Theranos: The Denouement
July 9, 2018 10:44 PM   Subscribe

Since last we checked in the SEC (Bloomberg, settlement pdf) had a go at Theranos, Elizabeth Holmes and Ramesh Balwani, followed by federal prosecutors indicting her on criminal fraud charges (Vox).

Theranos raised over $700 million from investors on claims that it could develop means for 1000+ blood tests from a single fingerprick.  In point of fact they were running no more than a dozen on their own technology, with the bulk coming from third party equipment or even being outsourced to other commercial labs.  They staged labs with unusable 'second generation' equipment to deceive investors on tour and ran the company with with almost pathological secrecy.  Family connections, a big-name board of directors, and a Walgreens contributed to the hype and Holmes' stake ballooned to $4.5 billion, though she never cashed in any equity her estimated net worth is now zero (Forbes).

The fawning press coverage was of the sort typical of Silicon Valley 'innovators' and tolerant of the 'fake it till you make it' culture (Wired) that ultimately didn't survive when confronted with human biology and an active regulatory agency.  The story was originally broken by WSJ reporter John Carreyrou (On The Media podcast.)
posted by mark k (47 comments total) 17 users marked this as a favorite
 
Good!
posted by Going To Maine at 11:09 PM on July 9 [5 favorites]


I hope they throw the book at her/them
posted by chason at 11:36 PM on July 9 [3 favorites]


Yeah, it's (plural) them, not just her. I garbled a couple parts of the post, but both are indicted.

Theranos was apparently languishing before Balwani came president (he'd been informally advising Holmes before that.) That seems when the behavior went from dishonest to bald-faced fraud. This isn't meant to reduce the culpability of Holmes one jot, just want to make sure they both are properly credited for their contributions.
posted by mark k at 11:44 PM on July 9 [5 favorites]


I was already on the fuck Tim Draper wagon, but his comments about how it was the media that cause this indictment, with the implication it was Carreyrou who attacked them and made them commit fraud, blew my mind. It really drove home that these people have to wake up everyday and make terrible choices, but then drive themselves to believe that these choices were somehow morally just and right. He could have shut up, he could have just said I know her and she's a good person, or really any other pablum.
posted by Carillon at 12:03 AM on July 10 [8 favorites]


I'm not sure if Tim Draper is a con man or just desperately trying to save what little reputation he has left as an investor. Or maybe just another shitty VC blinded by the next big thing.
posted by Foci for Analysis at 2:29 AM on July 10 [1 favorite]


According to a recent article in Vanity Fair, Holmes is raising money for a new company.
posted by chavenet at 2:54 AM on July 10 [1 favorite]


John Carreyrou's book on this whole mess - "Bad Blood" - is amazing. Reads like a novel, and you wouldn't believe it was true if you didn't already know it was true.

After reading it, I walked away less frustrated by the media over the whole thing. Not to say they didn't drop the ball on coverage of Holmes and the company, but the extent to which Theranos went to lie, deceive everyone, and maintain the fiction of what they were doing was absolutely stunning.
posted by NotMyselfRightNow at 4:00 AM on July 10 [16 favorites]


I see Holmes as an unusually successful common variety con-artist. The people whose reputations should be utterly destroyed are the board members. Their entire job is to prevent this kind of thing. In a rational world it should lead investors to thoroughly question the qualifications and expertise of all big name board members.
posted by srboisvert at 4:29 AM on July 10 [5 favorites]


it could develop means for 1000+ blood tests from a single fingerprick

human biology

I think this is the part that gets me. The things they were supposed to be testing for — metabolites, etc — were known not to be found in accurate concentrations in the capillaries in your finger tips, right?

Like it was a known medical fact that the thing they said they were doing was flatly impossible?

That sort of makes it less about one big lie perpetuated by a few people and more of a group effort, where everyone was in because they thought they would make money.

Literally physically impossible! And yet they assembled the kind of board you assemble if you’re trying to be a defense contractor.

These people were able to perpetuate a nakedly absurd fraud solely on the basis of their connections to powerful people. And now she’s doing it again? Again, the writers don’t really trust their audience.

“How do we show that, like, their society and economy is hopelessly corrupt?”
“Idk, name a fake healthcare company after literal death? And just make it, like...really fake. Like obviously fake. Like physically impossible.”

Sometimes I think the writers are getting depressed. If her next company is called “Gaslit” or some such shit, we’ll know.
posted by schadenfrau at 4:32 AM on July 10 [14 favorites]


Last month I saw a Holmes profile on my Linked In feed. The story went into great detail about Holmes' cultivation of her image and the depth of deception Theranos engaged in. I was really blown away by how brazenly this organization bilked its investors and business partners.

