Lesson Time: Theranos

The story of Theranos is an amazing one, and a good parallel to some things occurring today. It’s filled with lessons. These types of stories people should always remember, as they are not that rare (Enron, Bernie Madoff, and many other frauds committed by large companies and others). I hear many people say these days: how could you fool that many people, it’s been years we would know by now, trust the, there are too many people involved for them not to know or say anything, etc. etc. Theranos was a startup biotech health company formed in 2003 that claimed to use blood from a finger prick, as opposed to a blood draw from a vein, to perform hundreds of blood tests (1). Elizabeth Holmes was the CEO of that company. It operated for 13 years, until the masses caught on that it was all a fraud (2).

The first person schmoozed by Elizabeth Holmes was her Stanford Professor, who actually quit his job to work at Theranos. He called Elizabeth a genius (3). By 2006 the company had raised $40 million from investors, including almost $6 from Rupert Murdoch. His net worth is currently $21.7 billion and he’s the 71st richest person on Earth. She was great at schmoozing. Elizabeth then brought George Schultz, former Secretary of State, in to recruit these high level people to be on the board of Theranos (not limited to):

• Henry Kissinger: former Secretary of State
• Jim Mattis: 4 star general, former head of U.S. Central Command who later became Defense Secretary
• Bill Frisk: former U.S. Senator
• Sam Nunn: former U.S. Senator

They believed what they were told by Elizabeth and the company (4). So did investor Larry Ellison, net worth $97 billion, making him the 10th wealthiest person on Earth. Theranos used Larry Ellison when refusing to share financials with investors, by using his stature to say, why are you asking for the financials, you’re not brighter than Larry Ellison. Who are you (5)?

After raising money, the company began to add new scientists, such as Erika Cheung, who was originally star struck by Elizabeth Holmes the first time she met her (3). Erika, and her fellow scientists, would come to realize in time how secretive it was at the lab. The more Erika Cheung learned, the more she wondered why Theranos higher ups were being so secretive (6). Almost every day she told the upper brass the blood testing device was not working right. She would send emails to colleagues complaining of all this, until one day the COO of Theranos, Sunny Balwani, responded to them. He had not been CCed or BCCed in these emails. Erika found that concerning, but she also noticed things the scientists said in the lab privately with one another would be reiterated to them as well. She felt as if they were being treated as if they could potentially be traitors (7).

Still, not many were really the wiser to what was occuring at Theranos. Holmes at the time was lobbying to change the law so anyone can get easy access testing in Arizona, as the company had secured a deal to be present in Walgreens. She was doing press conferences with the Arizona Governor, Doug Ducey. Everyone just kept on assuming it was legitimate (8). What was really going on behind the curtain was that Theranos would collect the blood at Walgreens and send it to a lab in Palo Alto, CA because their blood testing device was so unreliable. In the lab they used modified 3rd party machines and diluted the blood. There were many instances they knew they made a mistake and they would not let the scientists tell patients to get a redraw because they didn’t want people to know the errors that were occurring (9).

Erika got pushback from everyone in the company as she went higher and higher up. They told her it wasn’t the technology’s fault. Elizabeth said so much as well. The fault was due to the employees and not the technology, she stated. Sunny said to Erika you need to decide if you want to work here and test patient samples without question. Erika quit. She started working there in 2013 and quit in 2014. How many scientists and people kept working for Theranos, even though they knew what they were doing was wrong and the company was lying (10)?

Elizabeth Holmes and Sunny Balwani fooled most everyone, including Walgreens, and the fooling would continue. Rupert Murdock invested another $100 million, The Walton Family, of which Rob, Jim, and Alice collectively have $212 billion in wealth, invested $150 million, and the DeVos Family, worth $5.4 billion, invested $100 million. This all brought Elizabeth’s net worth to $4.5 billion at the time and Theranos’ valuation to $9 billion at the time (11).

By summer of 2014 Holmes was everywhere. She was featured on the front page of Inc., Forbes, Fortune, and Bloomberg magazine. In 2015, she met with former U.S. President Bill Clinton at the 2015 Clinton Global initiative where he interviewed her. She also received praise from now current U.S. President Joe Biden, saying Theranos’ laboratory was “the laboratory of there future” after being brought in and shown a fake laboratory. You read that right, they set up a fake laboratory and fooled Joe Biden. She was fooling everyone, including the best, brightest, and wealthiest left and right.

As this was going on, the company had a problem. People were beginning to speak up. Erika felt like she was crazy until she was aware other people were talking about Theranos issues (12). Sunny wrote texts to Elizabeth saying, I’ve worked this down to 5 people. “We will nail this mother f*****. (13)” After this takes place, Erika realizes a private investigator is tailing her all over town. One day a guy jumps out of the tinted window SUV and hands her a letter addressed to her at friend’s place, where she has been living. She was just staying there temporarily, no one could have known that address. The letter accuses her of defamation and discussing trade secrets. It threatens a lawsuit against her and David Boies, a high powered prominent lawyer working for Theranos, had signed it.

