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Theranos: How Elizabeth Holmes Fooled Billionaire Idiots?

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Theranos: World’s Most Idiotic Investment Fraud!

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Background -Theranos

Theranos began as a Silicon Valley Startup of almost mythical proportions and goals in 2003.

It’s just an incredible morality tale. A woman once hailed as a Silicon Valley visionary had faced federal fraud charges.

Imagine building a company which everyone thought would change the world… but it ended up being one of the biggest frauds in the history of Medical Science, in the tunes of Billion Dollars.

Theranos, a company started in 2003, by a Stanford University dropout, Elizabeth Holmes was just that.

Previous examples of University dropouts making big in Silicon Valley like Mark Zuckerberg had given some additional boost to claims and dreams of Elizabeth Holmes, regarding some revolutionary vision making a dent in the field of Medical Science.

They fooled everyone, receiving over the US $ 600 Million of funding in the process.

What Theranos promised, was a revolutionary blood analyzer, which could run hundreds of blood tests, just from a finger prick, from the comfort of your own home.

However, this story isn’t one of the enormous success or inspiration.

This story is about deceit, fraud, manipulation, and a CEO who will stop at nothing to get her goal.

This is the story of Theranos, a company once worth of 9 Billion Dollars, and the story of how it came crashing down as one the worst disaster in Silicon Valley history.

What exactly was Theranos and how did it go so horribly wrong?

Part 1 – Elizabeth Holmes and The Rise of Theranos

Elizabeth Holmes belonged to a well-connected family with a rich history.

From a noticeably youthful age, she knew what she wanted in life.

She wanted to be a Billionaire.

At the age of 18 years, she went on a Stanford run tour in China, where she met a man 20 year senior called Sunny.

Sunny was an immigrant from Pakistan and had some success in the .com boom in 1999, pocketing 40 Million Dollars in the process.

He had what she wanted. Money and status of a successful entrepreneur.

Sunny would later play a crucial role in Elizabeth’s company.

From another trip to Asia, she witnessed the SARS outbreak.

From that point, she came to home incredibly determined to change the World.

Upon returning home, she didn’t leave her room for 5 days and slept for two hours at night, while working on the patent idea.

The idea was to create a wearable patch, which could continually test the blood of the wearer and admit the right dose of medicine in real-time.

Filtered determination, she dropped out of Stanford at the noticeably immature age of 19 years and started her own company.

The early days were not glamorous. Her first company office was in the part of town known for shootings.

One day, while traveling in her car, Elizabeth was shot at, with one bullet narrowly missing her. Despite this, she received finance of 1 million dollars from her old neighbour, who made some money investing in Hotmail.

Early on, Elizabeth rode on the reputation of her investors.

However, when it came to investors, which were specialized in medicine, she struggled to convince them as a lack of knowledge started showing.

It wasn’t a surprise because she had spent only a few semesters at University.

For a most tech entrepreneurs, this kind of obstacle was not a big issue.

For Example, Mark Zuckerberg only needed to master coding as a child and he could be struck it big with little university knowledge.

Whereas on the other hand medicine and chemistry require decades of knowledge and research to find the breakthrough.

Regardless, by the end of the year, Elizabeth has 6 Million Dollars in funding and her idea had changed.

Now, the blood testing would be done by cartridge and reader system.

Here is how it was supposed to work.

The patient would prick their finger, storing blood in a small cartridge called nano cartridge.

Pushing this cartridge into a machine would run the test.

The Theranos machine envisioned would perform tests on the spot and beam information via the internet to a laboratory, where the person would interpret the result and send the report back.

Traditionally, the current pathology industry procedure was to draw a syringe full of blood from the vein and physically send the samples to the pathology laboratory.

The old ways used large machines of the size of several business photocopiers and the results will take a few days to get back to the doctor.

Theranos wanted to tone down the components of these massive machines to fit into a box, of the size of a Personal Computer.

Theranos claimed to make this process faster, simpler and totally bypassed the need for a doctor.

In the procedure medical field, there are many components that are used to test blood, each of which performs a different type of tests.

For example, one test shoots the beam of light into the sample blood and measure the light reflected. While the other tests require chemical reactions.

Now, this was the big lie and the problem with Theranos. There were several issues, which made the Theranos machine impossible.

Firstly, the components will interfere with each other, when placed in proximity due to the magnitude of problems like heat, light, and electrical activity.

Next, due to the small amount of blood sample extracted from a prick of the finger, required dilution of the blood sample. Over diluted samples gave inaccurate results and were outside the capability of the hardware.

Therefore, to make this technology possible, Theranos had to make major breakthroughs on all fronts of blood analysis. They had to all this, by only reporting to Elizabeth, who really didn’t have the knowledge.

Theranos Momentum

Skipping forward to 2006, Theranos had some momentum and a prototype called 1.0.