Reading the Linked In comments was just as illuminating. You wouldn't believe how many MBA bros read it as a hit piece and stepped in to defend Holmes.
posted by TrialByMedia at 4:55 AM on July 10


Holmes sounds like she may have a bright career ahead of her in government, assuming that things keep going as they are now.
posted by acb at 4:58 AM on July 10 [2 favorites]


Seconding John Carreyrou's book, it's a good read.
posted by peeedro at 5:05 AM on July 10 [1 favorite]


Holmes is apparently really good at social engineering. Far too often business reporting functions as uncritical cheerleading, especially when it comes to technology companies and/or Silicon Valley entities. The only wonderful thing for me about this story is that WSJ reporter John Carreyrou (who knows about biology) noticed that the emperor probably had no clothes and started investigating. (To be fair, I think it was a Vanity Fair profile that triggered his interest in the company.)

That a VC like Draper is angry at the journalist and not Holmes is unsurprising; dudes like him are used to largely uncritical press. Also, dudes like him have profited from an arrogance that leads them to believe that they know best on any given subject. In an interview with Carreyrou, the reporter talked about how different Theranos was from standard-issue Valley startups. He talked about how techbros (my term, not his) did not appreciate or understand the huge difference between developing a minimum viable product and cranking it out and improving it over time in a non-healthcare setting compared to producing a product/process that is under the jurisdiction of the FDA and that, if done badly, can kill people. If I understand correctly, there may be people who got their blood tested by Theranos using diluted samples (because pinprick not enough!) whose results are suspect but who cannot all be traced and informed that they need new tests. TL;DT: fuck Holmes, her boyfriend, Draper, and the board.
posted by Bella Donna at 5:15 AM on July 10 [9 favorites]




Just be glad that Theranos wasn't able to gather all of the Infinity Stones or we'd be really screwed. Well, half of us, anyway.
posted by Servo5678 at 5:29 AM on July 10 [5 favorites]


I don't know whether it's just the recent time dilation but it seems like Theranos took *forever* to go from "this is obviously fraud" to "charges are being pressed". There would be the occasional headline like "Theranos just raised another X million" looong after everyone knew the whole thing was bullshit.
posted by Jpfed at 5:31 AM on July 10 [2 favorites]


Reading the Linked In comments was just as illuminating. You wouldn't believe how many MBA bros read it as a hit piece and stepped in to defend Holmes

Let me guess: it was "biased"
posted by thelonius at 5:51 AM on July 10 [1 favorite]


The biggest smile I got out of the Theranos story was reading about Cass Grandone, an Abbott Labs and Pfizer executive who worked his way up from being an engineer on some of the very first automated immunoassay machines. I had the privilege of interning with his team back in the early 1990s.

Theranos somehow managed to attract him and bring him on board in May 2017, from all appearances to help fix Theranos' broken science. He noped the fuck out of there a mere six months later. That took some serious balls and integrity, and I'm proud to have known the man.
posted by JoeZydeco at 6:52 AM on July 10 [14 favorites]


Like it was a known medical fact that the thing they said they were doing was flatly impossible?

So one aspect of this is that pharma & medical investors aren't the ones who funded it, "real" science writers didn't buy into the hype and some people actually in the analytical business were always crying bullshit. Science and Nature ignored them when they were the darling of the more popular outlets. The money and hype was Silicon Valley money and press.

After reading it, I walked away less frustrated by the media over the whole thing. [ . . . ] but the extent to which Theranos went to lie,

Haven't read the book yet but I'm down on anyone who covered it (except Carreyrou, naturally). They laundered the hype even though they knew they didn't understand it because Holmes was now a rich innovator. It's the personality and celebrity driven coverage of industry, science, politics, business, everything.

A couple bits on the coverage: A doctor in Slate contrasting real research and peer review to Theranos, and Parloff in Fortune doing an apology.

I don't know whether it's just the recent time dilation.

I think it's mostly time dilation. Carreyrou broke his big story October 2015, the net worth of zero article was by mid 2016.
posted by mark k at 7:16 AM on July 10 [4 favorites]


The newish part of this story that cast a light on it for me was the part that Balawi and Holmes had a romantic relationship. I don't want to let Holmes off the hook or deprive her of agency. But having that kind of intimacy outside the office makes it easier to understand how they'd collude at work to commit such awful and dangerous fraud.

