Was Elizabeth Holmes a Fraud from the Start? Inside Her Rise and Fall
Elizabeth Anne Holmes is the tech superstar that almost was. Her public profile and the value of her health technology company, Theranos, skyrocketed based on the promise of breakthrough technology capable of evaluating a single drop of blood.
Great press and wealthy investors helped position Theranos as a potential game changer in the medical and tech industries — until it all came crashing down. Theranos has now been dissolved, and Holmes faces an impending court date for fraud in 2020. Did everything somehow go horribly wrong, or was Holmes a fraud from the start? Let’s take a look at the facts leading up to her rise and fall.
Born to Succeed
Elizabeth Holmes was born in Washington D.C. in 1984. Her parents were successful, career-oriented individuals who likely had similar hopes for their daughter. Her father, Christian Rasmus Holmes IV, was an executive at Enron, a huge company that collapsed in 2001 after an accounting scandal cost its shareholders billions of dollars. (Anyone see the irony?) He also worked as an executive for the United States Trade and Development Agency, the EPA and other government organizations.
In Her Blood
Holmes' interest in technology began when she was a high school student in Houston, Texas. As a teenager, the future tech entrepreneur worked with a tutor in Mandarin Chinese and attended a summer language program at Stanford University in California.
Engineering School Dropout
In 2004, Holmes decided she had learned all she could from Stanford. She dropped out of school and used her tuition money to start a tech company that focused on consumer healthcare. The company, Real-Time Cures, was founded in Palo Alto, California, that year.
The Birth of Theranos
Later in 2004, Holmes changed the name of her company to Theranos, a name now permanently rooted in scandal. The name came from combining "therapy" and "diagnosis" to form a whole new word. Holmes rented out the basement of a group college house to set up her new company.
The Sincerest Form of Flattery
Some of Holmes' colleagues claim she put on a good act most of the time. Her speaking voice was low, calm and sounded like the voice of authority, but some claim that was always fake. On the other hand, her family members insist her natural speaking voice is truly a deeper alto, and her tone wasn’t deliberately designed to hide deception.
Fear of Needles
According to Holmes, her fear of needles inspired her to start the company. The technology she claimed to invent would have eliminated the need for needles and syringes to collect blood samples for testing. In fact, Holmes claimed her blood testing technology only required a single drop of blood.
Star Power Board of Directors
Former Secretary of State George Shultz joined the Theranos board of directors in 2011. It only took two hours for Holmes to convince Shultz that her company was about to revolutionize the home healthcare industry. The previous year, she had accumulated close to $100 million in venture capital.
Walgreens Deal or No Deal
In 2010, Theranos announced a partnership with Walgreens, the second-largest pharmacy chain in the United States. The deal with the giant retailer allowed Theranos to open blood sample collection centers inside store locations throughout the U.S.
Theranos and CEO Elizabeth Holmes operated in stealth mode. Besides not having a website, the company didn’t issue a single press release until 2013. The general public knew very little about the company. Despite this, Holmes was able to generate a lot of press in high profile publications like Forbes and Wired.
A Rising Star
Holmes became a media darling in 2014. She appeared on the covers of Inc., Fortune, Forbes and T Magazine. Forbes recognized her as the world's youngest self-made female billionaire. The magazine also ranked her at number 110 on its "Forbes 400" that year.
By the end of 2014, Elizabeth Holmes had her name on 18 patents in the U.S. and 66 foreign patents. By 2015, she had secured deals with Capital BlueCross, Cleveland Clinic and AmeriHealth Caritas. These deals allowed them to use the medical testing technology developed by Theranos.
The Beginning of the End
A journalist for The Wall Street Journal, John Carreyrou, began digging into Theranos after receiving a tip. A medical expert contacted Carreyrou to inform him there was something fishy about the company’s blood testing technology.
To say Holmes wasn’t happy with the impending story would be a huge understatement. Her lawyers threatened legal action against Carreyrou and his sources, but that did not stop the story. The Wall Street Journal published the truth in October 2015.
Holmes went on the defensive and appeared on television to refute the claims made in the bombshell article. Insisting that she was on course to change the world, Holmes promised to publish the company’s data on the accuracy of its blood sample tests.