Elizabeth enlisted the engineer to design the latest version of the machine called Edison.

However, in all fairness, no machine would ever be accurate or capable to perform a full range of tests that Elizabeth claimed.

Elizabeth started to push the engineering team manager to make Edison development to run 24×7.

When the manager protested as engineers were overworked as it is, Elizabeth hired a parallel engineering team and pitted the two teams against each other in a survival of the fittest race.

This kind of tactic Steve Jobs also used during the development of the Original Mac and the iPhone. But in Theranos’s case, the losing team would be fired.

Elizabeth also started doing ethically questionable things, such as running a pilot test on cancer patients, with the company Pfizer.

She knew the product didn’t work yet but insisted on running real tests on the people who were suffering from serious illnesses like cancer.

To highlight the severity of the issue, the blood test results are used to increase or decrease the dosage of medication or diagnose conditions, which may require immediate action.

Doctors use Path Lab results today with 70% of their decisions. If the lab results are false, then IT COULD BE FATAL!!

Of course, the only reason, the cancer patients’ blood trial tests went ahead, because Elizabeth had been outright lying to investors and the client about how well the product worked.

The same year the company’s Chief Financial Officer (CFO) discovered that Elizabeth had been lying and told her to stop. Instead of agreeing, she fired him on the spot and never hired a new CFO again, leaving the position vacant for almost a decade.

Next Steve Jobs?

In 2007, there was no bigger Silicon Valley star than Steve Jobs.

Elizabeth had started developing an obsession with jobs. An employee even found an cut out on the desk, where Elizabeth was predicted to be the next Steve Jobs.

The obsession of Elizabeth for Steve Jobs got converted to insanity.

After she found out that Steve schedule marketing meetings on Wednesdays, then even she would do the same.

She hired the same marketing firm that Steve used.

She would even recruit a few Apple employees.

One of these included Steve Jobs’ oldest friend and former senior vice president of software at Apple Avie Tevanian.

He even went out of retirement to join the Theranos Board.

The Theranos board was made up of a star-studded panel like Don Lucas, who mentored the founder of Oracle as the Chairman.

Once Elizabeth restructured the company’s share, which would her majority of voting rights.

Ex-Apple employee, who was also a member of the board, didn’t agree that it was an innovative idea and shared the information about the information he received from the employees, about the problems during testing.

He felt that he had to do something.

He discussed the problem with Don Lucas, the Chairman. But this resulted in Avie resigning after he felt that his advice fell in deaf ears.

Elizabeth had the board wrapped around her finger.

She was the master manipulator. She spoke in a low baritone voice to be taken more seriously. (video of voice manipulation, if available).

On many occasions, she forgot to put on the fake baritone voice and caught using her natural voice, before realizing and dropping several times. (Video of her speaking in natural tone)

Shortly after the company moved to the prime location of Silicon Valley, the new member of the sales team soon find out that the financial projections were based on the pilot tests that were not honest.

The issue was brought in front of the board, which resulted in an emergency meeting and decided to fire Elizabeth.

Two hours later, after the board summoned Elizabeth to tell her their decisions, she later convinced them to rethink their decision.

This incredible power of persuasion was the reason that Theranos went so far without real working technology.

Shortly after the meeting, Elizabeth fired those who raised the alarm. At this stage, the employees leaving or getting fired from Theranos was common.

In fact, all employees, who came from Apple, ended up leaving Theranos in a couple of years.

Around this time, old family friend Richard Fuisz created this passion for the method of transmitting information from blood testing machines to doctors.

When he did this, he was eventually spied and Elizabeth ever sought his advice, even though he was working on developing expertise in the same field of medical science.

He was a doctor, who sold his medical video company for 50 Million Dollars.

Within 3 years’ time, Richard approached the court for the patent he made.

In private, he was called the “Theranos killer”, although his patent didn’t kill Theranos, but his action would.

Sunny and More Lies.

By 2009, Sunny was the Millionaire boyfriend had also joined Theranos and was Second In Charge.

Sunny had a software background and had little knowledge of the working of the medical company.

He claimed to had written 10 million lines of codes, while in Microsoft but an average coder writes only 1000 codes in a year.

He also boasted to have extreme wealth and only came to the office because he wanted to.

He also had the habit of latching on to buzzwords and use them over despite having little knowledge on the topic, engineers would use terms out of context, to see if they continue to use them. He did. But sunny knew how to control people.

He was fear within the company. He constantly fired people and led his temper flared.

2010 saw a whole lot of money pouring into Silicon Valley.

Facebook, Twitter, and Uber were all taking off.

Meanwhile, Walgreen and Safeway had both entered in talks with Theranos to partner and create wellness centers.

They had sections in their stores, where patients could get their blood tests done.

