I've been reading about this case recently, and just started Bad Blood: Secrets and Lies in a Silicon Valley Startup, by John Carreyrou.
I vaguely remember being aware of Theranos a few years back, but didn't really follow it much. In retrospect, the scale of what happened is huge, and I can't believe she got away with so much for so long.
For those who, like me, were mostly out of the loop – Theranos was a biotech company, founded by a young woman called Elizabeth Holmes, who became a major rising star in Silicon Valley. Theranos promised to revolutionise blood testing, by providing consumers with cheap, fast, and reliable access to health data using an at-home device. With just a finger prick sample, it could purportedly be used to analyse a whole range of different health conditions.
At its peak, Theranos had a valuation of some $9 billion, with Holmes herself commanding a net worth of around $1 billion.
Sadly, it was all complete bullshit, and she was a sociopath.
It all started falling apart in 2015, when John Carreyrou of The Wall Street Journal questioned the validity of Theranos' technology. He published a book (the one I'm reading now), which details the incredibly elaborate scam. Theranos was made defunct in 2018 and Holmes was reduced to a net worth of zero. She and former company president Ramesh "Sunny" Balwani were charged with "massive fraud" by the SEC. Both now face enormous fines, and up to 20 years in prison.
A jury selection for the trial will commence on 28th July 2020 and the trial will start in August 2020. Below is a public statement from the Northern District of California, for anyone who's interested in more detail.
Elizabeth Holmes and Ramesh “Sunny” Balwani are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. According to the indictment, the charges stem from allegations that Holmes and Balwani engaged in a multi-million-dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients. Both schemes involved efforts to promote Theranos, a company founded by Holmes and based in Palo Alto, California. Theranos was a private health care and life sciences company with the stated mission to revolutionize medical laboratory testing through allegedly innovative methods for drawing blood, testing blood, and interpreting the resulting patient data.
Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos’s blood testing laboratory services, even though, according to the government, the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests. It is further alleged that the tests performed on Theranos technology were likely to contain inaccurate and unreliable results.
The indictment alleges that Holmes and Balwani defrauded doctors and patients (1) by making false claims concerning Theranos’s ability to provide accurate, fast, reliable, and cheap blood tests and test results, and (2) by omitting information concerning the limits of and problems with Theranos’s technologies. The defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests, including the tests for calcium, chloride, potassium, bicarbonate, HIV, Hba1C, hCG, and sodium. The defendants nevertheless used interstate electronic wires to purchase advertisements intended to induce individuals to purchase Theranos blood tests at Walgreens stores in California and Arizona. Through these advertisements, the defendants explicitly represented to individuals that Theranos’s blood tests were cheaper than blood tests from conventional laboratories to induce individuals to purchase Theranos’s blood tests.
According to the indictment, the defendants also allegedly made numerous misrepresentations to potential investors about Theranos’s financial condition and its future prospects. For example, the defendants represented to investors that Theranos conducted its patients’ tests using Theranos-manufactured analyzers; when, in truth, Holmes and Balwani knew that Theranos purchased and used for patient testing third party, commercially-available analyzers. The defendants also represented to investors that Theranos would generate over $100 million in revenues and break even in 2014 and that Theranos expected to generate approximately $1 billion in revenues in 2015; when, in truth, the defendants knew Theranos would generate only negligible or modest revues in 2014 and 2015.
The indictment alleges that the defendants used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors. Specifically, the defendants claimed that Theranos developed a revolutionary and proprietary analyzer that the defendants referred to by various names, including as the TSPU, Edison, or minilab. The defendants claimed the analyzer was able to perform a full range of clinical tests using small blood samples drawn from a finger stick. The defendants also represented that the analyzer could produce results that were more accurate and reliable than those yielded by conventional methods – all at a faster speed than previously possible. The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false. For example, it is alleged that Holmes and Balwani knew that the analyzer had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines.
The indictment charges each defendant with two counts of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and nine counts of wire fraud, in violation of 18 U.S.C. § 1343. If convicted, the defendants face a maximum sentence of twenty (20) years in prison, and a fine of $250,000, plus restitution, for each count of wire fraud and for each conspiracy count. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553. Both defendants are currently out of custody.