The Daily Telegraph - Saturday - The Telegraph Magazine
The Telegraph Magazine
She was the college dropout, the female Steve Jobs, the self-made billionaire inventor with Silicon Valley at her feet. But now Elizabeth HOLMES is about to go on trial accused of living a lie
In September 2015, Elizabeth Holmes, founder of Theranos, a company that claimed to have developed a blood-testing process that would revolutionise medicine, appeared on stage as one of the keynote guests at the meeting of the Clinton Global Initiative in New York, alongside Bill Clinton and the Chinese investor and founder of Alibaba, Jack Ma.
In her uniform of black turtleneck sweater, black jacket and black trousers, and radiating an aura of calm and self-assurance, Holmes took part in a conversation about the role of technology and entrepreneurialism in affecting global change. Access to health information, she told the audience of policy-makers, thinkers, and the heads of corporations and foundations, was ‘a basic human right’. Theranos technology would give patients access to lab testing ‘which every person can afford’.
It was the summit of an extraordinary rise that had seen Holmes, then 31 and a compelling mixture of the brilliant, the charismatic and the geeky, become, in the words of Forbes magazine, ‘the world’s youngest self-made woman billionaire’, with a personal wealth estimated at $4.5 billion. ‘You founded this company 12 years ago, right?’ Clinton asked. ‘Tell them how old you were.’ Holmes gave a shy, self-deprecating smile. ‘I was 19.’ ‘Don’t worry about the future,’ Clinton told the applauding audience. ‘We’re in good hands.’
Less than a month later the Wall Street Journal would publish the first in a series of articles that would pull back the curtain on Theranos, leading to criminal charges alleging that Holmes and the company were engaged in a multimillion-dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients.
Later this month, Holmes will go on trial charged with nine counts of wire fraud (financial fraud involving the use of telecommunications or the internet) and two counts of conspiracy to commit wire fraud, along with her business partner and erstwhile lover Ramesh ‘Sunny’ Balwani. If convicted, Holmes and Balwani face up to 20 years in prison, and a fine of $250,000 plus restitution (repaying the money fraudulently obtained from investors), for each count of conspiracy and wire fraud. Holmes’s trial is scheduled to begin on 31 August, while Balwani’s has been postponed until January 2022.
Holmes’s trial is likely to be a grandstand event. Her story, a salutary fable of hubris and nemesis in Silicon Valley, is the subject of two screen projects currently in development: a film starring Jennifer Lawrence, and a series for the streaming service Hulu, starring Amanda Seyfried.
The trial was scheduled to start in August 2020, but was delayed by Covid and then by Holmes’s pregnancy – she gave birth to a son, William, in July.
Holmes and Balwani have pleaded not guilty. Holmes’s lawyer did not respond to the Telegraph’s requests for an interview or comment.
But back in 2015, Bill Clinton could be forgiven his credulous enthusiasm. Holmes had already deceived large swathes of the establishment. She’d persuaded former secretaries of state George Shultz and Henry Kissinger to sit on the Theranos board. Investors, Rupert Murdoch among them, had ploughed an estimated $1 billion into her company. She was seen as the young genius pioneering one of Silicon Valley’s greatest achievements. Who could have guessed Theranos would soon be described as ‘Silicon Valley’s Greatest Disaster’?
Holmes was born in Washington, DC. Her father Christian was a vice-president at the scandal-hit energy company Enron and later worked for a variety of government agencies. Her mother Noel had also worked in government.
Holmes was a prodigiously gifted child who claimed to have read Moby Dick, start to finish, when she was nine and who, by the time she arrived at Stanford University in California to study chemical engineering, was fluent in Mandarin, which she’d studied in summer school. At university, she began exploring a technology that would enable multiple measurements to be taken from tiny amounts of blood on a single microchip, at the same time patenting a patch that would draw blood painlessly through microneedles to diagnose infections and deliver antibiotics.
In 2004 she dropped out of college, and set up Theranos (combining the words ‘therapy’ and ‘diagnosis’). Within six months she had raised $6 million to finance the company.
The patch idea was quickly abandoned as unfeasible. Instead, Holmes switched her attention to developing a device that would revolutionise blood testing.