In January 2016, the Centers for Medicare and Medicaid Services inspected one of the Theranos labs in Newark, California. They found irregularities that raised alarms and compelled them to issue a warning to Holmes to take care of the problems found during their inspection.
More Trouble for Holmes
The CMS ban preventing Theranos from operating for two years wasn’t the only punishment handed out in 2016. The agency also banned Holmes from operating a blood testing service, also for a term of two years.
Walgreens wasn’t the only retailer who reversed course on Theranos when word got out about the company’s shady testing practices. Safeway was an early partner who put a huge chunk of capital into offering blood tests in locations throughout the United States. The company spent $350 million to open these centers in 800 stores.
More Relationships Soured
Corporate partner Walgreens investigated deceptive practices on the part of Holmes and Theranos. In particular, Theranos claimed its blood tests were used on trial patients for drug companies Pfizer and GlaxoSmithKline. This was pure puffery, and no such projects existed.
Good News from the FDA
Despite these setbacks and other clear warning signs about the company, Theranos continued to partner with other companies to provide blood testing technology. In 2015, the Cleveland Clinic partnered with Theranos to allow the med tech company to test in their labs.
The Walls Started Closing In
Despite some minor successes in 2015, the company's troubles began to snowball rather quickly. Criminal investigations were soon underway at both the U.S. Attorney's Office for the Northern District of California and the U.S. Securities and Exchange Commission to look into the company’s practices.
The SEC lawsuit filed in 2018 was the most aggressive legal action against Theranos and Holmes up to that point. The commission alleged that Theranos made claims about its medical technology that were demonstrably false. The suit also alleged that Theranos misled its shareholders when it claimed to have brought in $100 million in revenue in 2014.
More Bad News
In 2016, as a result of mounting legal troubles, Theranos began eliminating staff. In October of that year, the company fired 350 people. Early in 2017, it fired another 155 employees, followed by more than 100 the next year.
Crime Doesn't Pay
In 2018, an investigation launched more than two years prior by the U.S. Attorney’s Office in San Francisco led to an indictment. Both Holmes and Theranos COO Ramesh Balwani were indicted on nine counts of conspiracy-related charges.
Prison Terms Await
Elizabeth Anne Holmes and Ramesh "Sunny" Balwani face up to 20 years in prison if found guilty at their trial set for the summer of 2020. One possible defense the pair may consider, according to Bloomberg News, is to blame the media for their downfall.
Scamming the Rich
It’s still a bit of a mystery how Elizabeth Holmes was able to convince investors to pony up a total of $700 million dollars to help fund her medical technology company. She somehow pulled it off without ever providing them with financial statements verified by an outside accounting firm.
The SEC alleges that Holmes and Balwani made many false claims to investors. It’s hard to determine which lies were worse than others, but one particular claim stands out. According to the SEC, the two Theranos execs told investors the company's blood testing technology was being used on the battlefields of Afghanistan.
Some of the early Theranos investors and board members include well-known names in government and Silicon Valley. Henry Kissinger and George Shultz, both former Secretaries of State, served on the Theranos board. Former Secretary of Defense James Mattis helped the company find investors. Oracle co-founder Larry Ellison, venture capitalist Tim Draper and media mogul Rupert Murdoch were also investors in Theranos.
How Did This Happen?
What led to massive deception on such a grand scale? Why were otherwise savvy businesspeople and former government officials so easily convinced they were investing in a game-changing technology? Did glowing profiles of Holmes in publications like The Wall Street Journal, Wired and Fortune contribute to this deception?
Edison Burns Out
Holmes' claims that her groundbreaking Edison blood testing machine could run multiple tests on one drop of blood were false. Ambitiously named for inventor Thomas Edison, Theranos spent millions developing it, but it failed.
The Final Chapter
The final outcome remains to be seen. Theranos is dead, but will Holmes get another chance? It's likely she will never escape the taint from this scandal, and she will probably spend years behind bars. Maybe she will be partially vindicated if someone actually invents technology to run multiple tests on a single drop of blood.