Elizabeth Holmes and the Theranos Blood Test Fraud: The Story So Far

Elizabeth Holmes’ company Theranos produced a blood testing machine that appeared to be a game-changer in the field of healthcare. The revolutionary analyzing 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. Current technology takes days or even weeks to get the same results.

But Wall Street journalist John Carreyou smelled a rat. The claims appeared were too good to be true. There was no independent research to support the claims of Elizabeth and her then boyfriend Ramesh "Sunny" Balwani, and the company was secretive about its operations. Over a few years John Carreyou investigated the company and their product. He revealed a sophisticated scam built on secrets and lies that had fooled investors and delivery partners.

The Inventor: Out for Blood in Silicon Valley tells the story of how Elizabeth Holmes fooled experienced business people, and put the public’s health at risk. At just 19-years old, she became the youngest ever female self-made billionaire in the world.

She and Sunny Balwani now face long prison sentences and hundreds of thousands of dollars in fines if convicted at a Federal trial due to start in August 2020.

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.

2015 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 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 Penalty payments reduce Theranos to near bankruptcy.

2019 The company ceases to exist and its assets are liquidated.

2019 Initial Federal Court Hearing for fraud by Holmes and Balwani.

2020 Court Trial scheduled to start in August.

Greedy investors and desperate patients wanted to believe in a blood test which claimed to deliver almost instantaneous results. For many people having a blood samples taken is a painful and uncomfortable experience. A fingerstick test like the one promoted by Theranos avoids using a syringe and needle to take blood. It also provides a timelier diagnosis unlike conventional methods where a patient may wait days or weeks for results. This new fingerstick test was potentially a life-changing invention.

If the claims made were true, this low cost, pain-free, simple alternative to multiple blood tests was a game-changer. Investors in Theranos knew there could be big returns if they helped to finance the further development of this 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 was 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 Silicon Valley fraud.

An article by John Carreyou in the Wall Street Journal in 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 falsified 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 deception was exposed.

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 was a myth. The claimed technology did not (and still does not) exist. It was 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.

There are currently several civil and criminal law suits in progress. The main Federal prosecution trial is scheduled to begin in August 2020 and is expected to last a minimum of three months.

Patients that received false blood test results and were given incorrect treatment as a result are also pursuing private prosecutions for the fraud. Both Elizabeth Holmes and her ex-boyfriend Ramesh “Sunny” Balwani have pleaded not guilty to the allegations, but the volume of evidence from the prosecution points to a guilty verdict being found against these con-artists.

Sunny Balwani denies all charges related to the scam and has distanced himself from Elizabeth and Theranos. However, the age and wealth gap between the two mean that some argue Mr Balwani was the prime mover in the fraud, and that Elizabeth was the gullible party. He is 20 years older than her and was already a multi-millionaire when they met in 2009. The arguments of the defense and prosecution attorneys in this case should be interesting to follow.

Elizabeth Holmes cultivated a strong, charismatic business image. She used her inherited trust fund monies to start Theranos, a bio-technology company, after dropping out of Stanford University. She idolized Steve Jobs (creator of Apple Inc.) and modeled her business plan on his. She nicknamed her diagnostic start-up company's blood-testing system "the iPod of healthcare". She dressed like Jobs, wearing a black turtle-neck sweater similar to his. She even deepened her voice so that she would sound more like him. But unlike Apple Inc., Theranos was built on lies, fake news and an intimidated workforce.

Holmes used family and friends to build an impressive list of investors. These included prominent politicians and billionaire businessmen. Elizabeth was tech-savvy with a rudimentary knowledge of science. Her shareholders knew about the business world, but showed naivety regarding the clinical protocols necessary to prove efficacy of medical procedures. Theranos was a bio-medical start-up and some might say investors got their just deserts; caveat emptor, (buyer beware.)