The theory behind it was compelling. Taking blood in the volume necessary for all manner of medical diagnoses is a laborious, and for the patient uncomfortable, process. Blood has to be sent to a laboratory for analysis. Tests can be costly and time consuming, especially for life-threatening illnesses like cancer. With Theranos technology, it was claimed, rather than drawing blood from the arm with a syringe – a process that Holmes, who had a fear of needles, likened to medieval torture – a few drops of blood could be drawn from a simple prick to the finger and captured in a phial less than half an inch tall, which Holmes called ‘the nanotainer’. It would then be fed into a device – in effect, a portable mini-lab – able to run a multitude of tests, the results of which could be sent wirelessly in a matter of hours to the patient and their doctor.
Holmes claimed the process would save Medicare and Medicaid – the US healthinsurance systems – ‘hundreds of millions of dollars on an annual basis’. Less altruistically, it would also kick the door open for Holmes to become a serious player in the diagnostic lab-testing industry, worth $75 billion a year.
The device – solid black, and looking somewhat like a home printer – could be installed in surgeries, pharmacies, even patients’ own homes. She called it the Edison, after the inventor Thomas Edison, who said, ‘I have not failed. I’ve just found 10,000 ways that won’t work.’ ‘We assumed we’d have to fail 10,000 times to get it to work the 10,001st,’ Holmes said. ‘And we did.’
The problem, it would become apparent over time, was that they didn’t. Despite more than 10 years of research, the Edison machine would never end up working.
Theranos recruited seasoned Silicon Valley veterans, many of them former Apple employees, including Avie Tevanian, who had led the software team that developed Mac OS X. She also hired young recruits, prepared to put in 12- to 14-hour days trying to make Holmes’s vision come true.
Though based in Silicon Valley, Theranos was not strictly speaking a tech company. But Holmes aligned herself to the mystique surrounding the young entrepreneurs and innovators who seemed to be reinventing the world. Steve Jobs was just 21 when he founded Apple. Mark Zuckerberg was 19 when he created Facebook, in the same year as Holmes launched Theranos.
Her story was irresistible: the college dropout who had bravely forged her own path. A woman in the boys’ club of Silicon Valley, where the work of many women innovators had gone largely unrecognised. Holmes was too striking and her project too revolutionary to ignore. It was said that she slept four hours a day. Her apartment was
Her other-worldly appearance created a mystique around her – she never seemed to blink
basically a mattress, and the only thing in her fridge was bottled water.
Her other-worldly appearance created a mystique around her. She had piercing, saucer-shaped, doll-like blue eyes and never seemed to blink. She lowered her voice by an octave to lend gravitas.
Her black turtleneck sweaters and black trousers appeared to have been recycled from Jobs’ wardrobe. She even employed the same marketing agency, Chiat-day, that in the ’80s had devised the campaigns for the Macintosh.
‘She wanted to be the female Steve Jobs,’ said John Carreyrou, the Wall Street Journal reporter who broke the story on Theranos. ‘She wanted the fame and the money and she would stop at nothing to get it.’
But by 2009, as the software engineers and lab technicians at Theranos struggled to make the technology work, the company was running out of money. Salvation arrived in the person of Ramesh ‘Sunny’ Balwani, a software engineer who had worked at Lotus and Microsoft and been a successful entrepreneur. Holmes first met him in Beijing on a Stanford University programme when she was 18, and he was 37.
Balwani came in with a $13 million personal loan, and was made president and COO of the company. He had no experience in biomedical engineering or medical technology, but he did have a Lamborghini with the personalised number plate VDIVICI, a nod to Julius Caesar’s veni vidi vici. Holmes and Balwani had been in a long-standing romantic relationship, a fact they kept from investors and staff.
If the whole operation was like the Wizard of Oz, with Holmes as the company’s public face, it was the abrasive, bullish Balwani who operated the machinery behind the curtain. Employees were siloed in separate departments and instructed not to talk to each other about what they were doing, or discuss their work – or even who they worked for – on social media. Non-disclosure agreements extended even to talking with their family. The company published little in the way of peer-reviewed data, and refused any attempts to have the technology independently scrutinised.
This was ostensibly to protect trade secrets. But it also concealed the fact that the technology was defying any attempts to work as advertised, and that Holmes’s claims for its efficacy were becoming increasingly fanciful.
Staff were expected to swear undying fealty to Holmes, but as the failings and evasions in the company became more apparent, misgivings began to arise. Anybody who asked questions about the technology, or the ethics of trying to sell a product to doctors and pharmaceutical companies that was not ready, was quickly shown the door, and threatened with a lawsuit if they talked.
