Elizabeth Anne Holmes, the founder of failed biotech start-up Theranos, was hailed as the next Steve Jobs. She even went on to don the same trademark of black turtleneck as the late Jobs. And now the “youngest woman entrepreneur and a billionaire” is facing up to 20 years in jail for a dozen of wire frauds and conspiracy to commit wire frauds to allegedly mislead investors and patients about the company’s technological capabilities.
But, how did the darling of Silicon Valley end up on trial for federal fraud charges?
Origin of Theranos
Holmes’ story is as fascinating and gripping as a tightly wound thriller. It all started when she dropped out of Stanford to start a blood-testing platform called Theranos. Inspired by her fear of needles, she started the company at the age of 19 in 2003 with a noble mission. Theranos claimed that it was creating a cheaper and more efficient alternative to a blood test, reported CNN Business. Ramesh “Sunny” Balwani, who is also on trial for fraud charges, came on board as the company’s Chief Operating Officer in 2009 serving as Holmes’s right hand.
The company made tall claims that it will have the ability to detect cancer and diabetes in patients using a few drops of blood. It all sounded fairly simple and revolutionary that a machine can detect a range of diseases and conditions in patients, all using a finger prick worth of blood.
The rise to fame
Theranos drew the media’s attention a decade after starting. In 2013, the company announced a partnership with pharmacy retail giant Walgreens to offer in-store blood tests at many locations.
After the partnership, Holmes attracted the crème de la crème of the investing world and raised billions of dollars from “sophisticated, accredited institutional and individual investors”, reported Forbes. Everyone believed the product she was selling and the company’s board, which included key political figures and retail partners like Walgreens.
She was named the richest woman in America by Forbes in September 2014. She famously raised $400 million in December of the same year and Oracle’s founder Larry Ellison was among her investors.
Interestingly, she raised the money using “private placements,” which are securities offerings that need not be registered with the Securities and Exchange Commission (SEC). Private placements are also not subject to disclosure requirements like audited statements, reported Forbes.
Wall Street Journal investigation
The Wall Street Journal started digging around the company’s claims and found many discrepancies in the testing process and its technology. In 2015, WSJ reported that Theranos was using its proprietary technique only on a handful of the 200 tests it claimed to perform. The investigation also revealed that a vast majority of tests were done using the traditional vials of blood drawn from the arm and not using a “few drops” of blood from a finger prick.
In response to the investigative report, Theranos defended its practices and called the Wall Street Journal’s reporting “factually and scientifically erroneous”.
Everything started crumbling after the Journal’s investigation. Holmes reshuffled the company’s board of directors and also lost key partnerships.
In June of 2016, Walgreens, Theranos’ largest retail partner officially ended the partnership and closed all 40 of its wellness centres. In July of the same year, Centers for Medicare & Medicaid Services (CMS), which is a federal agency within the United States Department of Health and Human Services, cancelled Theranos’ license to operate its California lab and banned Holmes from running a testing lab for two years.
In March 2018, the SEC charged both Holmes and Balwani with a “massive fraud” involving more than $700 million. The SEC claimed that Theranos was engaged in an "elaborate, years-long fraud in which they exaggerated or made false statements about the company's technology, business, and financial performance."
It also alleged that both Holmes and Balwani were aware of the proprietary technology’s limitations and that the analyser in their machine could only perform 12 out of the 200 tests it claimed on the patient testing menu.
By June 2018, Homes and Balwani were indicted on federal criminal wire fraud charges for defrauding investors and patients in a multi-million-dollar scheme. They are facing up to 20 years in prison. Both of them pleaded not guilty.
Holmes’s criminal trial is yet to begin after multiple delays due to the pandemic and her own pregnancy. As of August 2021, jury selection of the trial was underway and it is yet to be seen how this roller-coaster ride will end for Holmes.
(Edited by : Kanishka Sarkar)