Fraud Files: The Rise and Fall of Theranos—Blood, Lies, and Billions Lost

In 2014, Theranos was valued at NINE billion dollars. Its founder was on the cover of magazines, hailed as the next Steve Jobs. Last week, we saw how Enron used complex financial engineering to hide its rot. Theranos used something far more personal: a single drop of blood. On September fourth, 2018, an email went out to the last remaining shareholders. The company was dissolving. The cash on hand would go to creditors. For investors who had poured in hundreds of millions, there was nothing left. The story was over. But the real ending had happened three years earlier. To understand the collapse, you have to understand the promise.

Elizabeth Holmes was nineteen when she dropped out of Stanford with an idea. She would create a portable device that could run hundreds of medical tests from a single pinprick of blood. No more big needles. No more waiting days for results. She wore a black turtleneck. She spoke in a surprisingly deep voice. She told a story about democratizing healthcare, putting power in the hands of the patient. And people believed her. The money poured in—over seven hundred million dollars. The board was a who's who of power and influence: former secretaries of state Henry Kissinger and George Shultz, future Secretary of Defense James Mattis.

Investors included Rupert Murdoch, the Walton family, Betsy DeVos. They weren't investing in a product they could test. They were investing in a STORY. They were investing in her. The problem was, the technology did not work. The little black box, nicknamed the "Edison," could barely run a handful of tests, and the results were unreliable. But the company had a partnership with Walgreens. It was opening wellness centers. It was taking blood from real patients. So they cheated. Inside the gleaming Palo Alto headquarters, technicians were secretly running most of the tests on standard, off-the-shelf machines built by Siemens.

They would take the tiny pinprick samples and dilute them, a practice that made the already-shaky results almost meaningless. A few employees knew. They saw the failures, the faked demos, the doctored reports. One of them was Tyler Shultz, the grandson of board member George Shultz. He saw the deception and tried to sound the alarm internally. He was met with threats from company lawyers. So he, and another whistleblower named Erika Cheung, decided to talk to a reporter. The reporter was John Carreyrou at the Wall Street Journal. On October fifteenth, 2015, his investigation was published.

It laid out the core of the deception. It cited former employees. It questioned the science. This was the turn. Theranos responded with fury, denying everything, attacking Carreyrou, and threatening his sources. But the story was out. The questions had been asked. And then, the regulators arrived. The FDA and the Centers for Medicare & Medicaid Services launched their own investigations. They found major deficiencies, "jeopardy to patient health and safety." In 2016, Holmes was banned from owning or operating a laboratory for two years. The Walgreens partnership was terminated.

The lawsuits began. The company that was worth nine billion dollars was suddenly worthless. Elizabeth Holmes and her former partner, Sunny Balwani, were indicted on federal fraud charges. After separate, lengthy trials, both were convicted. Holmes was sentenced to more than eleven years in federal prison; Balwani, nearly thirteen. The nine-billion-dollar valuation, the magazine covers, the powerful board—it was all built on a machine that never worked. The Edison boxes, once symbols of a revolution, were now just empty black shells in a warehouse.