Blood Culture. Elizabeth Holmes and The Fall of Theranos

Today's true cybercrime story is a favorite of cybercrime junkies ripped from the headlines. This true story has been covered throughout the worldwide media. A Google search returns over 57 million responses. There have been hundreds of thousands of articles at bestselling book by wall street, journal author, John carreyrou, thousands of news reports, a documentary called the inventor, a Hulu and Disney plus mini series called the dropout and a great podcast by the same name. Plus, there's a new film set to hit screen soon, starting Jennifer Lawrence and directed by Adam McKay. This is the true cybercrime story of Elizabeth Holmes and Theranos. Lucky to work for a great group of people. You really believe in, find yourself making an impact. Technology is a river that flows through every aspect of an organization. And today is different. We put ourselves and our organizations literally at risk of complete destruction. Every single time we get online, one click, one distraction is all it takes. Hi, this is your host David Morrow, along with co-host Mark Mosher. Come join us as we explore our research into these blockbuster true crime stories, along with interviews of leaders who built and protect great brands. So how did we get here? How did this brilliant mind turn into a federally convicted felon facing 20 years in prison. Cautionary tale for tech entrepreneurs walking the fine line between vision and defrauding of people who put faith in her between sales pitch and federal felony conviction, willful cyber crime acts. This cyber crime is a little bit different in the sense that it doesn't involve a criminal hacker, but it's a cyber crime. nonetheless And worse in many ways than a data breach. It involves the intentional defrauding by leveraging of false life and death claims of technology, criminal activity. So vast that former heads of state, US generals and billionaires were duped out of hundreds of millions of dollars. The Theranos founder, Elizabeth Holmes faces up to 20 years in federal prison in sentencing for federal fraud charges. She was convicted of on January 4th, 2022, four counts of defrauding investors after an almost four month long landmark trial in California. Elizabeth Holmes faces 11 charges in total and was found not guilty of four charges relating to defrauding the public. The jury failed to reach a verdict on a further three charges after deliberating for. seven days journalist Morris reports in the publication"Good To Know" the following Holmes was originally charged alongside the company's former president Ramish Balwani, who she alleges abused her in 2018. This is the same year that Theranos was dissolved. That fellow indictee and co-conspirator Sunny Balwani, was also convicted on July 7th, 2022, and found guilty on all 12 fraud charges six months after the founder Holmes' conviction. He awaits sentencing as well. One parallel in the trials, the, the facts, the evidence, the emails, the documentation, the odd behavior the false claims, all of that was in both involved and illustrated throughout both trials. What was interesting though is in Elizabeth Holmes' trial, she took the stand and her personality got to come out and she was able to cast shade and point blame directly at Sonny Balwani for abusing her being more senior in years and experience and saying that she was under his guise right under, his mystical belief and abuse that may play out in the sentencing. Balwani during his trial did not testify whatsoever. So there was no ability for the jury to hear nor the judge in sentencing, that's gonna be coming up about the fact that maybe he didn't do those things. For right now it's an open question in the judge's mind when sentencing comes. During the trial, which started in September, 2021, multiple lab directors testified to telling Holmes about all of the. flaws in the Theranos technology and this box, this Edison machine that they used. We'll talk about that a little bit in just a bit, but they claim they were instructed to downplay their concerns. They also added that homes told investors the technology was operating as planned. The prosecution called 30 witnesses in a bid to prove that homes knew the product she was selling to investors was in fact, a. It was in fact, a complete sham Prosecutor Jeff shank said in his closing argument that Holmes "chose fraud over business failure. She chose to be dishonest with investors. And more importantly, with patience, that choice was not only callous it's selfish. It was criminal." Holmes was found guilty of conspiracy to commit fraud against investors and three charges of wire fraud by the jurors. Her sentencing date is coming up September 22nd, 2022, and she faces a maximum sentence of 20 years based on what the judges typically sentence defendants to in similar cases, however, various legal experts believe she will likely be handed a far less severe punishment. She denies her convictions and expects to. Once again, she was once touted as the next Steve jobs with a net worth of 