The Seven Biggest Lies Theranos Told
Elizabeth Holmes once dazzled the world with a account that seemed nearly too helpful to be just: Theranos, her Silicon Valley startup, was going to revolutionize medicine with its blood-testing technology.
Now Holmes’ corporation — once valued at $9 billion — has crumbled. On Wednesday, the Securities and Exchange Commission charged Theranos, Holmes, and Ramesh Balwani, the startup’s former president, with “massive fraud.” They are accused of raising more than $700 million from 2013 to 2015 through an “elaborate, years-long” series of lies and exaggerations approximately the company’s commerce, trade, finances, and technology.
Theranos and Holmes own agreed to settle the fraud charges. Pending court approval, the CEO and founder will pay a $500,000 penalty, surrender nearly 19 million shares for a meaningful slit in fairness, and give up majority voting control of Theranos. She’ll also be barred from serving as an officer or director of a public company for 10 years. Balwani’s claims will be litigated in court.
“The Theranos account is an fundamental lesson for Silicon Valley,” Jina Choi, director of the SEC’s San Francisco Regional Office, said in a statement. “Innovators who seek to revolutionize and disrupt an industry must tender investors the truth approximately what their technology can achieve nowadays, not just what they hope it might achieve someday.”
Here are the biggest lies and exaggerations that Holmes, Theranos, and Balwani told, total according to the SEC. Theranos did not return a request for comment.
Holmes’ account was irresistible: her special machine could elope hundreds of blood tests on just a few drops of blood. And this machine — which in later versions was called the miniLab — was supposedly faster, cheaper, and more accurate than total the other blood-testing lab equipment out there.
But even though Theranos said it could elope 200 tests, Holmes and the rest of the company knew that their machine could only achieve a dozen or so, the SEC alleged. For the huge majority of its tests, Theranos in fact was using equipment already on the market.
Yet Holmes hid this crucial fact and told investors that Theranos only used its own equipment.
According to the SEC, Holmes struck up major deals to set miniLabs in Walgreens and Safeway stores based on fraudulent claims approximately how Theranos’ technology worked. (The SEC complaint refers to them as a “large national pharmacy chain” and “a large national grocery chain.”)
But according to the SEC, Holmes didn’t just tender the clients that the technology worked — she also went to distinguished lengths to obtain it behold like it worked.
In July and August 2013, Theranos did demonstrations for Walgreens executives before the miniLabs’ store launch. Holmes told her employees to set Theranos’ equipment in the room where they were collecting blood samples from the executives — but instead of processing the blood on the Theranos machines, employees secretly ran some tests on external lab equipment, according to the SEC.
Based on those presentations, at the conclude of 2013, Walgreens executives agreed to more quickly hand over a portion of a $100 million “innovation fee” to succor Theranos roll out in the stores faster. But those testing centers also relied on external lab equipment No one at Theranos ever told the executives the truth, according to the SEC.
Holmes kept up the charade for years, telling investors that the partnerships with Walgreens and Safeway were thriving, when in fact they’d stalled as executives started to own concerns.
In 2016, Walgreens sued Theranos, seeking $140 million to recover what it had set into the partnership (the lawsuit was reportedly settled for less than $30 million). Walgreens once hosted approximately 40 Theranos blood-testing centers. Safeway broke off its deal after spending $350 million to build clinics for Theranos’ tests in more than 800 supermarkets; Theranos never ran any tests in Safeway stores.
When visiting Theranos, potential investors would own their blood sampled and taken absent for processing, leaving them with the impression that it was being tested on one of Theranos’ devices. But Theranos often tested the blood on external equipment because its own equipment wasn’t capable of doing total the tests it was offering, according to the SEC. (At one point, Holmes and Balwani told one investor that Theranos could process tests for more than 1,000 conditions.)
Investors also got binders with information on clinical trials that Theranos had supposedly elope with pharmaceutical companies. The reports “prominently featured the company logos of well-known pharmaceutical companies, suggesting that the reports were drafted by these pharmaceutical companies,” according to the SEC.
But only one report was co-written by a pharmaceutical company. The other two were actually written by Theranos employees.
From late 2013 to 2015, investors pumped more than $700 million into the company in two financing rounds.
Holmes told multiple investors that Theranos’ technology had been deployed by the US Department of Defense in the battlefield, in Afghanistan, and on medevac helicopters that transported casualties.
It’s just that Theranos’ technology was used in a Department of Defense burn study — but it was never actually used in the battlefield, in Afghanistan, or on medevac helicopters.
Theranos told investors it was going to generate more than $100 million in revenue and wreck even in 2014, and that it was on track to generate $1 billion in 2015.
That rosy picture couldn’t own been further from the truth. The company in fact had just over $100,000 in revenue in 2014, and was “nowhere near” generating $100 million by year’s conclude, according to the SEC.
From 2013 to 2015, Holmes repeatedly told potential investors that Theranos didn’t need to gain FDA approval for its equipment and tests, but was voluntarily applying for it besides because it was the “gold standard.”
But in late 2013 and throughout 2014, the FDA told Holmes, in meetings and in letters, that approval was in fact essential.
So Holmes submitted Theranos’ tests to the FDA for clearance — while raising money and telling investors that the process was voluntary.
From 2013 to 2015, Holmes graced the covers of magazines like Fortune, Forbes, T: The fresh York Times Style Magazine, and Inc., decked out in her signature black turtleneck sweaters.
She got glowing write-ups that contained lies she’d fed to reporters. Forbes, for instance, declared that Holmes was “the youngest self-made woman billionaire” whose company could “quickly test a drop of blood at a fraction of the price of commercial labs which need more than one vial.” An April 2014 Wired article stated that “instead of vials of blood – one for every test needed – Theranos requires only a pinprick and a drop of blood. With that they can perform hundreds of tests, from standard cholesterol checks to sophisticated genetic analyses.”
Holmes didn’t right them. In fact, according to the SEC, she showed off some of the articles to potential investors.
But one reporter wasn’t fooled. John Carreyrou of The Wall Street Journal was the first to question Theranos’ claims in an October 2015 investigation, the first of several stories that led to the company’s collapse.
whether Theranos gets sold or liquidated, Holmes wouldn’t profit from her fairness until over $750 million is returned to investors and other shareholders, according to the SEC.
“Investors are entitled to nothing less than total truth and candor from companies and their executives,” said Steven Peikin, co-director of the SEC’s Enforcement Division, in a statement. The charges “obtain clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.”
Stephanie Lee is a science reporter for BuzzFeed News and is based in San Francisco.
Contact Stephanie M. Lee at email@example.com.
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