HQ Team
November 19, 2022: Theranos CEO Elizabeth Holmes will be serving 11 years in prison for duping investors into putting money into her fraudulent startup that promised to revolutionize blood testing.
She was sentenced by the U.S. District Judge Edward Davila and will serve much less than the 20 years demanded by the prosecutors for the four counts of investor fraud and conspiracy. The defence wanted leniency based on the fact that she has a one-year-old and another child on the way.
Holmes, 38, floated her company in 2004 that she said would revolutionise the medical world. Almost a decade later, she was hailed as “the world’s youngest self-made female billionaire”, “next Steve Jobs”, by the world press.
Her company, Theranos, was valued at $9bn (£6.5bn) for changing the world of diagnosis. They invented the Edison test that could detect life-threatening and lifestyle diseases, such as cancer, diabetes, thyroid and other metabolic problems with a few drops of blood, without the hassle of needles. She created such a buzz around the invention that bigwigs such as the Walton family behind Walmart, Rupert Murdoch, and Larry Ellison invested. She also roped in big names onto her board, including two former US Secretaries of State, George Schultz and Henry Kissinger.
Holmes must report to prison on April 27. After giving birth to a son shortly before her trial started last year, she became pregnant at some point while free on bail this year. Federal prosecutor Robert Leach said that Holmes deserved punishment for engineering the most egregious white-collar crimes ever committed in Silicon Valley. In a 46-page memo, Leach told the judge “he has an opportunity to send a message that curbs the hubris and hyperbole unleashed by the tech boom”.
Holmes “preyed on hopes of her investors that a young, dynamic entrepreneur had changed healthcare,” Leach wrote. “And through her deceit, she attained spectacular fame, adoration and billions of dollars of wealth.
Prosecutors also wanted Holmes to pay $804 million in restitution.
Evidence showed that the blood tests done by the company were wildly unreliable that could have steered patients toward the wrong treatments.
Ramesh “Sunny” Balwani, 57, a top executive at Theranos and an accomplice in the crimes, is scheduled to be sentenced Dec. 7.
Theranos Saga
An investigation into the tall claims by the company by a Pulitzer Prize-winning journalist, John Carreyrou, brought the house of cards tumbling. The firm had been using commercially available machines made by other manufacturers for most of its testing.
After the story was published in The Wall Street Journal in 2015, the US financial regulator, the Securities and Exchange Commission, opened an investigation. Lawsuits piled up, partners cut ties and in 2016, the US regulators banned Holmes from operating a blood-testing service for two years.
In 2018 Theranos was dissolved.
The SEC summed up what was wrong with Ms Holmes and Theranos in a damning report: “Innovators who seek to revolutionise and disrupt an industry must tell investors the truth about what their technology can do today – not just what they hope it might do someday.”
The lady behind the blood bath
Holmes story has excited enough interest in the entertainment industry with a documentary, a book and a movie. So what is it that drove Holmes to craft such a detailed fraud? One of her teachers at the University of Stanford remembers her as not being a remarkable student.
She came from a well-off background. Inventor and businessman Richard Fuisz, 81, an ex-neighbour of the family, speculates there must have been immense pressure on Holmes to succeed.
When she got to Stanford University in 2002 to study chemical engineering, she came up with an idea for a patch that could scan the wearer for infections and release antibiotics as needed.
Phyllis Gardner, an expert in clinical pharmacology at Stanford, recalled discussing Holmes’s skin patch idea and telling her it “wouldn’t work”.
“She just stared through me,” Dr Gardner tells the BBC.
“And she just seemed absolutely confident of her own brilliance. She wasn’t interested in my expertise and it was upsetting.”
Nothing further was heard of the patch, but within months Theranos was launched. Homes managed to garner investments and people around her idea.
“I knew she’d had this brilliant idea and that she had managed to convince all these investors and scientists,” says Dr Jeffrey Flier, the former dean of Harvard Medical School. “She was self-assured, but when I asked her several questions about her technology, she didn’t look like she understood,” adds Dr Flier, who never formally assessed her technology. “It seemed a bit odd but I didn’t come away thinking it was a fraud.”