In his book about Holmes, Bad Blood, Carreyrou would note that there was ‘something pathological about Holmes’s coldness’. In 2013 the chief scientist at Theranos, Ian Gibbons, became embroiled in a legal dispute the company was having over patents.
Depressed and fearful that he would be sacked, Gibbons took his own life. Theranos’s only communication with his wife was to demand she return his company computer and papers. She delivered them to the office personally. She never heard from Holmes.
Avie Tevanian was initially impressed by Holmes, but quickly began to question her claims for the Theranos technology. ‘She’d prick her finger and then she would put blood on something and then she put it in the machine and then sometimes she would say… “this part doesn’t work any more”, which was a little bit odd,’ he later told ABC’S Nightline. ‘But some of that you expect to get from a start-up that has a product that’s not done, right?’
But when Tevanian raised doubts about the technology, Holmes ignored him and then instructed another board member to ask him to resign. ‘I was done with Theranos,’ he said. ‘I had seen so many things that were bad go on, I would never expect anyone would behave the way that she behaved as a CEO. And believe me: I worked for Steve Jobs. I saw some crazy things. But Elizabeth took it to a new level.’
Yet despite the setbacks and the dysfunctional culture in Theranos, Holmes seemed bulletproof.
In 2011 she was introduced to George Shultz, who agreed to join the Theranos board, enthusing in interviews that Holmes was ‘the next Steve Jobs or Bill Gates’. Shultz opened the door to other board members and investors, including Henry Kissinger; the former US senator Sam Nunn; William J Perry, a former defense secretary; and America’s most famous soldier, General James ‘Mad Dog’ Mattis, who would later serve as secretary of defense under Donald Trump.
All were powerful older men with little to no expertise in the worlds of medicine or tech, but who seemed in thrall to Holmes and the revolutionary promise of Theranos. In a 2014 New Yorker profile of Holmes, Kissinger rhapsodised about her ‘sort of ethereal quality – that is to say, she looks like 19. And you say to yourself, “How is she ever going to run this?”’ His answer was, ‘by intellectual dominance; she knows the subject’.
For Holmes, the array of powerful and influential figures on the board also served as an insurance policy against the medical authorities becoming too inquisitive about her claims. Who would question a company that had Kissinger and ‘Mad Dog’ Mattis on the board?
By now, Theranos had struck up a partnership with the giant pharmacy chain Walgreens to instal the Edison device in ‘Wellness Centers’ in branches across America. Holmes claimed the Edison would be capable of performing up to 200 tests in a few minutes, for everything from STIS to cancer – and at half the cost of conventional lab tests.
But the claim was untrue. The Edison was able to provide only a small fraction of the tests that Theranos claimed it could.
In an attempt to work around the inadequacies of the device, Theranos acquired conventional testing machines manufactured by Siemens and other companies, hacking them in an attempt to analyse the single blood samples. When prospective investors came to the Theranos lab, a blood sample would be taken and fed into the Edison. The customer would then be ushered out of the lab, led on a tour of the offices and given a seductive sales presentation – while their blood sample was furtively hurried downstairs for tests on the other machines, before the customer returned to be given the results.
Holmes assured Walgreens that the technology was ‘viable and consumer-ready’. But that claim was false. Only a single Theranos test, for herpes, was approved by the Food and Drug Administration (FDA).
One Theranos employee, appalled at the deception, described going live in Walgreens as being tantamount to ‘exposing the general population to what was essentially a big unauthorised research experiment’.
Walgreens would also subsequently state that in selling it the Theranos package, Holmes had further asserted the technology had been used by the US military in Afghanistan – a claim she had repeated various times, including to Shultz. In 2017, in an investigation by the Securities and Exchange Commission (SEC) into whether she had helped to orchestrate an ‘elaborate, yearslong fraud’, Holmes was asked whether Theranos technology was ever ‘deployed in emergency rooms, hospitals, on the battlefield or in medevac helicopters’. She admitted the claim was untrue.
Theranos technicians made frantic attempts to modify the Edison to match the promise, but by the time the device was being installed in Walgreens pharmacies in 2013, it could still manage only a handful of tests.
