Worst Part of Theranos Scandal Isn't SEC Fraud

It's duping actual patients, writes Bloomberg columnist
By John Johnson,  Newser Staff
Posted Mar 15, 2018 9:40 AM CDT
Things May Get Worse for Elizabeth Holmes
Elizabeth Holmes in a 2015 file photo.   (AP Photo/Jeff Chiu, File)

She was the first female founder of a Silicon Valley startup to become a billionaire before it all came crashing down. Now Elizabeth Holmes' personal fortune is gone, and she has just settled with federal regulators who say her company, Theranos, lied to investors about its supposedly revolutionary blood-testing equipment. Holmes, 34, forfeits control of the company, is barred from serving as an officer or director of any public company for a decade, and must pay $500,000, reports the AP. And her troubles may be just beginning. The Wall Street Journal reports that she still faces a criminal investigation being led by the US attorney's office in San Francisco. Details and developments:

  • The biggest lies: BuzzFeed runs down the seven biggest Theranos lies, and they revolve around one central one: claims that its "special machine could run hundreds of blood tests on just a few drops of blood." A stunt involving Walgreens, a former partner, is illustrative. Theranos collected blood samples from Walgreens execs but processed those samples in outside lab equipment. The wowed Walgreens execs, however, were led to believe the blood was processed on the Theranos equipment in the meeting room, per BuzzFeed.

  • Her idol: Holmes always wore black turtlenecks, and this "homogenity" in clothes is a trait she borrowed from Steve Jobs, her idol, wrote Nick Bilton in a 2016 Vanity Fair piece. Holmes also borrowed some of Jobs' business techniques, including keeping employees "siloed," essentially blocking workers in one department from communicating with those in another.
  • Rise and fall: CNN has a quick timeline of Holmes' ascent and downfall. Consider that on Oct. 12, 2015, the New York Times named her one of its "Five Visionary Tech Entrepreneurs Who Are Changing the World." Just four days later, the first major expose surfaced—an investigative story in the Wall Street Journal by John Carreyrou.
  • Book and movie: Journalist Carreyrou's book on the company will be out later this year, per Axios, and Jennifer Lawrence already is lined up to portray Holmes in the movie based on it.
  • Not even close: The SEC complaint says Theranos execs boasted that their devices were used on battlefields in Afghanistan and that the company was on track for $100 million in revenue in 2014, per Vanity Fair. "In truth, Theranos' technology was never deployed by the US Department of Defense and generated a little more than $100,000 in revenue from operations in 2014," notes the SEC.
  • Worst part: Matt Levine at Bloomberg writes that duping investors with bogus claims is bad, but "building a fake blood-testing company that performs fake blood tests on thousands of people is much worse, even if it doesn't count as securities fraud." The company had to void two years of results over the scandal.
  • The lesson: Holmes generated years of fawning press and attracted the likes of former secretaries of state Henry Kissinger and George P. Shultz to her board. "This whole episode should be a cautionary tale," writes Julia Belluz at Vox. "If a secretive tech company is claiming to revolutionize an entire industry with technology that still hasn't been validated, be skeptical."
(More Theranos stories.)

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