4.5 billion. She now is a convicted felon, unable to vote in the United States and has fallen from grace currently out on a $500,000 bail while she await. Sense Elizabeth Holmes and Theranos are one of the most infamous cases of a fall from grace from the unicorn startup world of Silicon valley. They were considered a tech unicorn by the media and by industry Watchers, propelling the founder into becoming the youngest billionaire on the cover of Forbes magazine set to disrupt the entire us healthcare industry. This only resulted in just a few short years later in federal indictment and bankruptcy. So Elizabeth Holmes let's start from the beginning. She dropped out of Stanford at the young age of 19 to found Theranos, which purported to revolutionize the way blood tests were done. One simple drop of blood pricked from a finger could diagnose a myriad of diseases and conditions, or so she claimed now to judge Elizabeth Holmes and Theranos now is really missing the point. This is a remarkable story of a unicorn healthcare tech company. It's a cautionary tale for all of us about "overselling" or over promising something when the technology isn't quite ready, it's a cautionary tale of being very wary of the phrase, "fake it till you make it." The more we learned research, the Theo timeline and the actions of those involved. One underlying theme merged too.. So many brilliant experienced people were fooled. Why? Because they wanted to believe we don't feel Elizabeth Holmes even intended to defraud anyone at the beginning at all. I, I mean her initial motives and her initial goals were good. She was driven by the death of a close. She wanted to cure the delays and death caused in the lab industry run by mostly two main companies with over 80% market share quest diagnostics in the lab core of America, their lab results, and their testing for blood tests require you to draw vials and vials of blood from your arm through a venous puncture, right? A big thick needle that goes into your arm. It's painful, it's uncomfortable. It's difficult for a lot of people. It's costly. It takes too long and it's in. So the issue that drove for was fear of needles and the desire to kind of speed up the timeline for diagnosis and to democratize everything, to, and to give us all more control over our own healthcare and treatment. Her vision was very similar to like jobs like Steve jobs, which was one of her idols to democratize healthcare so that we all have a lab box in our own homes. One day just like jobs, vision of having us all have a personal computer, which obviously came true. Bus was born Theranos. The word comes from therapy and diagnosis. Fairness, let's rewind a bit to 2014, the blood testing, startup fairness and its founder, Elizabeth Holmes were on top of the world. Back then, fairness was a revolutionary idea. Fought up by this woman hailed as a genius who styled herself as a female Steve Jobs Holmes was the world's youngest female self-made billionaire billionaire with a B, and theos was one of Silicon Valley's unicorn startups valued at an estimated 9 billion of which she owned 50. So, this is how Elizabeth Holmes went from a precocious child to an ambitious Stanford dropout to an embattled startup founder. Now charged with federal fraud charges. She was born February 3rd, 1984 in Washington, DC. Her mom Noal was a congressional committee staffer and her dad, Christian homes worked for Enron before moving to government agencies. Like you said, She in her family when they were young, moved away from Washington DC to Houston, when she was seven, she tried to invent her own time machine filling up an entire notebook with detailed engineering drawings. Couple years later, she told relatives at a family gathering, when asked what she wanted to be. She said," I want to be a billionaire" at the age of nine. That was her. Her relatives described her as saying it with the utmost seriousness and determination. She had an intense competitive streak from a young age. Johan played monopoly with her younger brother and cousin. And she would insist on playing until the very end collecting houses and hotels until she won. If she was losing, she would often storm off more than once. She ran directly through a screen on the door, in a tantrum. Then in high. Homes developed her work ethic, often staying up till Dawn, just to study, she quickly became a straight a student and even started her own business in high school. She sold C plus plus compilers, which is a type of software that translates computer code to Chinese schools. She started taking Mandarin classes and partway through high school talked her way into being accepted by Stanford university's summer program, which culminated in a trip to. Inspired by her great grandfather, Christian Holmes, who was a surgeon, Holmes decided she wanted to go into medicine, but she discovered early that she was terrified of needles later. She said, this is one of the things that influenced her along with her uncle's death to start Theranos a couple years later, home started at Stanford to study