How Elizabeth Holmes Fooled Everyone

Reporter John Carreyrou details how the Theranos founder almost pulled off the fraud of a generation and why it matters.
For years, Elizabeth Holmes convinced people that her company was about to revolutionize blood tests.
For years, Elizabeth Holmes convinced people that her company was about to revolutionize blood tests.
Illustration: HuffPost; Photo: Adam Jeffery via Getty Images

Elizabeth Holmes, the founder and former CEO of the disgraced medical device startup Theranos, thought it was time for her “rebound.” Never mind that she had lost millions of dollars for investors like Rupert Murdoch and Betsy DeVos and that she had settled charges with the Securities and Exchange Commission under the promise not to head a public company for 10 years ― Holmes was pitching investors on a new startup idea earlier this month.

She wasn’t alone in denying the gravity of her situation, according to Wall Street Journal reporter John Carreyrou, who exposed that Theranos’ widely hailed blood-testing device did not work in October 2015.

“Until [the indictment on June 15], people were dismissing this as the biggest car crash in Silicon Valley, but not this giant fraud that’ll mark our era the way Enron has,” Carreyrou told HuffPost.

The U.S. Attorney’s Office for the Northern District of California dashed that idea when it obtained an indictment charging Holmes with two counts of conspiracy to commit wire fraud and nine counts of wire fraud on the grounds that she made false claims about the blood-testing device to investors, doctors and patients.

Holmes and Theranos said they’d developed a new machine, a “miniLab,” that could screen for a multitude of diseases using just drops of blood obtained by a prick of the finger ― a particular selling point for the needle-phobic Holmes. They said their device was more accurate, more reliable and faster than conventional blood tests. If it had worked, Theranos could have revolutionized the way we screen for hundreds of diseases.

Prosecutors say they lied.

Theranos allegedly made fraudulent efforts to hide their product’s flaws. Sometimes, the company used the industry-standard Siemens machine instead of its own miniLab to test pinpricks of blood, which they first diluted to produce a big enough sample for the Siemens. Sometimes they simply drew blood the old-fashioned way.

The Theranos blood tests were rolled out at Walgreens in Arizona, putting hundreds of patients at risk of receiving inaccurate results that failed to catch a dangerous condition with a false negative ― or that pushed them into costly and unnecessary tests and procedures due to a false positive.

If convicted, Holmes ― once lauded as the youngest self-made female billionaire ― could face a maximum sentence of 20 years in prison and fines of $250,000, plus potential restitution, on each of the 11 counts against her.

In his new book, Bad Blood: Secrets and Lies in a Silicon Valley Startup, Carreyrou details how Holmes used charm and secrecy to allegedly swindle investors and corporate America, growing a $9 billion company in the process. He spoke to HuffPost about how she almost managed to pull it all off amidst a Silicon Valley boom.

The New Yorker recently called this summer “grifter season” due to your book and a few other recent stories of scammers, like fake socialite Anna Dulvey. Is there some surge in attention to fraudulent behavior? And if so, to what do you attribute it?

I think there have been swindlers since the beginning of humanity and there will continue to be. But in some ways, I feel like there have been more swindlers in America and in the short history of the United States than perhaps elsewhere.

If I’m right about that, then I would assign it to the fact that America, from its founding, was always a hyper-capitalistic society. It has also always been a country where people try to innovate. There are obviously great things about all of that, but one of the downsides is it creates an environment where people are less cynical and less skeptical and where swindlers can thrive arguably more.

Certainly in Silicon Valley for the last 10 years, money has been gushing in. There’s the “vaporware,” the ethos that’s been there for decades that you fake it till you make it. You overpromise to get the funding, and then you use the funding to make the vision a reality and hope the reality catches up to the hype.

That’s especially the Silicon Valley of today in which so many of these private startups have been able to stay private for much longer than their predecessors did in the ’90s, [when] they all went public and then eventually that bubble popped and all the stocks came crashing down.

[Today] companies have stayed private and therefore are able to evade and to avoid transparency. They don’t have to put out quarterly earnings, they don’t have to put out annual reports, and they don’t have to answer analysts’ and journalists’ pesky questions. They can just conduct their business behind closed doors and that makes an environment ripe for swindlers and fraudsters.

“You can apportion blame in many different ways. But ultimately this was a fraud perpetrated first and foremost by Elizabeth Holmes.”

- John Carreyrou, author of "Bad Blood"

You published this book before the current criminal charges, which were announced on June 15. Given your knowledge of Elizabeth Holmes and Theranos’ former president Ramesh “Sunny” Balwani, who was also charged, how do you think this trial ― or a potential plea ― is going to go down?

