When a fraudulent person gets away with something heinous, they ought to think that “crime doesn’t pay” is for losers. Elizabeth Holmes of Theranos had definitely thought that after becoming the youngest self made billionaire woman in 2014.
Born in 1986, Elizabeth Holmes is a former CEO of a medical diagnostic company called “Theranos” and currently is a convicted fraudster. Her 50 percent stake in the company earned her billions by 2014 but soon everything came to a halt when the serious acquisitions and questions were brought against the practices of Theranos. In 2018, she was forced to relinquish control of the company and got convicted in 2022. She is yet to be imprisoned though.
Let’s dive in to see how someone with such a progression could fall so low.
Background and Education
Elizabeth Holmes grew up in Washington, D.C., and Houston, Texas, and spent time in China during high school where she started a business selling computer software to universities in Asia. She pursued a degree in electrical and chemical engineering at Stanford University and left during her sophomore year to launch Theranos, a company devoted to developing minimally invasive laboratory testing services. Theranos produced its first offering in 2014, a laboratory testing process that claimed to run more than 1,000 medical tests on an individual after collecting only a few drops of blood. Between 2003 and 2014, Holmes grew Theranos by securing funding from investors and developing the company's proprietary processes in secret. By 2014, Theranos had provided more than 200 diagnostic tests, was licensed to operate in almost all 50 U.S. states, and held a certification by the U.S. Centres for Medicare & Medicaid Services (CMS), the federal regulator overseeing medical laboratories.
Elizabeth Holmes obtained funding for her startup, Theranos, by securing investments from a variety of sources, including venture capitalists, high-profile investors, and corporations. She successfully raised hundreds of millions of dollars in funding for Theranos, based on her vision of a revolutionary blood-testing technology that could perform hundreds of tests using just a few drops of blood. Additionally, Holmes was able to attract major partnerships, including a partnership with Walgreens, a leading pharmacy chain, which helped to further legitimise the company and attract additional investment.
She was involved in a scandal where the company exaggerated the capabilities of their medical testing device, the Edison. In 2016, CMS blocked Theranos from receiving reimbursements from Medicare and Medicaid and banned Holmes from operating a medical laboratory for two years. In 2018, Holmes settled charges of fraud with the SEC and resigned as CEO. Later that year, Theranos ceased operations. In 2021, Holmes was tried in court for 11 counts of fraud and was convicted on four counts. She was sentenced to over 11 years in prison in 2022. Theranos' former president, Ramesh Balwani, was also found guilty of wire fraud and conspiracy to commit wire fraud in 2022.
What Went Wrong?
Academics and medical researchers started to question the practices of Theranos around 2015 because of Holmes’ insistence on secrecy and refusal to provide primary data for independent evaluation of testing efficiency of Theranos devices. An opinion paper called “Theranos Phenomenon, Promises and Fallacies” written by Eleftherios Diamandis, a Canadian Biochemist, in the journal “Clinical Chemistry and Laboratory Medicine (C.C.L.M) criticised Theranos for claiming absurd things about conventional testing done in centralised laboratories. Theranos claimed that the conventional laboratories take up to 4 days to compile test results, which is not true at all. Diamandis stated that it’s far from the truth and 90% of the renal tests are done within an hour. He also claimed that the quality of the tests done by Theranos can not be verified since the data is not provided to independent researchers and evaluators. He also contested the idea of Theranos being a cheaper option against centralised laboratory tests. According to him, conventional technology only becomes expensive with overhead and personnel costs. At Theranos, they were trying to identify early biochemical changes of diseases in asymptomatic individuals, which could lead to 5% false positive results, meaning abnormal test readings in otherwise normal individuals. This could lead to anxiety in patients and investigating such false positive results could be rather expensive.
Elizabeth Holmes also claimed that each test in centralised labs requires a separate test tube of blood sample, which is not accurate at all. With 7 ml of blood, around 100 tests can be done.