Theranos presented 192 different blood tests, that could be performed by the Edison machine. However, only half of them were not even theoretically possible.

The only proof produced that technology worked was reviewing from John Hopkins Medical School.

The document was only two pages long and summarised the meeting with Theranos showing the University representative with some data results.

No actual testing was done on the actual machine called Edison. But Theranos was Hot Stuff and Walgreen had fear of losing out in the ever-competitive market race and leading the competitors to land in partnership with Theranos.

Elizabeth also demonstrated the impression in front of Walgreen and Safeway that they trusted every word she spilled out.

Combined Safeway and Walgreen combined gave 105 Million Dollars of loans to Theranos. Around this time, Elizabeth realized that Edison wasn’t good enough and so she commissioned the “Mini Lab”, the “Third Iteration” of the Blood Testing Product.

Meanwhile, Sunny intimated employees and watched CCTV footage to check how long they were working.

One time, he told employees, “Fix him!”, after he found that the employee worked only for 8 hours per day.

Elizabeth backed up Sunny’s decision of firing the employees, with reasons, “If anyone here believes that you are not working on the best thing humans have ever built or if you are cynical, then you should leave”.

Whoever believed Elizabeth got promoted and those who doubted got fired.

By 2012, Safeway wasn’t doing well. They had poured 350 Million Dollars into the renovation of all their stores, across all locations in anticipation of receiving the magical machines “Edison”.

But they met with constant delays and excuses.

When Theranos did start accepting Safeway’s Blood Samples, they were tested in third party blood testing machines, available commercially in the market and not through Edison.

But Safeway was lied to and was given the impression that all these tests were done on Theranos’s Edison machine.  

Beginning of the End?

Meanwhile the lawsuit from the family friend —— was in full swing. He was determined to bring Theranos down.

He hired the same lawyer who played a continually active role in the deposition case against Bill Gates.

He used to charge $ 1000 per hour.

The pivotal point of Therano’s downfall came with an investigation against Ian Gibbons, who was head of the Theranos Chemistry team in 2005.

On 20 May 2013, Ian was notified by Theranos Management that in just two days, he will be involved in Richard’s trial.

He feared that anything he might say may put the company in jeopardy and expose the lies.

He was leading a miserable professional life at Theranos and was just got demoted and feared at age of 57 years it will be impossible for him to get another job.

The next morning, he was found unconscious in the bathroom, by his wife Mitchell, due to an overdose of medication. Ian died a week later in the hospital.

Back in Theranos, in the display as coldest heart, Elizabeth didn’t return Mitchell’s call about the death of her husband.

Elizabeth informed a small number of employees about Ian’s death and hosting a memorial service, which never carried out. She just brushed off Ian’s death very casually.

After spending 2 Million Dollars on the case, Richard settled with a massive blow to his pride.

This will fuel the fire in Richard, which will eventually bring down Theranos.

During this period, Theranos continued carrying out Blood Tests in third party machines and desperately tried to get results. This includes stacking six minilabs on top of each other to get high throughput tests.

The additional heat generated hindered the accuracy of the tests further. But Theranos didn’t have time to work on their technology. They had already promised machines to the world.

They had us$ 140 Million contracts with Walgreen, which required to launch their machines by February 2013 and they were 4 months overdue. The lies continue.

The financial forecast that Sunny gave to the investors, was 10 times higher than the internal forecast of the company. These numbers were completely fabricated.

Theranos was operating without a CFO for the last 7 years, ever since he was fired. The Theranos board was always stacked with high-profile reputable names that no one ever doubted the company.

This included, former US Secretary of State Henry Kissinger, former director of the US Office of Management and Budget George Shultz and future Secretary of Defense Jim Mad Dog matters had all joined the board.

The company was very Politically connected by the stage. Elizabeth even threw Hillary Clinton the fundraiser for her 2016 campaign for US Presidential elections.

Money just kept pouring in. Partner fund to put the US $ 94 Million in shares.

Murdoch chipped in the US $ 125 Million.

The Walmart Brothers put the US $ 150 Million.

DeVos family had invested another US $ 100 Million.

This gave Theranos a total US $ 9 Billion valuations and Elizabeth alone was worth US $ 5 Billion!

The shortcomings in the company were known within the staff, but employees were too scared to do anything fearing retaliation from Sunny or Elizabeth or the company’s lawyers.

The employees were forced to sign the confidentiality agreement when they started and again, they left.

This stopped a lot of former employees from talking after quitting their job or take any sort of action.

Tylor Shultz, grandson of another board member George Shultz was in a more privileged position when he noticed the issue within the Theranos and after falling on Sunny and Elizabeth deaf ears, he quit.

He tried to talk to his Grandfather, then he told him about Edison’s inaccuracies and constant failure of Quality Control Tests.