I think she’s going to take this to trial and try to convince a jury that she did nothing wrong, that really all she did was try to build a company. She had a real vision, tried to develop a device, tried to succeed and ultimately failed ― but that failing at building a company isn’t tantamount to fraud. I think that will be her argument, and Sunny will roughly take the same stance.

I don’t see her negotiating a plea. Her nature is to fight. She is someone who is pretty ruthless, and I say that as someone who was on the other end of it for a while.

You say in a recent Wall Street Journal interview that if you had the chance, you’d ask Holmes how she was able to justify putting patients in harm’s way. What do you think she’d say?

I think she would lie, first of all, and say she didn’t realize that the tests weren’t reliable and therefore that she thought she was rolling out and giving doctors and patients health care results that they could rely on. [But in reality], she was warned repeatedly by the lab director that was my source that there were problems, and he tried to get her repeatedly to delay the launch. She didn’t want to hear it, and neither did Sunny.

They didn’t want any hurdles placed in their paths to delay or thwart this narrative that they were building ― that they were another unicorn and in many ways more impressive than all the Silicon Valley unicorns that had come before because their product was a medical product that really would change the world. It wasn’t just a smartphone app that allows you to hail a cab more easily.

What do Holmes’ parents, [who vigorously defend her in Bad Blood], and brother Christian, who ended up the chief of operations at Theranos, have to say about any of this? Did you ever get a sense?

They haven’t said anything publicly to anyone. I’ve heard through sources that they closed ranks around Elizabeth and they’ve been sympathetic to her portrayal of what happened ― that she didn’t do anything wrong to the extent that mistakes were made by people who led her astray, mainly Sunny.

I don’t think they’ve fully admitted to themselves or to others that there is no getting around the fact that this was a big fraud. ... In fact, I was told by one source that Elizabeth Holmes’ mother, Noelle, thought those SEC charges were going to be the end of it.

The buddy-buddy nature of Theranos with the Obama crowd [she was a White House entrepreneurship ambassador and Vice President Joe Biden visited Theranos’ facilities] and her hosting of a Hillary Clinton campaign fundraiser is something to consider. Do you think she would have dazzled any administration? Was Obama’s White House particularly vulnerable to this progressive ideal of a billionaire woman tech founder?

I don’t think it was the Obama administration that was gullible. I think it was that Elizabeth Holmes was a con artist and very believable, and they were taken in the same way as so many others were taken in.

I could see her doing it with this current administration when you see their inability and unwillingness to vet certain people they’ve had in the White House.

Moreover, it wasn’t just Obama and Biden and that whole administration. It was also a previous president, Bill Clinton, and a presidential candidate, his wife, and their daughter that she also cultivated. They believed her and thought she was the real thing.

You talk a lot in the book about this narrative that Holmes built for herself that she was the female version of Steve Jobs. Do you believe this was her own earnestly felt delusion?

It is part of a delusion. I think it’s fair to call Elizabeth Holmes a fraudster, a swindler. I think a lot of fraudsters are lying to themselves as often as they lie to others and lie to their marks.

Part of what makes them so convincing is that they’ve told so many lies and the lies have gotten so big that the line in their minds between what’s true and what’s a lie becomes blurred. That enables them to continue being able to say these lies with confidence.

Some people believe her voice, which is strikingly deep, is a part of that affectation. I was a little unclear on when that began?

The anecdote you’re citing [from my book] takes place in 2011. An employee has just joined and she is having a meeting with him in her office. … As she’s leaving, she exclaims to the employee that she’s so happy he’s on board and that they’re going to do great things. And this male employee is stunned as she says it because she forgets to put on a deep voice, and she sounds like a normal young woman with a normal young woman’s voice. And he realizes at that point that the deep voice is put on. He figures it makes sense as Silicon Valley is a man’s world and when she started the company as a young female, she probably felt that it was one of the things she needed to do to be taken seriously.

I’ll add I have other people corroborating the voice is put on ― one is a family member who helped me with some parts of the book and another is her best friend at Stanford before she dropped out, who said her voice sounded nothing like that.

There’s something even stronger: this tape of an interview she gave to the talk show BioTech Nation back in 2005 when she was 21 years old and the company was less than 2 years old. She sounds nothing like she sounds later when she’s at the height of her fame. Her voice is higher, she has this bubbly way of talking, and she speaks very fast, almost so fast that she’s stumbling over her words. It becomes clear when you contrast that to what it sounds like 10 years later that she’s completely refashioned her demeanor.

So do you feel that she’s subsumed herself into this new version?