And yeah, fuck Tim Draper. The man is straight up evil to be defending the company at this point. He's also behind a stupid ballot initiative this year to split California into three states. What a waste of attention.
posted by Nelson at 8:05 AM on July 10 [1 favorite]


I don't think Holmes and Balwani having a relationship means much. Judging from their actions at Theranos they are both soulless husks without a moral core. Theranos jettisoned Balwani a few months after the company was exposed as a fraud while Holmes was still pitching a new and improved testing machine.

I liked Bad Blood but the whole story of Theranos bullying people with lawyers, making claims of a huge step in technology, and running up billions in valuation misses a basic point. They couldn't replicate their own results. All it took to prove the company was based on a pack of lies was a few trips to Walgreens. Wildly variable results from one individual should have been enough to bring them down.
posted by rdr at 8:42 AM on July 10 [3 favorites]


I don't know whether it's just the recent time dilation but it seems like Theranos took *forever* to go from "this is obviously fraud" to "charges are being pressed". There would be the occasional headline like "Theranos just raised another X million" looong after everyone knew the whole thing was bullshit.

Bitcoin was an obvious pyramid scheme in 2013. Bitcoin was an obvious "only criminals and tax evaders use this" currency in 2015. Bitcoin was an obvious bubble in 2016, and bitcoin was an obvious environmental disaster in 2017.

It's 2018, and Bitcoin's still going. The best fraudsters set up a shield of true-believers and let those victims' need to believe that they're prudent investors keep the whole scheme afloat.
posted by explosion at 8:51 AM on July 10 [6 favorites]


The newish part of this story that cast a light on it for me was the part that Balawi and Holmes had a romantic relationship.

Carreyrou has pointed out that her ability to charm older men was undoubtedly part of her success. Theranos had an all-star board of directors was packed with heavy weights from government, military, finance, and technology, but the only woman on the board was Elizabeth Holmes.
posted by peeedro at 9:05 AM on July 10 [3 favorites]


He was also the idiot trying to split it into 6 California's!

edit: He, the idiot, being Tim Draper.
posted by Carillon at 9:07 AM on July 10


Carreyrou has pointed out that her ability to charm older men was undoubtedly part of her success.

I believe one needs to dig further into the influence of Elizabeth's father, Christian Holmes IV. The guy seems to have some deep government ties, especially if you believe USAID is a cover company for the CIA.

Spook or not, how else does a Stanford sophomore get George Schultz and Henry freaking Kissinger onto a board of directors?
posted by JoeZydeco at 9:27 AM on July 10 [8 favorites]


One of the most amazing things in the Reason / Gillespie interview of Carryou was how good Murdoch came off. Reportedly Holmes was personally appealing to Murdoch to pressure his employee(s) to spike the coverage, and Murdoch had many tens millions dollars invested in Theranos (they said he was the one largest investor) and he just let his writer go at it.

He came across looking like an Arthurian knight. Rupert Murdoch. Rupert Murdoch!

I thought he was like Snidely Whiplash or something.
posted by bukvich at 9:47 AM on July 10 [3 favorites]


Spook or not, how else does a Stanford sophomore get George Schultz and Henry freaking Kissinger onto a board of directors?

In 2011 when she was introduced to Shultz, Theranos had already raised over $70 million in funding and had a valuation of over a billion dollars. That might be enough to get a ten minute meeting with George Schultz. Whatever reality distortion field Holmes used took over from there:
Their scheduled 10-minute interview lasted 2½ hours. Shultz was captivated by what Holmes’s technologies could mean for health care, but was struck also by her “purity of motivation,” he says. He joined Theranos’s board that same month.
Once Schultz was on board, Theranos dumped board members with scientific backgrounds and added people like Kissinger, Sam Nunn, Bill Frist, James Mattis, former CDC director William Foege, etc.
posted by peeedro at 9:59 AM on July 10 [2 favorites]


Spook or not, how else does a Stanford sophomore get George Schultz and Henry freaking Kissinger onto your board of directors?

Holmes was equal parts charming to VIPs and difficult with the people who did the due diligence for those VIPs. It's your basic thing where an executive wants to believe in a transformative vision they've been sold and there's no benefit in being the person who tells them it isn't going to come true.

One of the many great passages in the Carreyrou book describes how she managed to plant a bug in the ear of Gen. James Mattis (now SecDef), who was eager to use the Theranos tech on the battlefield. Mattis delegated the vetting to someone else, who quickly sniffed out the problems. Holmes complained to Mattis and the guy's life became miserable. Mattis retired shortly theraafter but remained a true believer so he joined the Theranos board...and with someone of that standing on the board, the next level of VIPs assumes there must be something there, so it creates a permission structure for them to join too.

Wildly variable results from one individual should have been enough to bring them down.