chemical. When she was a freshman, she became a president's scholar in honor, which came with a $3,000 stipend to go toward a research project. She spent the summer after her freshman year interning at the Institute in Singapore, she got the job, partly because she learned how to speak Mandarin. As a sophomore, she went to one of her professors and this isn't just any professor. This was Channing Robertson, the head of the science department at Stanford university. And she said, let's start a company. And with his blessing, she founded realtime cures, which later changed the name to Faros. Ironically, thanks to a typo early employees of that company actually got paychecks that actually said realtime curses. What was interesting is the head Channing Robertson who actually quit his job there to join the board and work for her. That's how much belief these people had in her. She soon filed a patent for a medical device that would Aite monitoring and drug delivery, a wearable device that would administer medication, monitor patient's blood and adjust the dosages as needed. By the next semester she had completely dropped out of Stanford. When she wasn't attending school and she was working full time for her company. And it started all in the basement of a college house there at Stanford university. The business model was based around the idea that it could run blood tests using proprietary technology that required only a fingerprint and a small amount of blood. Holmes that the test would be able to detect medical conditions like cancer and high cholesterol immediately and begin rendering therapy. And if they can create this model and place it in everyone's home, the entire democratization of healthcare would be disruptive. It would change the world. As we know it, home's attitude towards secrecy and running a company was borrowed from a Silicon valley hero of. Former apple CEO, Steve jobs, Holmes started dressing in black turtlenecks, like jobs decorated her office with his favorite furniture. And like Steve jobs never took vacations, even Holmes's uncharacteristically deep voice, which if you've seen any interviews with her is kind of remarkable. It might have been part of a carefully crafted image intended to help her fit in, in the very male dominated business world of Silicon valley. There's a podcast called "the dropout" where former Theranos employees, uh, talk about her and say that, you know, sometimes she would fall out of character, especially after she'd be out drinking and she would speak with a normal female higher voice. But most of the time she spoke with a, with a lower voice especially in, in interviews, she was known to be a demanding boss, wanting her employees to work as hard as she did. She had her assistance tracked when employees would arrive and leave each day to encourage people to work longer hours. She started to have dinner catered to the office every night at 8:00 PM. She would often work until midnight or 11:00 PM and get in the office by 7:00 AM. Shortly after she dropped out of Stanford at the age of 19 and started this company, she began dating Fairo president and COO Sonny Bani. He was 20, 25 years her senior. The two met during Holmes' third year at San Stanford's summer Mandarin program. The summer before she went to college, she was bullied by some of the other students and Balwani kind of came to her aid. Balwani was her hand person at Theranos, despite having very little experience, he was said to be a bully, and he often tracked his employees whereabouts. He would monitor everyone's emails, even if he wasn't on the email thread and would monitor all of their behavior. Holmes and Balwani eventually broke up in the summer of 2016 when Holmes pushed him out of the company. And we'll get to that in just a bit, but circling back to them, 2008 Theranos board started to have questions and started to make a move, to remove homes as CEO in favor of someone a little bit more experienced after all, she was just a girl in her twenties, but over the course of a two hour meeting, she sat down with this very impactful board that she had created. Really describe who she had on her board in just a second. And she convinced every single one of them to let her stay in charge of that company. But she did a lot of things. The culture was bad. The focus on secrecy. and, lack of transparency was obvious. I mean, even in 2011, she hired her younger brother Christian to work at Theranos, even though he didn't have any medical or science background, he spent his early days at Theranos reading about sports online and recruiting his duke university fraternity brothers to join the company. People dubbed Holmes in his crew, the frat pack, or Thero Bros as Theranos started to rake in millions in funding homes became the subject of media. And a lot of a claim in the tech world, she graced the covers of fortune and Forbes magazine. She gave a tech talk, which if you haven't seen, you should check it out on YouTube. And she spoke on panels with Bill Clinton and Alibaba's Jack May at one point, Holmes was the world's