The rise and fall of the blood testing startup Theranos turned the tech world upside down and captured the attention of millions beyond Silicon Valley, inspiring multiple books, documentaries and a television series.
Theranos set out to revolutionize the medical testing space, reaching a valuation of $10bn before the capabilities of its core technology were revealed to be largely fabricated. Now, its founder and former leader, Elizabeth Holmes, is about to face the music.
Holmes, 37, is facing trial in a California courtroom, charged with defrauding Theranos’s patients and investors. She could spend up to 20 years in prison, and has pleaded not guilty.
“This is a bellwether case,” said Jason Mehta, a Florida attorney with expertise in federal fraud cases in the health industry. “It has emerging technology and the typical marketing bravado of a startup, all in the crosshairs of the federal criminal justice system.”
Holmes dropped out of Stanford University in 2003 at the age of 19, filing a patent for a technology that could perform a large range of tests with just a small amount of blood such as from a fingerprick. Allegedly inspired by a fear of needles, the young founder claimed she wanted to revolutionize the medical industry and eliminate the need for large blood samples for diagnostics.
Holmes began to promote the technology publicly around 2013, and quickly became a media darling, finding herself on the covers of magazines including Forbes and Fortune. The company attracted big-name board members, including the former US secretary of defense James Mattis, former US secretary of state George Shultz and former US secretary of state Henry Kissinger, adding to the hype and giving the company an air of legitimacy.
Holmes became the world’s youngest female self-made billionaire in 2015 and at the time was compared to the Apple co-founder Steve Jobs, whom she idolized and attempted to emulate with her uniform of black turtlenecks.
“Here was a photogenic, telegenic young woman posing as the female Steve Jobs,” recalled Margaret O’Mara, a historian of Silicon Valley who holds a professorship at the University of Washington. “It was an incredibly alluring narrative that everyone wanted to believe.”
The ruse began to fall apart when, in 2015, a series of Wall Street Journal articles revealed most of the tests Theranos claimed it was carrying out with its proprietary Edison machines were actually being conducted elsewhere. Meanwhile, tests being conducted on the Edison machines had inconsistent and often inaccurate results.
After scrutiny from regulators, Theranos started to retract its tests, recall its machines, and ultimately collapsed. Holmes stepped down as CEO in 2018 June and the company dissolved in September of that same year.
Theranos and Holmes settled with the US Securities and Exchange Commission (SEC) after the agency charged her with an “elaborate, years-long fraud”. She paid a $500,000 penalty in an agreement that did not require her to admit or deny the charges.
But Holmes and her former business partner Ramesh “Sunny” Balwani, with whom she was romantically involved, also faced criminal charges brought by the United States.
‘Limits to bullshitting’
Holmes and Balwani were charged with defrauding both investors and patients, making false claims about the effectiveness of the company’s blood testing technology between 2010 and 2015.
“Despite representing to doctors and patients that Theranos could provide accurate, fast, reliable, and cheap blood tests and results, Holmes and Balwani knew that Theranos’s technology was, in fact, not capable of consistently producing accurate and reliable results for certain blood tests,” the indictment read.
The government also alleged the pair defrauded investors by presenting ambitious revenue projections of $1bn in 2015. “In truth, Holmes and Balwani knew that Theranos had and would generate only modest revenues, roughly a few hundred thousand dollars or so in 2014 and 2015,” the indictment stated.
Theranos’s rise, and its spectacular fall, have been seen as a wake-up call for an industry that has long lived by an ethos of “fake it until you make it”, said John Carreyrou, an investigative reporter who published the first articles casting doubt on Theranos in 2015 and now hosts a podcast called Bad Blood: The Final Chapter.
“If she’s convicted and does significant prison time, it’s going to be a shot across the bow to venture capitalists and startup founders in the Valley that there are limits to how much bullshitting you can do,” he said. “There is a limit to how much exaggerating and hyping you can do, and how many rules you can break.”
The ‘empty chair’ defense
Holmes was initially set to face a jury in March 2021, but the trial kept getting postponed. First it was rescheduled because of the pandemic, then because Holmes was due to give birth. (She welcomed her first child with her partner, the hotel heir Billy Evans, on 5 August.)
Set to take place in San Jose, just 20 miles from where the glitzy headquarters of Theranos once stood in nearby Palo Alto, it is now scheduled to start on 31 August.
Already, observers are gearing up for fireworks. According to filings, potential witnesses to be called include high-profile investors such as Theranos former board members Henry Kissinger and Jim Mattis, the Fox Corp chairman Rupert Murdoch, and Riley Bechtel, the former chairman of Bechtel Corp.
Jurors can expect to hear from doctors who used the tests on their patients and from patients misled by Theranos results. Those include a woman whose test results falsely signaled a miscarriage despite a healthy pregnancy, a man who was falsely indicated to have prostate cancer, and two others who received false positive HIV test results.
The government has to prove intent, a high burden, said Barbara McQuade, a former prosecutor and law professor at the University of Michigan. Holmes’s lawyers could attempt to confuse the jury or cast doubt on her intent to defraud. She said creating confusion can be a “useful tactic” on cross-examination to try to trip up witnesses and attack the government’s arguments.
“If the jury can’t understand the case, then they can’t return a guilty verdict, because it’s the government’s burden to prove each and every element of each offense beyond a reasonable doubt,” she said.
Balwani, 56, faces his own trial in February 2022. And that, too, could be to Holmes’ advantage, some experts say.
“There is a real advantage to having defendants severed like this, which is that the attorneys can point to the ‘empty chair’,” said McQuade. “In that strategy, they can say it was all Sunny, and the jury could acquit Elizabeth Holmes.”
Lawyers for Balwani have called Holmes’s allegations “outrageous, salacious and inflammatory”. Attorneys for Holmes did not respond to a request for comment.
‘She is rolling the dice’
Holmes is likely to take the stand, according to court filings. Typically criminal defense lawyers advise their clients not to do so, but this is anything but a typical case, said Carreyrou. He guesses that it is likely she will “go against the grain” and testify.
“Holmes has got an extraordinary tolerance for risk, because to pull off what she pulled off – going live with a blood testing device that didn’t work – that takes chutzpah,” he said. “And now, when most people would have plead out, she has chosen to take this trial to court. She is rolling the dice.”