Furthermore, some customers were angry at receiving venipuncture (using a needle to draw blood) rather than a single finger-prick test, and alarmed to get results suggesting they were suffering from serious conditions, which were contradicted when they checked by having independent tests done.
Nonetheless, the Walgreens deal was sufficiently impressive – or at least appeared to be – to enable Theranos to raise a further $650 million from a raft of new investors. Rupert Murdoch invested $125 million, the largest investment he had made outside the world of media. The Mexican media magnate Carlos Slim invested $30 million. The Devos family, one of America’s wealthiest, invested $100 million. And it was not just the superwealthy; any number of smaller investors put their faith, and money, into Theranos. If Murdoch and Slim were prepared to back Holmes, how much of a risk could it be?
‘Quite simply, people didn’t ask hard questions,’ says Reed Kathrein, a California lawyer who would later litigate against Theranos on behalf of eight private individuals who invested $60,000 to $500,000 in the company – in at least two cases, their entire life savings. ‘Elizabeth created an aura of credibility around her by associating herself with people like George Shultz and other political, well-known people who had credibility. And if anyone dared ask to see what was inside the black box, she’d tell them, “Well, there’s plenty of other people behind you waiting to invest, we don’t need you.”
‘The story was great, and still would be great if it were possible – people would flock to these kinds of blood tests if they could be done – and she sold it with such a great appearance of honesty and conviction that people believed her. Sincerity just flows off her: sincerity, false empathy, charm… she’s amazingly charming.’
As money poured into the company, Holmes began to behave like the magnate she had always dreamt of being. She became wildly profligate. She flew by private jet with a posse of assistants, security guards and a personal chef. She retained a personal publicist supposedly on $25,000 a month. By 2014 Theranos had 700 employees and was valued at $9 billion; the Forbes 400 list estimated Holmes’s personal worth at $4.5 billion.
She appeared at healthcare conferences, producing a nanotainer from her pocket and holding it up, like a priestess offering holy wine at communion, and repeating one of her favourite lines about seeing ‘a world in which no one ever has to say, “If only I’d known sooner.” A world in which no one ever has to say goodbye too soon.’
By 2015 Walgreens had 40 testing centres in pharmacies in California and Arizona. Holmes was named in Time magazine’s list of the 100 most influential people; President Obama appointed her as a Presidential Ambassador for Global Entrepreneurship, and in April 2015 she was a guest at a White House dinner for the visiting premier of Japan, Shinzo Abe. But the cracks were beginning to appear.
Inhis New Yorker profile in 2014, the writer Ken Auletta described being shown around the Theranos lab – ‘a large, labyrinthine place bustling with chemists and technicians’ – but noted that exactly what happened in the Edison was ‘treated as a state secret’. Holmes’s description of the process, he wrote, was ‘comically vague’.
The profile alerted the attention of Adam Clapper, a pathologist in Missouri who ran
a blog called Pathology Blawg. He was suspicious about the claims for finger-prick testing, and the lack of published peerreviewed data. ‘Until I see evidence Theranos can deliver what it says it can deliver in terms of diagnostic accuracy,’ he wrote, ‘I personally will remain a sceptic.’
Clapper’s blog led Carreyrou to investigate Theranos, setting him on the trail of employees who had left, or been fired from, the company, and who provided damning allegations against Theranos.
Among them was Tyler Shultz, the grandson of George Shultz, who joined Theranos in 2013 as a research engineer, when the company was first installing Edison machines in Walgreens pharmacies. In a deposition to an SEC investigation in 2017, Shultz testified that while he was working for Theranos the majority of blood tests were run on other machines, and that the company ‘only ran seven tests on the Theranos devices’. Asked whether Holmes knew that Theranos could not run all of those tests, he replied, ‘Yeah, she knew.’
Later, when the house of cards had come tumbling down, Kathrein took depositions from both Holmes and Balwani in his lawsuit against Theranos. The first time Holmes came to see Kathrein it was not to make a statement but to witness Daniel Edlin, who had been Theranos’s senior product manager, make a deposition. ‘She sat across the table from him and glowered at him and intimidated him,’ Kathrein says. ‘At one point as she was leaving the room she dropped all her papers on the floor. I bent over to help pick them up and she turned around and gave me this big, wide-eyed thank you. It was so charming I almost had to kick myself and go, wait – this person’s a fraudster.’
