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Journalism of Courage
A California jury has sentenced former billionaire and Silicon Valley celebrity Elizabeth Holmes, founder of the failed start-up Theranos Inc. that promised to detect a range of diseases just by testing a few drops of a patient’s blood, to 11 years in prison for investor fraud and conspiracy.
It is a rare conviction for a high-flying tech executive, and a stern warning for go-getting start-ups that are often accused of following a cynical ‘fake it till you make it’ philosophy to attract eye-popping valuations.
The 38-year-old Holmes — once hailed as the “female Steve Jobs” for her purported vision, dynamism, and her penchant for black turtlenecks — has to report to prison on April 27. As per media reports, Holmes wept before the judge as she accepted responsibility for her actions.”I regret my failings with every cell of my body,” she said.
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On January 3, Holmes was found guilty on three counts of wire fraud and one count of conspiracy to commit wire fraud, each of which carries a jail term of up to 20 years. However, her lawyers had requested a maximum term of 18 months of home confinement. They indicated that she might appeal the verdict.
Elizabeth Anne Holmes was raised in Washington DC and California in a wealthy family with a medical and entrepreneurial background. In his 2018 book ‘Bad Blood: Secrets and Lies in a Silicon Valley Startup’, John Carreyrou, the Pulitzer-winning journalist who exposed the fraud at Theranos in an investigation published in The Wall Street Journal in late 2015, described Holmes as an ambitious child who “set out to design a time machine”, and who spoke of wanting to be a billionaire early in life.
Holmes began studying chemical engineering at Stanford in 2002 and started Theranos, which was initially named Real-Time Cures, the following year. In March 2004, she dropped out of university, and Theranos was incorporated soon after. Holmes was 19 years old at the time.
The start-up went on to attract more than $900 million from a galaxy of international investors. In 2014, the company was valued at $9 billion, and the following year, before the reports by Carreyrou appeared, Forbes put Holmes at the top of its list of America’s Richest Self-Made Women, with a net worth of $4.5 billion.
The promise of Theranos was simple and dazzling: Holmes claimed to have developed tests that could identify dozens of ailments ranging from high cholesterol and high blood sugar to liver dysfunction and cancer from just a couple of drops of blood drawn from a finger prick at any ordinary pharmacy.
The minimal amount of blood collected in “nanotainer” tubes would be analysed in a Theranos (“therapy” + “diagnosis”) lab on a portable analysis machine named Edison (after the American inventor best known for commercially popularising the incandescent bulb).
Carreyrou described Theranos co-founder Shaunak Roy demonstrating the technology: “Shaunak would prick his finger and milk a few drops of blood from it. Then he would transfer the blood to a white plastic cartridge the size of a credit card. The cartridge would slot into a rectangular box the size of a toaster. The box was called a reader. It extracted a data signal from the cartridge and beamed it wirelessly to a server that analysed the data and beamed back a result.”
It was an innovation that appeared to have the potential to utterly revolutionise medical diagnostics — it could slash costs and provide flexibility to an unprecedented extent (a 2014 report in the New Yorker said while a typical cholesterol test could cost upwards of $50, a Theranos test at Walgreens would be just $2.99), and Holmes hard-sold the advantages of early diagnosis and treatment evocatively: “We see a world in which no one ever has to say, ‘If only I’d known sooner.’ A world in which no one ever has to say goodbye too soon.”
The pitch worked spectacularly. Investors in Theranos included media mogul Rupert Murdoch, Donald Trump’s Secretary of Education Betsy DeVos, Walmart heiress Alice Walton, venture capitalist Tim Draper, Oracle co-founder Larry Ellison, Mexican business magnate Carlos Slim, and several senior US military officials.
The company’s board of directors boasted of a long line of distinguished names that lent it legitimacy — among them, former US Secretary of State Henry Kissinger, Bill Clinton’s Secretary of Defense William Perry, Ronald Reagan’s Secretary of State George Shultz, Gen Jim Mattis, who went on to serve as Trump’s Secretary of Defense, and former Senate majority leader Bill Frist.
As Barack Obama’s Vice President, Joe Biden visited a Theranos lab in California in 2015 and described Holmes’s achievements as “amazing” and “an inspiration”.
Even as Theranos was hailed as a health-tech breakthrough, suspicion was brewing in the medical community due to the lack of transparency around its technology, and the marked absence of peer review in science journals.
After Carreyrou’s report in the WSJ alleged that the company was diluting blood samples and subjecting them to traditional tests instead of using the promised “Edison” machines, many stories emerged of the company defrauding customers, and of issues with the US Food and Drug Administration, which had never entirely approved the tests.
In 2016, Forbes lowered its estimate of Holmes’s net worth to “nothing”. On March 14, 2018, the US markets watchdog, Securities and Exchange Commission (SEC), charged Theranos, Holmes, and the company’s former president Ramesh “Sunny” Balwani with “raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance”.
Holmes agreed to pay a penalty of $500,000 and to return the 18.9 million shares that she obtained during the fraud. Her indictment for fraud was announced in June, and Theranos was dissolved in September 2018.
Balwani, now 56, was at one time romantically involved with Holmes, but who subsequently accused him of emotionally abusing and controlling her. Balwani was found guilty of fraud on July 7 and awaits sentencing.
Holmes’s trial was delayed by the Covid-19 pandemic, and began in San Jose, California, in September 2021. After over 7 days of deliberations, the jurors returned guilty verdicts on four of the eleven charges.
In its 2018 statement, the SEC had said “the Theranos story is an important lesson for Silicon Valley… Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”
The New York Times wrote that the case “came to symbolize the pitfalls of Silicon Valley’s culture of hustle, hype and greed”. It noted that “frenzied…investors fighting to get into hot deals…often ignor[ed] potential red flags about…the companies they were putting money into”.
“In recent years, tales of start-up chicanery, from the bungled initial public offering of WeWork to the aggressive boundary-pushing tactics of Uber, have not slowed the flow of money toward charismatic founders spinning tales of business success. Those downfalls captured the public’s attention, but did not result in criminal charges,” The NYT wrote.
The trial, said The Washington Post, “opened a window into the secretive world of Silicon Valley start-ups, granting a rare peek into a place where CEOs rarely stand for trial and companies often skirt regulatory consequences”.
