew. He brought up what Shaunak had told him about the investor demos. They should stop doing them if they weren’t completely real, he said. “We’ve been fooling investors. We can’t keep doing that.”

Elizabeth’s expression suddenly changed. Her cheerful demeanor of just moments ago vanished and gave way to a mask of hostility. It was like a switch had been flipped. She leveled a cold stare at her chief financial officer.

“Henry, you’re not a team player,” she said in an icy tone. “I think you should leave right now.”


There was no mistaking what had just happened. Elizabeth wasn’t merely asking him to get out of her office. She was telling him to leave the company—immediately. Mosley had just been fired.

You don't question the boss!
USA #1 runs on lies and cooked books.

Not only did he get fired, they stripped him of his shares for viewing porn on his work computer 1 time months earlier.
Vengeful!

The whole thing escalated when CEO Elizabeth Holmes was herself almost terminated 2 years later in 2008, but she sweet talked the board into keeping her.
https://work.qz.com/1285831/therano...mes-may-be-our-first-true-feminist-anti-hero/

It’s 2008, and Elizabeth Holmes is about to be removed as CEO of Theranos, the blood-testing startup she founded. Don Lucas, chairman of Theranos’ board, has convened an emergency meeting with the other directors to discuss concerns about Holmes’ revenue projections, which seem highly unrealistic. Holmes is waiting outside Lucas’s office. When the four men call her in, it’s to tell her that she has proven too young and inexperienced for her title.

“But then something extraordinary happens,” John Carreyrou writes in Bad Blood: Secrets and Lies in a Silicon Valley Startup. “Over the course of the next two hours, Elizabeth convinced them to change their minds. She told them she recognized that there were issues with her management and promised to change. She would be more transparent and responsive going forward. It wouldn’t happen again.”

What does her voice sound like?
It sounds like this.

But her voice was probably also fake?
http://www.dailymail.co.uk/news/art...voice-secretly-dated-COO-20-years-senior.html

Over and over again, anyone who questioned the technology were fired or if powerful, threatened into silence.
https://www.wsj.com/articles/theranos-whistleblower-shook-the-companyand-his-family-1479335963

After working at Theranos Inc. for eight months, Tyler Shultz decided he had seen enough. On April 11, 2014, he emailed company founder Elizabeth Holmes to complain that Theranos had doctored research and ignored failed quality-control checks.

The reply was withering. Ms. Holmes forwarded the email to Theranos President Sunny Balwani, who belittled Mr. Shultz’s grasp of basic mathematics and his knowledge of laboratory science, and then took a swipe at his relationship with George Shultz, the former secretary of state and a Theranos director.

“The only reason I have taken so much time away from work to address this personally is because you are Mr. Shultz’s grandson,” wrote Mr. Balwani to his employee in an email, a copy of which was reviewed by The Wall Street Journal.

Mr. Shultz quit the same day. As he was leaving Theranos’s headquarters in Palo Alto, Calif., he says he got a frantic cellphone call from his mother, who told him Ms. Holmes had just called the elder Mr. Shultz to warn that his grandson would “lose” if he launched a vendetta against the blood-testing startup.

Threatening the powerful Schulzs

She gave a TED talk in 2014, at Theranos' peak.
The TED talk people took the full video down.

The climate was so bad at Theranos, that employees were forbidden from speaking or writing to each other.
And testing was done by other companies so the results could be kept secret.
One lead scientist killed himself!
http://www.dailymail.co.uk/news/art...laws-one-prick-blood-test-killed-himself.html

And in all came crashing down in 2015 when Wal Greens couldn't get the blood testing machines to work and a WSJ reporter started digging.
https://arstechnica.com/science/201...ettles-140m-walgreens-suit-for-less-than-30m/

In court filings, Walgreens alleged that Theranos had broken all its promises and “failed to meet the most basic quality standards and legal requirements” of their partnership.