When it came to her own deposition, Kathrein says Holmes ‘conducted herself with extreme professionalism; she was calm throughout – a six-hour deposition, when most people would begin to get irritated and snappy, she was in complete control of herself’. And she ‘very politely refused to answer all the questions’.
Kathrein was reminded of someone. He had litigated on behalf of investors in the legal actions against the late Bernie Madoff, the American financier who in 2009 was found guilty of defrauding his clients of almost $65 billion in the largest Ponzi scheme in history.
Kathrein spent six hours with Madoff, interviewing him in jail. ‘Bernie and Elizabeth were both extremely charming. Bernie also, and Elizabeth to some extent, could make you feel for them, and feel their sincerity. They were both highly intelligent, able to process more information, more quickly, which helped them greatly. And they were both highly secretive. They would talk in circles when you started to narrow in, and anything that didn’t seem right they could change the subject and avoid answering the question.’
In October 2015 Carreyrou published the first in a series of articles for the Wall Street Journal revealing that the Edison machines were error-prone, constantly failed quality control, and were only used for a small number of tests. Talking to doctors and patients, he established that Theranos’s methods were not only deeply unreliable, but in some instances misdiagnosis could have been life-threatening.
Carreyrou’s investigations led Theranos to face a string of legal and commercial challenges from medical authorities, investors and Walgreens, which sought $140 million in damages. By June 2016, Forbes had written down Holmes’s net worth from $4.5 billion to virtually nothing, and Theranos was nearing bankruptcy. By 2017, Rupert Murdoch had sold his shares in Theranos back to the company for just $1, allowing him to write off his $125 million investment to save millions on taxes. Theranos secured a $100 million loan from Fortress Investment Group, guaranteed by all of the company’s patents. But it was too late. The company collapsed into bankruptcy and closed for good.
In March 2018, the SEC charged Theranos Inc, Holmes and Balwani with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.
While neither admitting to nor denying the allegations, Theranos and Holmes agreed to resolve the charges against them, with Holmes paying a fine of $500,000, returning the remaining 18.9 million shares that she held, relinquishing her control of the company, and being barred from being an officer or director of any public company for 10 years. Balwani did not settle.
Three months later, the US Attorney for the Northern District of California announced the indictment of both Holmes and Balwani on wire fraud and conspiracy charges.
Since then Holmes has maintained a determinedly low profile. She had dropped Balwani in 2016 as the walls closed in on Theranos. In June 2019, she married Billy Evans, eight years her junior and heir to a family business that owns three resort hotels in California, amid disobliging speculation that she was in need of someone to pay the legal fees for her defence. ‘His family is like, “What the f—k are you doing?”’ one source was quoted as saying. ‘It’s like he’s been brainwashed.’
In pre-trial hearings, Holmes’s lawyers have revealed that they will argue that the common currency in Silicon Valley of hyperbole and raising expectations means investors knew what they were getting into, and that Holmes was acting in good faith, believing the Theranos technology would work.
They also plan to call on a clinical psychologist to testify about a ‘mental disease or defect’ bearing on the issue of guilt – suggesting that Holmes was acting under the psychological influence of the older Balwani. So was Holmes really an accomplished fraudster, or simply an idealist who truly wanted to save the world, but who fell into a hole – and just kept digging?
‘I think she started out with the best of intentions,’ Reed Kathrein says. ‘Everyone does – even Bernie Madoff. But I also think she’s a chronic liar, and what started out with a little lie just got bigger. I think she and Sunny believed at some point the technology would work, despite the science to the contrary. She drove her people very, very hard, but it just wasn’t working. In the meantime she was lying to everybody. I think she believed in her snake oil, let’s put it that way.’
In the course of his litigation, Kathrein gained access to Holmes’s documents and emails. Among them were notes she wrote to herself. ‘These would go on for two or three pages,’ he says. ‘Where she would say things to herself that were almost schizophrenic in a way – “I didn’t mean to do this, I did mean to do this” – a lot of conflicting thoughts going back and forth, a lot of worrying, so I don’t think she’s immune to all that.’
Holmes, he adds, is ‘probably fighting back and forth within herself over what all this means and where it’s going. But I don’t think she cares about other people. I don’t think she really had any empathy for other people. The person she cares about is herself.’
‘She would write notes to herself that were almost schizophrenic: “I didn’t mean to do this”’