youngest self-made female billionaire with a net worth around 4.5 billion company was valued at 9 billion. She owned half and they had raised around 400 million in capital from major venture capitalists and investors. She started raising money for the, was from prominent investors like Oracle founder, Larry Ellison, Tim Draper, the father of a childhood friend and the founder of prominent VC firm, Draper Fisher Jerveston. She wound up raising even more than 700 million. What's interesting about this. It's not the amount of money because we hear about that a lot over in Silicon valley. But what was interesting is she took investors money on the condition that she wouldn't have to reveal how the technology worked. Think about that. Who does that? Who gives hundreds of millions of dollars on the story? Not on the. Plus she would keep whenever she would take their money and, and receive their money in investment, she would make it clear that she alone would have final say over everything having to do with the company. And yet the money came that obsession with secrecy extended to every aspect at Theranos for the first decade Holmes spent building her company, the Theranos operated in stealth mode. She even took three former Theranos employees to court claiming they had misused Theranos trade secrets. And now let's get to the board who were the, who was this board that this illustrious board that, that got her all of this power and accolades. Well, she had names on there, like General Mad Dog Maddox. Henry Kissinger, secretary of state, George Schultz, Larry Ellison, the head of the science department of Stanford, Channing Robertson even had quit his job to work for her. The, it was a laundry list of who's who, what was interesting is, not any of them we're physicians, they weren't science or medical people, but they were very politically connected and they were very, um, Tech savvy. So this focus in this obsession with security at Theranos was extreme. She had Bulletproof glass, she had 20 bodyguards. People were followed to the bathrooms. All emails were monitored by the leadership team. It was a poisonous culture. She asked anyone who visited the company's headquarters to sign non-disclosure agreements before being allowed to even enter the building. And they had security guards, escort visitors everywhere. So Theranos as it began. She and son Bani would go to the Silicon valley, um, airport and they would fly out in their private jets and they would go and they would do pitches. They would pitch for contracts and they got good at it again. Data doesn't sit in the mind like stories do, right? Emotional stories, speak to the part of the mind, kind of like what Simon Sinek talks about, why. Right. It talks to the part of the brain that modifies behavior. It gets people emotionally connected. Right. And people didn't mind that they didn't have the data. Everyone wanted to believe that this would. So Theranos quickly began securing outside partnerships, capital blue, cross, and Cleveland clinic signed on to offer theos tests to their patients. And then the big Kahuna happened. Walgreens. Walgreens made a deal to open theos testing centers in their stores. Theos also formed a secret partnership with Safeway worth 350 million. Now the goal with Walgreens. Because Walgreens was located about five miles or so from nearly every us home. And they wanted a, their ultimate goal was to put a Theranos box in the Fairo testing, um, box, which is, you know, the size of like a air fryer or a big toaster. Into everyone's homes eventually that's that was the goal. And so how are they gonna do it? They're gonna go through a re retailer that has credibility that is located near those homes as step one. So they started it with, um, Walgreens, uh, in a select group of stores in Arizona. And then their goal was to push it out in select markets after that. But that's when everything changed when Walgreen's rollout began to. Those deadlines became real. And then basically the proverbial shit, it's a fan, right? They had to have the technology catch up with the promises that were sold and the bottom line is it didn't. In fact, they would resort oftentimes back to drawing vials of blood from veins and shipping them out to third party lab companies, the Edison devices, which were designed and, and. Sunny and Elizabeth made the engineers keep them so small that it was designed to do so many of these different lab tests and movements all within the small box that things would break. It was, it was, it was a cluster. It, it just, the results were inconclusive. The results were inaccurate. Things would overheat things, wouldn't work. And then they would do almost like a smoke and mirrors. And then just go and. Uh, the lab results done through independent, you know, third party lab companies. So their Edison device. That's what they called it because they, they kept saying we have to make 10,000 of them and they keep breaking, but we're gonna, you know, the 10001st one is gonna be the one that's gonna work perfectly, and it's gonna change the