It was more than a fall from grace. It was an embarrassment, the hype machine slammed into reverse, the narratives of youthful ambition, unbridled biotech and even not so subtle subtext of sexuality and privilege gone awry.
In the next few months, perhaps years, we will hear a great deal about Elizabeth Holmes, Ramesh “Sunny” Balwani and a defunct monument to Wall Street gone berserk called Theranos.
It is now September 2021, and a journey that began in March 2004, is about to come to an end.
The Young Woman
Elizabeth Holmes has turned 37. She is married (not to Balwani) and is the mother of an infant. If convicted of the crimes the federal government says she committed, Holmes could be jailed for up to 20 years. The charges against her include wire fraud and conspiracy to deceive investors through fraud.
Lawyers spend careers prosecuting and defending wire fraud. Its simplest definition (Investopedia) is: “(A) type of fraud that involves the use of some form of telecommunications or the internet.”
Serious fraud of this nature is punishable by decades in prison. Both Holmes and her then business partner Balwani have plead not guilty. However, as Holmes and Balwani have predictably distanced from one another and added layers of counter-charges against one another, the case is as much ethical as legal.
This first blog will recapture the Theranos scam time-line with ethical comments. To ensure ethics and transparency myself, I am partially following the excellent time-line constructed by Sara Ashley O’Brien for CNN (September 8, 2021) entitled: The rise and fall of Elizabeth Holmes: A timeline.
As my comments are meant to be ethical, not legal.
Dispelling Genius
In the beginning, 2004, when 19-year-old Holmes first dropped out of school (Stanford) to pursue the Theranos concept, she was hailed a genius in a comparison to people such as Jobs or Zuckerberg. Ethically, this was wrong even from the start. A hype machine was created around an attractive, young woman who spoke a good game. She was bold and strong in her claims and platform of wanting to revolutionize blood testing.
Jobs and Zuckerberg and many other Silicon Valley darlings produced something. They had their flaws, to be sure, but they produced technology and/or social media platforms that ultimately worked and changed the world.
Holmes is smart, to be sure, but Theranos was a concept that never worked. Her major was in the sciences, in biochemistry and she “bounced around” for several years convincing would be investors she was into something. I need to remind us all that the world of biotech is a world of genius and breakthroughs after years of experimentation and development. Holmes was a Stanford dropout with a dream that had unforeseen development problems.
In 2009 her startup brought on Balwani. She met Balwani when she was 18 (he was 38). She made Balwani her COO and they soon developed a romantic relationship. His degree was in IT, not biology.
For the next few years, the two pushed the theory that with basically a single drop of blood, most every conceivable blood test could be simultaneously measured. A simple pin-prick could do it all. Though legitimate scientific minds raised doubts, the investment community, media and retailers began to see incredible potential. The mouth-piece, sensual, engaging and over-the-top, self-confident could have sold ice – at a premium – in Alaska.
Indeed, Holmes, slowly becoming a millionaire, announced in 2013, to an adoring public that the Walgreen’s was going to form a partnership. They announced the first of thousands of “Theranos Wellness Centers” in Palo Alto. The hype machine was in full force. The attractive young woman with the technology spiel, was on her way. Her one-drop, rapid test raised about $700 million. By 2013, the company’s hyped-up potential was worth $10 billion in valuation.
Indeed, by 2014 she was reputedly America’s youngest billionaire with a person wealth pegged at $4.5 billion. Never mind the doubters who had been testing blood for decades, the investment community, continually pumped by the Theranos hype machine, was rolling in cash. This was further under-scored in 2015, by the fact that Theranos got FDA approval for a one-drop test for Herpes. It seemed as though the attractive blond with the money and the media in her pockets, could not fail.
The Swan Dive
By late 2015, with many critics in the scientific and investment communities, the Wall Street Journal undertook an in-depth investigation. Undoubtedly with the help of whistle-blowers and insiders. Despite the Theranos claim that they could do hundreds of tests from a single drop of blood, it begins to unfold that they couldn’t. In fact they could barely conduct more than a few tests.
The FDA steps in and has numerous concerns. They halt the testing. Holmes nevertheless claims: “We know what we’re doing and we’re very proud of it.”
The skeptics then begin to circle. Safeway pulls out of a partnership after investing $350 million in the company. By 2016, the company essentially implodes. Walgreen’s pulls out and an even worse blow, CMS the regulatory agency covering Medicaid and Medicare, is threatening to ban Holmes and Balwani from the testing lab business. In 2016, Balwani and Theranos go their separate ways.
Holmes attempts to restructure the board with scientists and bankers rather than the original politicians and celebrities. It is too late. The company is forced to void two years of faked blood tests; another ethical catastrophe.
By June 2016, Walgreens close 40 wellness center and Holmes’s net worth is zero. For the next 18 months or so, Theranos starts to face lawsuits for fraud from the investment banking community. The company lays off more than 300 employees and by November 2016, Walgreen’s sues Theranos, and by January 2017, the Theranos lab fails inspections and was forced to shut-down all of its testing centers.
Here Comes the Fraud & Clutter
In March 2018, the SEC charges Holmes and Balwani with “elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.”
As it unfolds, the SEC determined that the miracle machine that could analyze 240 blood tests, could only test 12.
It did not take long after that (June 2018) that Holmes and Balwani were indicted on criminal fraud charges. Naturally, they have pleaded not guilty. Holmes stepped down as CEO.
As the duo who went from riches to rags heads toward a court date, the ethical drumbeats will come to light.
According to CNN, in unsealed court documents, Holmes “is likely to claim she was the victim of a decade-long abusive relationship with Balwani.” This will be a challenge to prove.
The trial has been twice delayed; Holmes gave birth to a child in July and then there is positioning over COVID worries with prospective jurors.
It will be a sensationalized trial as the genius, once richest young woman in the world, will be dragged through ethical mud and in turn, will pull everyone down around her. We are all looking for heroes these days. It is understandable. However, neither Holmes nor Balwani will come close. No matter the outcome, neither player will come away ethically unscathed.
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