It should have, but who's going to be that one individual and potentially lose everything (for no personal benefit) when lawyers come after them? The Carreyrou book talks about how George Schultz's grandson (who worked at Theranos) had a lot more evidence than one set of faulty test results when he spoke out, but his family lost $400,000 in legal fees and his own grandfather didn't believe him. Self-deception is a hell of a drug.
posted by chimpsonfilm at 10:00 AM on July 10 [6 favorites]


I don't get why this company was treated so differently than every other tech con job from the last decade?
posted by Yowser at 10:06 AM on July 10


Carillon: I was already on the fuck Tim Draper wagon

One minor Draper anecdote: A few years ago I happened to pass some office/storefront in (I think) San Mateo with some signs up reading "University for Heroes." I figured it was probably a tongue-in-cheek name for a videogame bootcamp, either for game players or game designers or something like that. Nope. It was the Draper University of Heroes, a private for-profit "school" (emphasis on the quote marks) to teach entrepreneurship. For, you see, it is the entrepreneurs who are the true heroes in this world. Also, keep in mind that Tim Draper himself is a third (!) generation venture capitalist -- i.e. an investor -- who doesn't appear to have ever run a non-VC business in his life. So, yeah, even before his whole "split California" referendum thing and defending Theranos at this late date, the dude was a dipshit.
posted by mhum at 10:06 AM on July 10 [5 favorites]


Carreyrou has pointed out that her ability to charm older men was undoubtedly part of her success.

We'll know that we, as a society, have achieved gender equality once female psychopaths can make their corporate conquests without charming or seducing silver-haired senior males.
posted by acb at 10:09 AM on July 10 [1 favorite]


I’m about midway through the Carreyrou book. It’s kind of a bummer seeing this fraud perpetrated over hundreds of pages, chewing up seemingly qualified scientists and engineers.

The influence of Sunny Balawi is significant. Holmes has the single minded vision and disarming earnestness, but the scam could not have lasted without Balawi’s paranoia and bullying, and I don’t get the sense that Holmes would have done that on her own.

There does seem to be something about Holmes’s father. He seems to be stubborn and argumentative, based on the long running feud with a family frenemy. We are told that he put pressure on his children to do something significant to make an impact on the world. Holmes was also treated for an eating disorder in high school. I get the sense that a lot was expected from her.
posted by chrchr at 10:11 AM on July 10


I posted about this once before, but I visited their lab and met Holmes years ago before all this blew up in their face. I went with a colleague on a media assignment. Pretty typical gig around here, biotech companies are a dime a dozen, been to a lot of labs over the years.

Theranos stands out in my memory because the security was insane. I mean all these companies aggressively defend their IP and a lot of tech companies have heavy security but this was next level. Like I have worked gigs in bank vaults next to pallets of cash where I was less chaperoned than at Theranos. The whole place seemed a little... paranoid. I'm also a little baffled that anyone would describe Holmes as "charming" she was exactly as awkward and weird in person as she comes across in her public appearances. You would think to pull of a con like this you would have to be some sort of charismatic leader but that is not how she came across in person at all.

And I mentioned this last time and no one believed me, but I swear, right out in front of the building was a parking spot reserved for Ms. CEO and the vanity plate was "DAS KPTL".

I need to pick up a copy of the Carryrou book...
posted by bradbane at 10:26 AM on July 10 [14 favorites]


I'll also chime in and say the book is amazing, and relevant in the age of Trump. Holmes is still out there, bullshitting away.
posted by feste at 10:48 AM on July 10 [1 favorite]


I can't wait to read the Carryrou book. I find the whole notion of Theranos so infuriating--such wanton disregard for patients' well-being in the name of "disruption"--that the schadenfreude from its destruction has buoyed me along nicely for some time now.
posted by n. moon at 10:58 AM on July 10 [1 favorite]


I don't get why this company was treated so differently than every other tech con job from the last decade?

You mean treated differently in that they eventually got busted? Probably because they were making medical claims.
posted by thelonius at 11:25 AM on July 10 [8 favorites]


The lasting impression I had from reading Bad Blood was the distinct impression that Theranos probably could have made significant improvements in blood testing, but whenever they had a decision to make they chose fraud over advancement. I don't know if it was a matter of perfect being the enemy of the good or the leaders at Theranos being so inexperienced that they didn't recognize the incremental advancements that were available. Or something more nefarious. What a waste.
posted by HiddenInput at 1:35 PM on July 10 [2 favorites]




I'm just amazed that "Mad Dog" Mattis thought he needed help getting his own people killed on the battlefield.
posted by TheWhiteSkull at 3:02 PM on July 10 [2 favorites]


It was the Draper University of Heroes, a private for-profit "school" (emphasis on the quote marks) to teach entrepreneurship

Mhum no way! I've been by that University many times and thought it was just a 'normal' for profit school, and didn't realize it was connected. Thanks for making that connection but damn I hadn't realized how close I was to that bs.
posted by Carillon at 3:49 PM on July 10


Wildly variable results from one individual should have been enough to bring them down.

