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The verdict on Theranos founder and former CEO Elizabeth Holmes, who was tried for fraud in a U.S. court, was guilty. Theranos was a company set up by Holmes and her former partner Ramesh “Sunny” Balwani and had promised to revolutionize blood testing. Their advanced biotech equipment—they claimed—would provide results for a whole battery of tests with just a few drops of blood. In its heyday, Theranos was worth more than $9 billion, and Elizabeth Holmes was looked at as “the next Steve Jobs.” She was also the face that launched $724 million in stock sales to private equity firms and venture capitalists. Holmes figured in Time’s 2015 list of the 100 most influential people of the year and was feted by Wall Street as the “world’s youngest self-made female billionaire.”
The evidence presented during the trial showed that Theranos technology did not work, and Holmes, while fully aware of it, knowingly falsified the results and forged reports. These “doctored reports” showed that major pharmaceutical companies endorsed her products, and even the U.S. military was using Theranos equipment in the field.
Holmes got major names in the industry to invest almost a billion dollars in Theranos. The investors included the Walton family, who owns Walmart; Rupert Murdoch, the major media mogul; the family of Betsy DeVos, who was the former secretary of education under the Trump administration; Larry Ellison, the founder of Oracle; and many other people with deep pockets. Meanwhile, Theranos’ board of directors also had dazzling names including former U.S. secretaries of state Henry Kissinger and George Shultz and former U.S. secretaries of defense James Mattis and William Perry.
The people who invested in Theranos and sat on its board are a reflection of today’s stock market: it is dominated by trillions of dollars of private wealth, estimated by the Economist in 2018 to be in the range of $9 trillion.
The twist in this tale of fraud and greed is that the court did not convict Holmes of defrauding the thousands of patients who used Theranos’ faulty tests. On those counts, she walked free. In the heartland of capital, the real sin is to defraud investors, not your customers. This is good old-fashioned American justice: customers are fools, and it is alright to treat them as such—with the notable exception of the investors who are big money. In the Theranos case, the company’s investors had put in $945 million betting on the success of a technology hyped by Elizabeth Holmes, who followed one of the best traditions of Silicon Valley: fake it till you make it!
What was Theranos faking? It claimed that it is unlike conventional blood testing methods, which need to take about 3 cubic centimeters (or milliliters) of blood, normally drawn from one of the veins (venipuncture) in the crook of the arm. The amount could increase to 30 ccs depending on the number and type of tests. But Theranos claimed that they used a small container called a “nanotainer” and a special machine called the Edison to take only “a few drops of blood, or about 1/100th to 1/1,000th of the amount” of blood required for conventional tests in order to run a battery of tests. Later on, the Edison was replaced by another machine called a miniLab, which was supposed to deliver even better results and run a larger number of tests.
It was not that the Edison or miniLab did not deliver results; they did. But the results had very large errors. And it wasn’t just the accuracy of its tests that Theranos was faking. The company also claimed it could do more than 1,000 tests using its miniLab, while in truth, the device could perform only 12 tests at a time. Theranos further claimed it did not use any equipment but its own devices in its chain of diagnostic labs. Contrary to these claims, the bulk of its tests were performed using commercially available machines from other companies. In fact, the company tested the small nanotainer samples of blood it collected on the conventional machines by diluting the samples to increase the volumes required by these commercially available machines.
Not surprisingly, these tests carried out either using Edison or conventional machines after diluting the samples had large errors. The patients were the victims of these results. For example, during the trial, evidence was placed that a Theranos test indicated a patient had suffered a miscarriage when she had not.
A reporter, Roger Parloff, wrote a cover story for Fortune magazine in June 2014, on how Theranos was bringing a revolution to the testing industry by using the finger-stick method—which is routinely used, for example, to check a person’s blood sugar at home and which draws only a drop or two of blood from the capillaries that lie close to the skin rather than a larger amount from a vein—and how the company could perform a number of tests using only a few drops of blood. Parloff wrote, “To me, it felt more like a tap than a puncture.” The Fortune magazine article went on to highlight the large number of tests Theranos could carry out at a lower cost than its competitors, as Ars Technica reported.
Parloff further wrote in his article that Theranos’ “tests can be performed on just a few drops of blood, or about 1/100th to 1/1,000th of the amount that would ordinarily be required—an extraordinary potential boon to frequently tested hospital patients or cancer victims, the elderly, infants, children, the obese, those on anticoagulants, or simply anyone with an aversion to blood draws.” He eventually issued a correction for his story in Fortune magazine on December 17, 2015, after John Carreyrou started a series of exposes relating to Theranos’ claims in the Wall Street Journal in October 2015. The Wall Street Journal’s series started the unraveling of the media image of Theranos and ultimately led to its downfall.
It was articles like the one done by Fortune magazine and the support by high-profile persons in Silicon Valley that put Elizabeth Holmes on the road to stardom and led to her company becoming one of the heavyweights in the biotech industry. She was photogenic and was selling an idea that was both easy to grasp and, with advancements in technology hurtling at a breakneck speed, believable to the billionaires out to make a killing through early investments in successful ideas. The Theranos problem was that Holmes faked it too far and left too many paper trails regarding her claims that were verifiably wrong.
Holmes was a 19-year-old dropout from Stanford whose family had “enough money” for her to hire a lawyer to file her patent instead of working a summer job during college. She teamed up with Sunny Balwani, a tech entrepreneur, who had successfully sold out from one of the startups netting reportedly $40 million during the 1990s dot-com bubble. He joined as the chief operating officer (COO) of Theranos with Holmes as its CEO. Balwani is also being sued separately for fraud.
The media, including those who are disturbed by the trial focusing on fraud of investors, not of the patients who got erroneous results, do not understand bourgeois law. Protecting private property is central to bourgeois law, not people. It is the task of regulations to see that the public is protected from harm by companies acting to maximize their profits. These regulations have been systematically weakened to help capitalism against the interests of the consumer, as seen during the hyper-capitalist regime starting with the 1990s, which we call neoliberalism.
The case against Elizabeth Holmes was that she was supplying doctored evidence or making false statements to investors. Lying to users of Theranos tests is apparently not fraud; or as Elizabeth Lopatto put it in her article in the Verge, “For the charges to stick, jurors had to believe Holmes had intended to defraud patients, not merely give them bad results.” Giving bad results knowingly to patients is not a crime, but apparently giving wrong information to investors is.
Why did the regulators not look at Theranos’ Edison and miniLab instruments? At its height, Theranos was generating 890,000 tests a year without its lab or instruments needing to conform to any U.S. regulation or law. This is the big loophole in U.S. regulations: any laboratory-developed diagnostic test designed, manufactured and used within a single laboratory is not regulated. This is true not only for Theranos tests but also for a number of other tests, notably cancer tests that use the same loophole. Will this case and verdict change the laboratory test industry and plug the loopholes in the system that have come to light due to the Theranos case? Nothing that we see currently shows any inclination by the U.S. authorities to regulate the biotech industry on this count; unless we see more cases like that of Theranos happen to shake up the industry.
Theranos ceased operations in 2018, and Holmes is now waiting for her sentencing. The company’s stock and its technology are now worthless. The house of cards that Holmes and Balwani built has collapsed. But will it change the oldest tradition in Silicon Valley of trying to fake it till you make it? Lopatto takes a more cynical view in her article that it will only make Silicon Valley more cautious about not getting caught red-handed while lying to investors. Lying to the people is okay—as the Theranos verdict shows—but not to those with deep pockets.