By: Melanie Rosen
“This is what happens when you work to change things, and first they think you’re crazy, then they fight you, and then all of a sudden you change the world.”
Theranos, a unicorn startup company, swindled investors out of not millions, but billions of dollars. It was a privately held health technology corporation that was supposed to be a breakthrough technology company for blood testing. The blood tests would require only about 1/100 to 1/1000 of the amount of blood ordinarily needed and cost far less than existing tests. Elizabeth Holmes, the founder of Theranos, claimed that by the prick of a finger these blood tests would be able to indicate medical conditions, such as high cholesterol to cancer. Theranos was valued at an estimated $9 billion, until the charade was finally up and it all came crashing down.
Before we delve into the rise and fall of Theranos, let’s understand Elizabeth Holmes. Holmes was born on February 3, 1984 in Washington, D.C. At age 7, Holmes tried to invent her own time machine, and at age 9, she began her lifelong dream of becoming a billionaire when she grew up. Holmes was a competitive child, insisting on playing Monopoly until the end, and not dealing well with the outcome if she lost. In high school she often stayed up late to study, and started her own business selling C++ compilers. Though she wanted to pursue medicine, her fear of needles held her back, but it influenced her to start Theranos. Holmes attended Stanford University as a chemical engineering major, where she eventually dropped out at the age of 19, to focus solely on her company, Real-Time Cures, later changing the name to Theranos.
Holmes idealized former Apple CEO Steve Jobs. She dressed in black turtlenecks, decorated her office with his favorite furniture, and never took vacations. But, more specifically, she made sure that the inner workings of Theranos were an absolute secret. The money she received from investors was contingent on her never having to reveal how Theranos’ technology worked, and that she had full say and control over the company. Holmes did not want to be a woman in a man’s world, so she established a persona to fit in with the male-dominated business world. She would uncharacteristically speak with a deep voice, however, would tend to fall out of character after drinking and resort back to a higher pitched voice.
Holmes was extremely persuasive. In 2008, the board wanted to remove Holmes as CEO, for someone more experienced, but after a two-hour meeting, she convinced them to keep her on. She raked in millions of dollars in funding, graced the covers of Forbes and Fortunes, gave a Ted Talk, and spoke on a panel with Bill Clinton and Alibaba’s, Jack Ma. Theranos was making deals with huge companies to open testing centers in their stores.
Although Holmes followed the mantra, “Do or Do Not, There is No Try,” what she was doing was nothing less than fraud, and in 2015, it was time for her to be exposed. In October of 2015, a Wall Street journalist published the truth about Theranos; management was incompetent, the capabilities of the technology were exaggerated, and the public was being deceived. By 2016, the Center for Medicare and Medicaid Services (CMS) had inspected one of Theranos’ labs, finding the facility did not comply with certificate requirements and performance standards, placing patients’ health and safety at risk. Holmes made many attempts to recover from the continuous bad reports filed against her and Theranos, but it was too late. In 2017, Holmes was banned from the lab-testing industry for two years, and Theranos had closed down its lab operations and wellness centers.
By 2018, Holmes was being charged with massive fraud by the U.S. Securities and Exchange Commission (“SEC”). She agreed to give up financial and voting control of the company, pay a $500,000 fine, return 18.9 million shares of Theranos stock, and was banned from being a director or officer of a publicly traded company for 10 years. Nonetheless, Holmes continued to remain as CEO of Theranos until June of 2018 when she had to step down.
Holmes was charged by a federal grand jury with nine counts of wire fraud and two counts of conspiracy to commit wire fraud. In September 2018, Theranos sent an email to shareholders announcing the closure of the company. Holmes pleaded not guilty to the federal charges, and is due back in court on April 22, 2019. She is facing up to 20 years in prison, and a $250,000 fine plus restitution for each charge.
At one point, Elizabeth Holmes was the world’s youngest female self-made billionaire with a net worth of around $4.5 billion. When Theranos’ blood testing machines were coming up with inaccurate results, she ran the samples through the same machines used by traditional blood-testing companies, and called it innovate and new. Holmes began Theranos in 2003, and it was not until 2015 that the company was placed under scrutiny. For 12 years, Holmes ran an illegal operation that could have put millions of lives at risk, but people followed her, companies blindly invested, and government industries continued to approve patents and operations.
We want to believe that we live in a world where technology is so advanced that we could not be scammed into such far-fetched ideas. A world where the law will protect us from people like Elizabeth Holmes. Yet, even after being scammed, we continue to get behind and follow these extravagant ideas and the voices of these people. When put into perspective this is a scary concept, but possibly also a reality check for society to slow down and pay a little bit better attention.
Student Bio: Melanie Rosen is a third-year student at Suffolk University Law School and a content editor for the Journal of High Technology Law. She attended the University of New Hampshire, where she received a Bachelor of Arts in Sociology and Justice Studies, as well as a Master of Arts in Justice Studies.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.