Theranos investor details efforts to get answers about failed startup
Elizabeth Holmes grew so irritated with a probing Theranos Inc. investor that the founder of the blood-testing startup offered to pay him more than five times what he paid for his stake to go away, he testified.
Alan Eisenman, a former money manager and financial planner from Houston, told jurors at Holmes's criminal trial that he tried in vain for years to get straight answers about Theranos, only to see it ultimately collapse in 2018 while he was still holding his stake of about US$1.2 million.
Eisenman's testimony that he was more “proactive” than other stakeholders stands in contrast to previous witnesses who managed or promoted much larger investments — including nine-figure amounts tendered by some of the richest families in the U.S. — while accepting at face value what Holmes said in conversations and prospectus materials.
Holmes is accused of raising more than US$700 million by lying about the capability of Theranos technology and the trial in San Jose, Calif., is in its ninth week.
When Eisenman first heard about Theranos from an adviser to the Holmes family, he said, he was put in direct contact with the young entrepreneur who had dropped out of Stanford University to devote herself to revolutionizing health-care technology.
Early on, he said, Holmes was talkative, dropping into a 2006 conversation that she spoke with Oracle Corp. co-founder Larry Ellison on a weekly basis and that the billionaire would be investing about US$20 million in a funding round. Holmes projected “astounding” business models, including 2008 revenue of US$200 million, and said the company was talking to Morgan Stanley about an initial public offering, Eisenman said.
But as time went on, information was harder for Eisenman to get. He said Holmes grew so annoyed with his probing that she offered to buy him out of his position in Theranos — and then stopped responding.
“We don't do quarterly calls with our other investors, many of whom invested much greater amounts than you did,” Holmes wrote to Eisenman in a 2010 email. “We recognize you have been an investor for some time, and if we proceed with the transaction we are proposing we can provide you with a >5x return on your investment in Theranos.”
In 2012, Eisenman said he attempted to contact Theranos board member Donald Lucas to learn about what was going on. “That was not taken very kindly by Elizabeth — that I was trying to go around her,” Eisenman said.
“There was no information coming from the company,” Eisenman said. “To me that's a sign of trouble.”
Nevertheless, in 2013, Eisenman said he considered investing more money. This time, instead of getting a cold shoulder, he was courted warmly by Holmes's boyfriend, Theranos president Ramesh “Sunny” Balwani, who was then raising money for the company.
It was “shockingly surprising” that Balwani flipped “180 degrees” and was no longer “hostile” when Eisenman expressed interest in upping his stake, the witness recalled.
Balwani faces a separate trial on the same charges as Holmes and has pleaded not guilty. His lawyer, Jeffrey Coopersmith, declined to comment on Eisenman's testimony.
By October 2014 Eisenman's relationship with Theranos again grew contentious as he tried to follow up on a UBS investor report raising red flags about the company's commercial partnership with Walgreens and suggesting that Holmes's blood analyzers might be less reliable than traditional methods of testing. Balwani at first dismissed the investor report as uninformed and then told Eisenman to stop messaging him daily, he said.
With his “suspicions” heightened, Eisenman was ready to unload his Theranos shares, which he said had tied up a “significant amount” of his net worth. He said he learned from Balwani that the company had no plans for a liquidity event, contrary to what he'd been led to believe, and he remained stuck with his stake.
“It is really unfair to play this cat and mouse game with me,” Eisenman wrote to Holmes and Balwani in March 2015.
Nine years after his initial investment, he wrote, “I can't make a rational decision to sell or hold my stock with the lack of information you have provided.”
“Your emails are insulting, full of inaccurate statements and wasteful of our time,” Balwani wrote back. “Our next response to this email and all your future emails will come from our counsel.”