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Who Is Elizabeth Holmes? What Is the Theranos Fraud Trial?

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Elizabeth Holmes, now on trial for fraud, was CEO and founder of Theranos, a healthcare technology company.

Elizabeth Holmes, now on trial for fraud, was CEO and founder of Theranos, a healthcare technology company.

Bad Blood: John Carreyou Exposes Healthcare Fraud

Elizabeth Holmes’ company Theranos produced a blood testing machine that appeared to be a game-changer in the field of healthcare. Their revolutionary device was claimed to be quick and accurate. The finger-prick test machine was allegedly able to test for multiple medical conditions in a few minutes using just a tiny sample of blood. A similar series of tests using existing technology takes days or even weeks to get the same results.

But Wall Street journalist John Carreyou smelled a rat. There was no independent research to support the claims of Elizabeth and her then boyfriend Ramesh "Sunny" Balwani, and the company was very secretive about its operations. Over a period of several years John Carreyou investigated the company and their innovative product.

In 2015, writing in the Wall Street Journal, he exposed a sophisticated scam that had fooled stockholders and delivery partners. He also published the story as Bad Blood: Secrets and Lies in a Silicon Valley Start-Up, and showed that Theranos defrauded not just experienced investors, but also put the health of members of the public at risk. At the time, Elizabeth Holmes was feted by Silicon Valley as the youngest female self-made billionaire in the world. She was just 19-years old.

A Bigger Scandal Than Enron

The fraud worked because the idea of a speedy blood test and analysis is a good one. Many people find having blood samples taken is painful and uncomfortable. A fingerstick test could lead to more timely diagnoses as it avoids using a syringe and needle to take blood. There is also the issue of having to wait for several days for results with conventional testing methods.

An invention that created a low cost, pain-free, quick and easy alternative to multiple blood tests would be wonderful. Investors in Theranos wanted to believe in this new fingerstick test product. They also knew there could be big returns if they invested early in what sounded like a revolutionary machine. Once invested, they closed their minds to any small doubts that may have surfaced. It took a brave whistle-blower to stand-up before the complex scam was eventually exposed.

History is littered with people who have lost money or their jobs by backing the wrong tech company. What makes Elizabeth Holmes and Sunny Balwani’s fraud more devastating than tech-scandals like Enron, is that Theranos is a bio-tech company (a healthcare company using technology to advance medical care). People’s health as well as greedy investors’ bank accounts have been harmed by this scam.

An article by John Carreyou in the Wall Street Journal (2015) revealed the full extent of the damage caused by Ms. Holmes. She lied about the capabilities of her machine. Patients were given medication based on their false blood test results. As a result, some were misdiagnosed and given the wrong therapy. More than a million blood tests have been voided or corrected since the fraud was exposed.

Bad Blood Author Carreyrou On Elizabeth Holmes And Theranos

Theranos Silicon Valley Wonder-Kid

  • 2003 Elizabeth Holmes creates Theranos, a bio-technology company.
  • 2010 Start-up company valued at US $1 billion.
  • 2013 Walgreens offers in-store blood tests using Theranos technology.
  • 2014 Theranos valued at US $9 billion.
  • 2015 FDA (Food and Drug Administration) gives approval for Theranos’ fingerstick blood testing device for the herpes simplex virus.
  • 2015 Theranos awarded Bioscience Company of the Year by AzBio.
  • 2015 Elizabeth Holmes tops Forbes list of America’s Richest Self-Made Women with a net worth of $4.5 billion.

The Bubble Bursts

  • 2015 Article in Wall Street Journal alleges Theranos’ blood testing machine is a fraud.
  • 2016 Walgreens sues Theranos for breach of contract. (Out of court settlement reached in 2017).
  • 2016 Forbes reduces its estimate of Ms. Holmes’ net worth to zero.
  • 2016 40% of the company’s workforce is laid off.
  • 2017 Arizona Attorney General sues Theranos over fraudulent blood tests.
  • 2017 Another 40% of Theranos staff lose their jobs.
  • 2018 Prosecution by SEC (Securities and Exchange Commission) for massive fraud.
  • 2018 Theranos nears bankruptcy after penalty payments.
  • 2021 Elizabeth Holmes trial starts in September. Prosecution lists 12 felony counts.
  • 2022 Ramesh Sunny Balwani’s trial begins in January for same fraud charges.

SEC (Securities and Exchange Commission) Prosecutes Holmes and Balwani

After an investigation lasting more than 2 years, the SEC found sufficient evidence to prosecute Theranos, its CEO Elizabeth Holmes. and its former President Ramesh Baldwani for fraud. The basis for the prosecution was that their ground-breaking blood-analyzing machine is a myth. The claimed technology did not (and still does not) exist. It is a figment of Elizabeth and Sunny’s imagination that was kept alive by secrecy and false promises.

The SEC found a culture of fake results and fear operating within Theranos. These broken values allowed Theranos to continue for years to attract additional investment and to deceive the media and public. Any queries or doubts raised by employees about the product were denied by the Board. Dissent was stifled. Only total loyalty to a fake reality was allowed. Workers were subjected to threats of job loss and prosecution for breach of confidentiality agreements.

Was Elizabeth Manipulated by Sunny?

Elizabeth Holmes is a credible, charismatic character who used her inherited trust fund monies to start a bio-technology company. She dropped-out of college to follow the business model set by her idol Steve Jobs (creator of Apple Inc.) She nicknamed Theranos' blood-testing system, "the iPod of healthcare". She even dressed like Jobs, wearing a black turtle-neck sweater similar to his. But unlike Apple, her company was built on an unrealistic dream that required fake news to sustain it.

She used friends and contacts to build an impressive list of investors. She is tech-savvy, but she is not a scientist. Her investors know about the business world, but they showed considerable naivety with regard to clinical protocols necessary to prove efficacy of medical procedures. Some might say they got their just deserts. But there are innocents harmed by this fraud too; the patients that were given incorrect blood test results.

Several civil and criminal prosecutions are currently in progress. Both Elizabeth Holmes and her ex-boyfriend Ramesh “Sunny” Balwani are defendants jointly and severally in these trials. Sunny Balwani denies all charges related to the scam, and has distanced himself from Elizabeth Holmes and Theranos. Mr Balwani’s trial will begin in January 2022.

The age and wealth gap between the two defendants mean that Holmes’ attorney is arguing that Balwani was the prime mover in the fraud, and that Elizabeth was the gullible party. Sunny is 20 years older than her, and was already a multi-millionaire when they met in 2009. She alleges that she was subject to sexual and emotional abuse and that this affected her judgement.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

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