How did reporters get fooled for over 10 years?
They couldn't help it.
https://www.forbes.com/sites/matthewherper/2018/05/31/elizabeth-holmes-superpower/#40aa150919ef

Avie Tevanian, one of Steve Jobs’ closest friends, was on Theranos’ board and suggested there was a need to bring in some adult supervision because of Holmes’ management style. It was suggested he resign, and he did, not wanting the trouble of a fight with the company.

The most dramatic example is the case of former Secretary of State George Schulz, who seemed more willing to believe Holmes than his own grandson, Tyler Schulz. At the Forbes Under 30 Summit last year, I interviewed Tyler about the experience. He, too, remembered Holmes’ strangely convincing presence. One imagines it was this capacity that led big investors like Rupert Murdoch and Betsy DeVos to invest in Theranos without any proof the technology worked. It’s not that she was so good onstage, but that in private she could find a way to shift a person’s opinions.

This was all catalyzed, Carreyrou shows, by Holmes’ then-boyfriend and behind-the-scenes enforcer, Sunny Balwani, who would routinely “disappear” employees who were starting to have doubts by firing them. Eventually, whistleblowers like Tyler Shultz tipped off Carreyrou and federal regulators. The house of cards came crashing down. I like to think it would have happened even if Carreyrou had received a call from Holmes, instead of mere threats from her lawyers. But I’m sort of glad she never called him, and that in the end, she was vulnerable to facts.

A reporter scared to talk to someone because they are too charismatic.

Holmes was recently stripped of her shares, fined $500,000, and ordered not to be a leader at a company for 10 years.
Investor's lost about $500 million.
No jail time, and she is currently looking for investors to start a new company.


There is a whole lot more, but T.L.D.R. Elizbeth Holmes is my new anti-hero.
Trump is 2nd best now.

 

[Kyriakos]

Hm, how did she avoid jail time when she was selling tests that actually didn't test for the stuff she claimed?

I also am not seeing why this needs a movie.

I dislike J. Lawrence as well & her voice sounds nothing like that ceo anyway.

 

[Valka D'Ur]

Since the OP has spoiled the ending, we don't actually need to see the movie, then.

 

[Kaitzilla]

Hm, how did she avoid jail time when she was selling tests that actually didn't test for the stuff she claimed?

I also am not seeing why this needs a movie.

I dislike J. Lawrence as well & her voice sounds nothing like that ceo anyway.

Wow, so she was indicted today with criminal charges.
Not sure why the investigation took 2.5 years.
https://www.nytimes.com/2018/06/15/health/theranos-elizabeth-holmes-fraud.html

The indictment charges each defendant with two counts of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and nine counts of wire fraud, in violation of 18 U.S.C. § 1343. If convicted, the defendants face a maximum sentence of twenty (20) years in prison, and a fine of $250,000, plus restitution, for each count of wire fraud and for each conspiracy count. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

She also stepped down as CEO of Theranos today.

 

[dutchfire]

Wow, so she was indicted today with criminal charges.
Not sure why the investigation took 2.5 years.

Doesn't seem unreasonable. Prosecutors probably had to read a decade worth of internal communication.

 

[civvver]

Yeah this story is insane, it's almost like the bernie madoff of blood testing or something where you just question how it could take so long for someone to call her on her bs. The sad part is most of her meteoric rise was enabled due to family connections to wealthy politicians. I don't know all the names, you can google it or read stories like this one

https://www.nytimes.com/2015/12/20/...aces-a-test-of-technology-and-reputation.html

but a big reason she got so much startup capital and stuff was cus her father knew senators. She had a few on her board. It just points even more to the aristocracy we live under. Ultimately I don't care that much about the defrauded investors but she scammed us the people, anyone who ever got their blood tested with one of these machines and anyone who pays health insurance premiums to a company who has used a lab that used the machines.

 

[Kyriakos]

Yeah this story is insane, it's almost like the bernie madoff of blood testing or something where you just question how it could take so long for someone to call her on her bs. The sad part is most of her meteoric rise was enabled due to family connections to wealthy politicians.