world. That's why, you know, her idol was Thomas Edison and Steve Jobs. So this Edison device, this like big toaster thing, um, was to do approximately 200 tests. From just a small drop of blood now, understanding that process, that blood needed to be diluted. And then even by diluting it more and more and more, the test results wound up being inconsistent and an and inaccurate. So what was the result of all this? That's when it all changed, the result was a PR nightmare and something that led to investigations in the ultimate demise. People thought there were, um, results back. There were delays and it was just a. Her the tarnish had set and the house of cards began to fall. And here's the, it's perhaps the tip of the iceberg in the fall of Elizabeth Holmes and Theranos. When the Edison tech was brought into question, this is how she described how it worked, because. She was brought on television shows and mad money and all of these financial shows because they're, they're like, Hey, what's going on? You, you know, you're getting all this bad press what's happening. And she, and, and, and they all wanna know, like, how does this thing really work here was her scientific explanation of how this works. And I quote. "A chemistry is performed so that a chemical reaction occurs. It generates a signal from the chemical reaction, with the sample, which it translated into a result, which is then reviewed by certified lab technicians." Think that what the heck does that even mean? It's not scientific. It's not data driven. It's not real. We know what she meant.. We know what she wanted it to do, but that was about as clear and scientific as it got. So around this time, questions started being raised about the technology, Ian Gibbons, chief scientist at fairness, and one of the company's first hires, warned homes and wan that the tests weren't ready for the public to take and that they were inaccuracies in the technology outside scientists began voicing their concerns about Theranos too. The demise and the, uh, pressure that the internal fairness people were under was so great that one of the head, um, uh, scientists there, uh, even committed suicide long before a, uh, or the night before a, uh, deposition was having to be given. By August, 2015, the FDA, the FDA began investigating theos regulators from the government body that oversee laboratories found major inaccuracies, quote unquote, in the testing theos was doing on patients. See part of the difference between what Thomas Edison was doing is he was going to the media and he was saying, I've created the light bulb. Right. And he did this over and over, even though the light bulb filament had not been perfected yet. But by the time his funding was running out and his reputation was being thrashed, the technology caught up and the film worked and then he was lauded as a hero from then on here, the technology didn't catch up in time. And here it's not just a light in a room or for show, this is testing done on patients. People were rely. On these tests for their medical care. And it's a very regulated industry. That's one of the biggest differences. So 20 14, 20 15 is when it all starts to spiral by October, 2015 wall street journal reporter John Carreyrou publishes his investigation into fair enough's struggle with its technology. Carreyrou' s Reporting is a landmark report and just sets off an explosion in this industry. His reporting sparked the beginning of the company's downward spiral care roof found that Theo's blood testing machine named the Edison could not give accurate results. So theos was running it samples through the same machines used by traditional blood testing companies, homes then appeared on CNBC's mad money shortly after the wall street. journal published its story to defend herself in and Theranos and she's quoted as saying, "this is what happens when you work to change things. At first they think you're crazy, then they fight you. And then all of a sudden you change the world". By 2016, the following year, the FDA Centers for Medicare and Medicaid services and the Security Exchange Commission were all looking into Theranos, in formal investigations. By July, 2016 criminal charges set in homes was banned from the lab testing industry for two years by October, Theranos had shut down its lab operations and wellness centers in March, 2018. Theranos the company Holmes individually and Sunny Balwani in were charged with massive fraud by the security exchange committee commission. The. Holmes agreed to give up financial and voting control over the company, pay a 500,000 fine and return 18.9 million shares of Theo stock. She also is not allowed to be the director or officer of a publicly traded company for 10 years now, despite the charges homes was allowed to stay on as CEO of Theranos, since it's a private company, the company had been hanging on by a thread and Holmes wrote to investigators or into investors. Asking for more money in order to save Theranos, in "light of where we are. This is no easy ask." She wrote. Now today homes in Bellani are now awaiting