Does your insurance provide coverage for checking the test-retest reliability of measures? Mine sure doesn't!
posted by srboisvert at 4:36 PM on July 10 [1 favorite]


One of the most amazing things in the Reason / Gillespie interview of Carryou was how good Murdoch came off. Reportedly Holmes was personally appealing to Murdoch to pressure his employee(s) to spike the coverage, and Murdoch had many tens millions dollars invested in Theranos (they said he was the one largest investor) and he just let his writer go at it.

He came across looking like an Arthurian knight. Rupert Murdoch. Rupert Murdoch!

I thought he was like Snidely Whiplash or something.


Rupert Murdoch had some other shit going on in his life at that point. He was tangled up in some political controversies in the UK over phone hacking that resulted in leadership turnover and them trying to rehab their reputation so they could retain and expand ownership of their empire.
posted by srboisvert at 5:01 PM on July 10 [2 favorites]


Don't forget that Murdoch could claim his investment as a loss which probably allowed him to repatriate some of his money worry free!
posted by crashlanding at 5:39 PM on July 10


Wildly variable results from one individual should have been enough to bring them down.

Does your insurance provide coverage for checking the test-retest reliability of measures? Mine sure doesn't!


Tyler Schultz spent $400,000 in lawyer's fees defending himself from Theranos. He knew that Theranos' test results were unreliable. Tyler wasn't the only one person Theranos set out to crush. None of them could figure out a way to spend a few thousand dollars to create a dataset that couldn't be traced back to them? Probably few people would pay attention to the data at first, then Theranos would claim that the dataset was fake, then Theranos would claim that the data came from unreliable sources, then Theranos would blame the test results on problems that had been fixed but eventually people will start to question Theranos' veracity and they'll redo the experiment. Theranos relied on lawyers and a big lie. You can't easily fight a huge company with lawyers but you can fight a lie with an easily testable truth.
posted by rdr at 1:55 AM on July 11 [2 favorites]


Here's a question for the lawyers--if a patient got inaccurate test results that were then acted on, can they sue Theranos?
posted by n. moon at 5:23 AM on July 11 [1 favorite]


bradbane: "And I mentioned this last time and no one believed me, but I swear, right out in front of the building was a parking spot reserved for Ms. CEO and the vanity plate was "DAS KPTL"."

They should have believed you -- Carreyrou actually mentions the license plate in his book, though the car actually belongs to Sunny Balwani, not Holmes:
Tax troubles aside, Sunny was proud of his wealth and liked to broadcast it with his cars. He drove a black Lamborghini Gallardo and a black Porsche 911. Both had vanity license plates. The one on the Porsche read “DAZKPTL” in mock reference to Karl Marx’s treatise on capitalism. The Lamborghini’s plate was “VDIVICI,” a play on the phrase “Veni, vidi, vici” (“I came, I saw, I conquered”)...
The book is great and I highly recommend it. I hope that the WSJ considers paying Tyler Shultz's legal fees (more than $400,000!) -- he comes off like a saint and has gained absolutely nothing from being perhaps the key whistleblower.
posted by crazy with stars at 8:27 AM on July 11 [3 favorites]


One of the low-key more interesting parts the Carreyrou book is the section on the vindictive millionaire Dr. Richard Fuisz. A significant portion of Fuisz’s wealth came from figuring out what small companies are in the process of developing, identifying a component that they haven’t yet worked on, and pre-patenting it so that he can hold the company hostage further down the line. It’s not patent trolling, exactly, but it shares something of its spirit. As a frenemy of the Holmes’, he of course decides to go after them by pre-patenting some parts that Theranos would eventually need to develop if its devices were ever to be deployed in homes.

The book can’t really settle on Fuisz as hero or villain. Without him, the WSJ wouldn’t have ever gotten its story to press. But he’s also somebody who makes a living treading the fine line between the legal and the ethical, and who probably got away with that behavior for a while because of his wealth. He’s a reminder that the entire game isn’t actually very good in the first place.
posted by Going To Maine at 12:44 AM on July 12 [3 favorites]


« Older A Lesson in Code Switching   |   And then we board a plane. Newer »


You are not currently logged in. Log in or create a new account to post comments.