Theranos Founder Elizabeth Holmes Faces Prison

On August 31, 2021, Theranos founder Elizabeth Holmes begins her trial. The ex-Silicon Valley darling and her former COO, Ramesh “Sunny” Balwani, are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. 

What was supposed to be an innovative method of drawing, testing, and interpreting blood results turned out to be an allegedly fraudulent scheme to defraud investors, medical professionals, and patients. If convicted, Holmes faces a maximum sentence of 20 years in prison and a fine of $250,000, plus restitution, for each count of wire fraud and for each conspiracy count. 

How did a promising young entrepreneur and a brilliant idea turn into such an ugly story of lies and abuse? 

Founding Theranos

Elizabeth Holmes founded Theranos in 2003 with a mission to create a device that would collect “vast amounts of data from a few droplets of blood.” Citing her fear of needles, Holmes was motivated to revolutionize the way we collect and test blood from vials and vials to a simple pinprick on the finger. 

Several people, including Stanford medicine professor, Phyllis Gardner, told Holmes that this idea was “physically impossible.” She ignored them and pushed on until she found someone who would listen. That person was Stanford dean of Engineering and Holmes’ advisor, Channing Robertson. 

Robertson would become Theranos’ first board member. Through Robertson, Holmes was able to meet a variety of influential older men including Secretaries of State George Shultz and Henry Kissinger. 

That’s when the money really started coming in. 

Raking In The Cash

By the end of 2010, Theranos had more than $92 Million in venture capital and was growing quickly. Holmes had put together “the most illustrious board in U.S. corporate history,” and was only growing in influence and power. 

For an idea as revolutionary as Holmes’, she was going to need all the money she could get. After all, what she was proposing would change not just the medical science industry but the chemical engineering industry and all the lives of medical professionals and even more patients. 

In September 2013, Holmes and Theranos had partnered with Walgreens to launch in-store blood sample collection centers in Arizona. An ad directed by Academy Award-winning Errol Morris helped sell this concept of simple blood taking. 

All of the vials of blood and a fear of needles were going to be a thing of the past. The future was a black box called, “The Edison.” 

The Edison

Named after the original “fake it til you make it” master, Thomas Edison, Elizabeth Holmes’ device was about the size of a Keurig coffee machine or old school tower computer. In theory, the Edison could run a multitude of tests off of a single drop of blood. 

There were, however, whispers and murmurs that this revolutionary device did not work. At all. 

The Edison was designed to perform “immunoassays.” which look for the presence of an antibody or antigen in blood or fluid. Your standard, run-of-the-mill immunoassay test is capable of measuring things like drug levels, hormone levels, even certain cancer markers. 

Theranos had a testing “menu,” which is an innovative idea on the surface. They offered roughly 250 tests with just a drop of blood. Using a robotic arm, the Edison was able to automate what a chemist did in a lab:

Take samples

Dilute samples

Add antibodies and a reagent

Reveal a result

But, as those whispers and murmurs teased, the Edison had some serious technical issues. Pieces of the machine would break off, doors wouldn’t close, the temperature wouldn’t regulate, blood would spill, vials would break, and samples would be contaminated. 

Engineers, scrambling to find solutions, would raise concerns with Holmes only to find themselves dismissed or terminated from their position. 

Despite these issues, Holmes would repeatedly lie to investors, Walgreens, and the patients optimistic about this new, simpler blood testing. If you were to meet Holmes at one of her many speaking engagements, you’d think Theranos was creating a device that was going to change medicine, and the world, forever. 

Investigation and Pushback

Wall Street Journal investigative journalist John Carreyou received a tip from a medical expert. The Edison was not working as advertised. As a result, he began a months-long investigation into Theranos. He spoke to ex-employees and whistleblowers about the corporate environment of siloing and silencing to protect Holmes’ ambitions. 

When Holmes discovered the investigation, she launched a campaign through lawyer David Boies in order to prevent Carreyou from publishing. This campaign included legal and financial threats against WSJ, Carreyou, and the whistleblowers. 

However, in October 2015, Carreyou went through with publishing a “bombshell” article. The story detailed how the Edison delivered inaccurate results. As well as Theranos using other commercial machines for a majority of its testing. The lie being that those tests results came from the Edison. 

Elizabeth Holmes fought back. On the evening Carreyou’s article publication, Holmes appears on CNBC’s Mad Money with Jim Cramer. 

Cramer said, “The article was pretty brutal.” 

To which Holmes’ infamously responded, “This is what happens when you change things. First, they think you’re crazy, then they fight you, then you change the world.” 

After an inspection revealed irregularities, the Centers for Medicare and Medicaid Services (CMS) sent a warning letter to Theranos. By July, CMS officially banned Holmes from owning, operating, or directing a blood-testing service for a period of two years. 

Once the writing was on the wall, Walgreens ended its relationship with Theranos and closed all in-store blood collection centers. Things were coming to an end. 

Legal Trouble

In 2017, State of Arizona filed suit against Theranos. The state alleged that Theranos had sold 1.5 million blood tests to Arizonans all while concealing or misrepresenting facts about those tests. By April, Holmes had reached a settlement.

In March 2018, U.S. Securities and Exchange Commission (SEC) charged Holmes and Balwani with fraud.

Later that month, Holmes settled. The terms of the settlement included that Holmes surrender voting control of Theranos. Along with a ban on holding an officer position in a public company for 10 years, and a $500,000 fine. 

At Theranos’ height, the company boasted over 800 employees with more to come. In October 2016, the company had fired 340 of its staff. By January 2017, 155 employees were fired. By April 2018, 105 employees. 

On September 5, 2018, Theranos announced that it had begun the process of formally dissolving. Holmes’ dream of changing the world had just ended.

The Trial

After a two-year investigation by the U.S. Attorney’s Office for the Northern District of California, a federal grand jury indicted Elizabeth Holmes and Sunny Balwani for fraud.

Both have pleaded not guilty.

The trial will take place over four weeks.