He told him about how Theranos had doomed everyone by testing samples on existing Third-Party Commercial machines and not Theranos own Edison machines. Incredibly, Elizabeth had put such a spell on George Shultz that he would disregard everything his grandson Tyler had told him.

Elizabeth Meets Fame

In 2014 Fortune magazine released a front-page story titled “This CEO is out for Blood!”

This rockets Elizabeth to celebrity status and from this point, she is constantly making media appearances.

Forbes, USA Today, NPR, Fox Business, CNBC, CNN, and CBS News… all took their turn to cover the success story of “Youngest Ever Self-made Billionaire!”

Barrak Obama made Elizabeth the US ambassador for global entrepreneurship and she was added to the Board of Fellows at Havard Medical School.

Elizabeth enjoyed fame.

She grew her security team to 20. Her office was designed to look like the President’s Oval Office. Completely bulletproof oval glass.

Elizabeth had spoken a TED talk about her idea to change the world.

She said soon no one would have to say Goodbye too soon and went on to tell the audience a heartfelt story about how her uncle had died from Cancer.

But of course, the TED talk was merely an act and she was not even close to her uncle had exploited his death for her narrative.

Meanwhile, the cracks had beginning to crumble the empire. Richards by this time had created a gang of Theranos skeptics including Ian’s widow Rochelle.

They collected the information and then took it to John Kerry at The Wall Street Journal.

As John began investigating, many former employees came out in open.

They anonymously provided information about the story.

Theranos attacked everyone, who was talking.

They used their piles of money and they threatened to sue everyone else, who spoke to the Wall Street Journal.

They even hired private investigators to stalk anyone they suspected.

Several letters were sent to the Wall Street Journal to try and kill the story threatening with defamation lawsuits.

Rupert Murdoch, the owner of the Wall Street Journal and investor in Theranos, was asked by Elizabeth to personally kill the story.

He refused stating that he had confidence in their editors to handle the truth, whatever it may be.

The reaction from Theranos was intense and the story wasn’t even out yet, business as usual continued at Theranos.

Elizabeth was making White House appearances often, but then the veneer the machines could still only do a small number of tests and were even inaccurate would even just those.

Theranos continued to demonstrate the Minilabs VIP guests. They pricked their fingers and waited until they left.

Then went on to use existing commercial Third Party laboratory machines to return the results.

Vice President Joe Biden even paid Theranos a visit.

He was shown a fake lab that was set up just for the visit.

He was impressed saying that this was the “Lab of the Future” and praised Theranos.

The Final Bombshell Exposure

The dark truth of Theranos was unveiled in the Wall Street Journal article of 15 October 2015.

It was a bombshell. All the major news articles picked it up.

People began questioning Theranos and its secrecy. Elizabeth took Olina Stride, not shying away from the questions, but outlying lying to the public.

It appeared as she thought, everyone would just believe her again. But this time, it was different.

Now people were asking fundamental questions.

At the same time when the story was public, the FDA made a surprise inspection of their nose.

In further investigation, it was found that Theranos’s Edison Blood Testing machines, only performed about 12 out of 250 tests, and even those produced widely erratic results.

Now the Theranos was in full damage control. Elizabeth broke up with Sunny and fired him.

The criminal investigation was underway, the probe by the Securities and Exchange Commission was also proceeding.

The investors began suing Theranos, one after the other.

Partner Fund sued for US $ 100 Million, Walgreens for the US $ 140 Million.

Elizabeth had to close the trial laboratory and had to pay US $ 4.5 Million to Arizona State where most patients had received testing.

Theranos had voided nearly a million test results.

10 patients would sue Theranos for medical battery.

But shockingly, amongst all of this, Elizabeth never apologized.

It seemed to her merely a mistake, which could be fixed easily.

So, both Elizabeth and Sunny were aware of what they were doing.

Lying to investors, clients, regulators, patients, and even their own board members.

No one outside could be blamed for not realizing the fraud ahead of time.

Even the board, made up of seasoned professionals were masterfully manipulated and giving Elizabeth 99.7% of voting rights.

She seemed by all accounts a sociopath, willing to stop at nothing to make her company a success.

Not caring about who or what comes her way. and who knows, how far this lie could have gone.

She continued with all smiles and lies, even after the truth came out.

Elizabeth’s actions could be a microcosm a case for a modern problem in society, where the need to be successful or at least appear successful outweighs everything else.

There is possibly another fault at play, Here a fault in the Human condition.

It’s the illusionary effect, where if you repeat a lie enough times, people start to believe it.

Especially, if you have credible names surrounding the product.

SEC settled with Elizabeth Holmes in March 2018.

She lost voting control, had to give away her portion of the stock, and was banned from being an officer or a director of any public company for 10 years.

Sunny, still hasn’t reached the settlement with SEC. 

To be continued…

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