federal trial. Although their cases have since been separated if convicted homes in Bellani could each face up to 20 years in prison and more than a 2.7 million fine, the us government. And besides the criminal case homes is also involved in a number of civil lawsuits, including one in Arizona, brought on by former Theranos patients over inaccurate blood tests. Uh, lawyers represent here in the Arizona case, said in late 2019, they hadn't been paid over a year and they got asked to be removed from the legal team. so the end of Theranos comes in June, 2018, just couple years ago, you know, Theranos announced that Holmes was stepping down as CEO. On the same day, the department of justice announced that a federal grand jury had charged homes along with Bani with nine counts of wire fraud and two counts of conspiracy to commit wire fraud. Those have since been upgraded and there's many more charges. Theranos sent in email to shareholders, in September of 18, just a few months later, announcing that the company was Shutt. Theos reportedly said planned to spend the next few months repaying creditors with its remaining resources. So where are we at today? Holmes today around the time Theranos time was coming to an end. She made her first public appearance alongside William, Billy Evans, a 27 year old heir to a hospitality property management company in California. The two reportedly first met in 2017 and were seen together in 2018 at burning man, the art festival in the Nevada desert. Holmes has said to where Evan's MIT sign ring on a chain around her neck and the co couple reportedly post photos professing the love for each other on a private Instagram account. Um, Evan's parents are reportedly flabbergasted at their son's decision to marry Elizabeth homes. So while it's unclear where they currently reside, but they previously were living in a $5,000 a month luxury apartment in San Francisco up until April, 2019. The problem was located just a few blocks from one of the city's top tourist attractions, famous part of the area. Um, it's a crooked block of, uh, Lombard street. It was later reported that Holmes and Evan's got engaged in early 2019, and then married in June in a secretive wedding ceremony. Uh, former Theranos employees were reportedly not invited to the wedding, according to vanity. So as you look back at this fall of this unicorn and this just meteoric rise, we're left really with only questions. And the truth is yours to determine one question was, did she oversell it? Did the tech just not catch up in time? Right? Did she and her leadership team simply become too insulated or out of touch to ignore the data? Is this something like Thomas Edison who had sold the media on mastering the light bulb ment, but hadn't, you know, and then right as funny was running out in his reputation, the bulb was fixed. The tech caught up in time for him, but not for her. It's that Edison fake it until you make it so long as you don't defraud or risk. The lives of people As her idol Steve jobs and Thomas Edison they kept making errors and sold a vision. Until the technology would catch up before the time and funding ran out. I mean, did she fail to, to stay realistic, right? Or did she just get caught up bleeding her own BS? Right. Did the vast amount of money that they get, just make them too insulated, you know, she used her story, right. When they would get investor money, What you guys gotta understand is they would never provide audited financial statements and no technical verifications were ever given. People would give them hundreds of millions of dollars without any data, without any audited financial statements. Try getting a mortgage for a $300,000 house these days. And it's like giving. And these people were giving hundreds of millions of dollars without any audited financial statements or any technical verifications. You know, the bottom line is data. Doesn't sit in the minds of people like stories, do emotional stories, right. Speak to the part of the mind. And it, it, it, it creates a vision and a belief and a, and a, and, and a faith in someone. So now it rests, you know, with the go. We just hope that that visionaries aren't hampered by the inability to have that dream and wait for the technology to catch up. But in the same sense, they have to do it without risking the lives of people. And without defrauding, we welcome you guys to check out the, uh, key resources we found. There's a great book called "Bad Blood. Secrets and Lies in Silicon Valley". The movie called "the inventor" out for blood in Silicon valley, which is based on it. There's a podcast called "the dropout." Please check it out and we hope you enjoyed the rise and fall of Elizabeth Holmes and Theranos. Thanks for listening. Hi, Cyber Crime Junkies. Thanks for listening. Got a question you want us to address on an episode, reach out to us@cybercrimejunkies.com. We explore why cyber crime grows. How it is funded, productized and organized how to protect yourself and where cyber crime goes to hide. And thanks for being a cyber crime junkie.