It goes from bad to worse for Theranos as the Wall Street Journal (WSJ) proceeds to launch an attack. Holmes quickly gets on TV and says she’s shocked by the allegations in the WSJ article. She keeps lying, at least somewhat believing her own nonsense. She calls the WSJ Journalist a sexiest bully, and she plays the victim. She threatened the journalist and WSJ with litigation. Sunny also threatened the doctors that spoke to this journalist on record and tried to get them to recant. Holmes and Sunny were actually the real bullies (14).

Eventually, it didn’t end well for Holmes. She gets banned from running a lab for 2 years, but she says the company will not fold. She was wrong. Theranos eventually dissolve in 2018. Holmes and Sunny were indicted on wire fraud. Holmes is found guilty, even though she tried to blame many others at the trial, of 4 counts of defrauding investors. Holmes will be sentenced later in 2022. Sunny is awaiting trial.

One more insane detail about the Theranos/Elizabeth Holmes saga is that apparently she was using a fake deep voice the entire time. In a 2005 interview she’s heard using her normal voice briefly, until she remembers to use her fake deep voice. The lengths people will go to lie for their own greed and fame is astounding (15). Watch the American Greed episode on Theranos & Elizabeth Holmes if you need to see it to believe it.

IMPORTANT LESSONS:

• (1) When you hear something that’s too good to be true, it probably is.
• (2) Theranos fooled most everyone for 13 years and kept their fraudulence under wraps. The company was well known. It just proves you can fool many a long time until it’s reported widely by the media, or until the masses catch on and accept the change.
• (3) Don’t look at people as idols, especially scientists. This will muddy your ability to critically think as you will become enamored with someone or a technology or just an idea and be swallowed into the lie instead of realizing it.
• (4) Don’t blindly believe what you’re told. Researching fairly and honestly is important. How many people blindly believed Elizabeth Holmes for more than a decade without doing their due diligence to the best of their ability?
• (5) Always a big red flag is when authority is brought up instead of information, reasoning, etc. Don’t stand for it. Talk about ideas, facts, data, well reasoned opinion and make the person you’re arguing with do the same.
• (6) Trust your instincts. If there is a veil of secrecy around something and it doesn’t make sense as to why, there is probably something wrong.
• (7) If you’re being treated in an intimidating way to get you from speaking the truth, do something about it. It’s not always easy, but nothing worth doing ever is.
• (8) Don’t assume something is legitimate because smart people believe it. In this situation they were lies to and blindly believe the narrative, fooled by a con, causing more people to be fooled by association.
• (9) Big red flag, when profits and valuation matter more than the patients. You can’t do that in the health industry when someone’s health is at risk, but it’s not exactly uncommon. One reason why you can’t blabber “trust the science” so confidently because there are ulterior motivations for people and corporations.
• (10) Being a good foot soldier and never questioning anything, not what I’m about, nor Erika. Good for her! Why should she just shut up and continue to do what’s wrong (and really evil)? Unfortunately, most do not stand up to what’s wrong, and even for Erika, it took her a long time. … Lies will lead to the questioning of everything. An unintended consequence of our current times not yet fully realized I have no doubt.
• (11) This notion that you can’t fool a lot of people once an idea, belief, and groupthink takes hold is nonsensical. It’s easier than one would think. Elizabeth Holmes fooled billionaires left and right, the press, all her investors, prominent people like Bill Clinton and Joe Biden, etc. etc.. Everyone was enamored with her and her technology. Too blinded by the lights to see the truth.
• (12) It takes a while for people to speak up, and it takes a lot for them to do it. They risk a lot. Erika lost her job, got threatened, etc. She had to go against the grain, where the grain thought Elizabeth Holmes was amazing and her company Theranos has amazing technology. These people will even question themselves as if reality isn’t reality, like Erika did, because they feel so alone and on an island, while everyone else, or at least the majority, plus the media, believes something else that the mainstream believes is reality.
• (13) When someone who is lying feels threatened, they will come after you. Which is partly why so many are scared to speak up with the lies and wrong things they see.
• (14) Liars sometimes have convinced themselves of the lie they’re spouting. Sometimes they will also name call when backed into a corner, instead of discussing the facts or accusations. This is a red flag as well. Those who can’t enter into the conversation are probably hiding something or know they’re wrong. The ones pretending there is bullying by others are often the bullying/censoring types. We see a lot of bullying and censorship going on this day in age.
• (15) Many people and corporations will do whatever they can to obtain fame and profit. Always remember that, and don’t underestimate it.