Right, I mean her idol was Steve Jobs, and [she had this] obsession with Steve Jobs and walking in his footsteps and manifesting him in so many ways. One of those ways was wearing those black turtlenecks. She really turned herself into the female version of Steve Jobs, without exaggeration. That’s who she was modeling herself after.

“There’s the ‘vaporware,’ the ethos that’s been there for decades that you fake it till you make it. You overpromise to get the funding, and then you use the funding to make the vision a reality and hope the reality catches up to the hype.”

- John Carreyrou

This is in many ways a millennial story ― the villain and two of your main sources are all millennials. Do you think there’s something unique about this age or generational ideology that influenced their outlook or actions here?

[Sources] Tyler Shultz and Erika Cheung were very freshly minted college graduates when they joined Theranos in the fall of 2013. They both only lasted [less than a year]. Even though they were very young and green and not high-ranking employees, they had seen enough that they were able to corroborate a lot of what my first source had told me. I was really impressed with their intelligence for one, but also their moral compasses. They really had a sense of right and wrong, a strong one, and they felt strongly that what they had seen was wrong, and they felt strongly that it should be exposed.

For everyone who criticizes the millennial generation as one that is spoiled and constantly seeking instant gratification and so on and so forth, I think they’re a counterexample and give the lie to that cliché about millennials. These are two really impressive young people who did the right thing and helped me expose this fraud.

Holmes actively tried to get her faulty technology into the field during the Ebola and Zika outbreaks, which could have harmed or even killed people with a misdiagnosis during an active outbreak situation. Most people would find that unconscionable. Do you think she actively thought, in that deluded sense we were talking about earlier, that she’d be helping people? Or was this more a play to further legitimize the brand?

I’m speculating, but I don’t think she fully articulated in her mind that the warnings she was getting about the lack of reliability of the technology would mean that it would cause people potentially to be misdiagnosed and die. I think it was a case where she was so focused on achieving her ambition that she just simply didn’t want to hear no. She just simply didn’t want to hear problems. She just wanted to plow through and plow on. And that’s the culture she created with Sunny.

The thing to keep in mind is that neither of them had any training in medicine. Sunny had been a software engineer and salesman. He had absolutely no expertise whatsoever, no credentials to be the No. 2 at a diagnostics company. And many of the habits and sort of the cultural things that he brought to bear on Theranos were the wrong things to bring to bear on a company that’s working on a medical product.

[Holmes] had dropped out [of college] as a 19-year-old. She didn’t know anything about how you do things in health care and she never sought to learn how you do things in health care.

“They didn’t want any hurdles placed in their paths to delay or thwart this narrative ... that they were another unicorn and in many ways more impressive than all the Silicon Valley unicorns that had come before because their product ... really would change the world.”

- John Carreyrou

Do you think Holmes ever thought it would all come crumbling down? Or in her mind was this all going to pan out correctly?

I think in her mind it was going to pan out because in her mind it was just overpromising and hoping that the device would catch up.

[She thought] within a few years they would get it working and then this Band-Aid they had created [by using the hacked Siemens machines], they would take them out of the lab. Thanks to the secrecy no one would know about it, and she would get away with it.

At the end of the day, who is to blame for how long this went on?

Elizabeth Holmes and Sunny Balwani are the two culprits here. Yes, you can blame a lot of people for being conned ― you can blame the board; you can blame investors; you can blame the press coverage, the fact that reporters who covered her lionized her [and] weren’t skeptical enough. You can apportion blame in many different ways. But ultimately this was a fraud perpetrated first and foremost by Elizabeth Holmes and as a close second by Sunny Balwani.

Where should we focus first to ensure this kind of thing doesn’t happen again?

I’m not sure there’s an easy fix in terms of a new law or regulation to be passed. I think criminal charges are important as I think they’re a signal to Silicon Valley by the U.S. attorney’s office, by the Justice Department that this sort of behavior will not be tolerated.

They’re making examples of Elizabeth Holmes and Sunny Balwani with this case. They’re sending a very loud and clear message to watch out because if you behave this way, this will happen to you too.

If you hadn’t gotten the tip that led to your investigation, how far do you think this deception would have gone?

I think she would have been exposed eventually.

I think the second they rolled out those tests nationally, the number of bad results that would have gone out to patients and doctors would have skyrocketed. There would have been patient and doctor complaints either to a regulator or to the press.

I think this house of cards would have crumbled at some point. How soon, I don’t know. I think the risks of people dying would have become very real with the national rollout. The magnitude of offering these faulty blood tests in [the planned] 8,000-some [Walgreens] stores, as opposed to [the initial] 45, takes it to a whole new level.

This interview has been edited for length and clarity.

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