When the questions regarding the efficacy of the Theranos Testing abilities were first brought to question in 2014, it was only thought that they had only failed operationally but questions regarding financial mishandling and breaking the investors trust were brought after a while when Food and Drug Administration of USA opened investigation against them.
On the website, Theranos were promising to analyse 240 different diseases according to Holmes but around December 2014 John Carreyrou of Wall Street Journal reported that a few employees had confessed of only 15 tests being done by their Testing Device called Edison. They were not so sure of the efficiency of the tests either. In fact they were using traditional test equipment for most tests and inaccuracies in Edison’s testing results weren't reported either, which is a violation of federal rules for laboratories.
Elizabeth Holmes hired Mr. Ian Gibbons, a British Biochemist to work on blood tests from micro amounts of fluids. He joined Theranos in 2005 and he committed suicide in 2013 and according to his widow, he was rather hopeless about the technology ever coming to reality towards the end of his life. Although Theranos disputed during that time that its technology was ever failing.
A lawyer representing Theranos even threatened to sue the widow of Mr. Ian Gibbons if she continued to talk to the media about it.
Testing instruments like Edison didn’t need to get approval from FDA because Theranos didn’t sell it to other labs but they applied for clearance for over 120 tests anyway.
They never revealed whether or not they were approved.
To receive payments from Medicare and Medicaid in the USA, accredited organisations send out samples to firms like Theranos several times a year and they have to apply tests and send the reports back. If the results are close to the average of a peer group, a passing grade is given.
Theranos applied for that and according to some internal emails, they were using both the traditional testing machines and theranos’ proprietary Edison and the results produced by Edison were off.
One of the two main whistleblowers to Theranos’ unethical practices was Erika Cheung, who joined the company in 2013 but resigned very soon. In 2015, despite the intimidation and pressure from Theranos, she wrote an email to Center for Medicare and Medicaid containing details of theranos operations. She dubbed the testing device Edison of having “major stability, precision and accuracy problems”.
Cheung graduated from U.C Berkley in molecular and cell biology and joined Theranos in 2013. She was assigned to a quality control test program and she had a great vantage point at Theranos where she could see the technology fail miserably. Reliable and repeatable results could not be achieved and many results were discarded as anomalous because they were unfavourable. At the time Theranos were installing the technology in the Wallgreens Stores which was making the lives of people at risk.
Funding Sources for Theranos
Elizabeth Holmes extracted millions of dollars in funding from seasoned venture capitalists and investors and Theranos was soon valued at around 1 billion dollars but the technology she promised to deliver never took off. She did that while nobody was able to raise questions about the validity of the Theranos operations for over a decade. In his book, “Bad Blood, Secrets and Lies in Silicon Valley”, John Carreyrou estimated that one of the reasons for it was an extremely restrictive approach regarding the information shared outside the Theranos campus by the employees. They were made to sign non-disclosure agreements and ex employees were often intimidated through litigation. Although a few of the ex employees still decided to blow the whistle and that’s how John was able to write the book and investigate what was going on behind the Theranos Campus walls.
Allegations Against Her?
Elizabeth Holmes has been found guilty of defrauding investors as founder and CEO of Theranos. After four months of court proceedings and seven days of deliberations, the jury has reached a verdict that will have lasting implications in Silicon Valley and beyond.
Although she wasn’t found guilty of defrauding patients, the jury found her guilty of defrauding investors and conspiring to defraud investors. Theranos has been dissolved since 2018 and Elizabeth Homes and Sunny Balwani have been indicted for fraud. Criminal Trial was delayed due to the pandemic and the prosecution spent 11 weeks questioning witnesses like Erica Cheung, investors and medical professionals to develop a case against her.
Prosecution said that she projected data in the direction of investors which was misleading at the least, she contested against that and tried to put the blame on the scientists and engineers. Although Prosecution was able to convince the jury that she knowingly misled the investors. One of their key investors, Rupert Murdoch of Wall Street Journal, came to Theranos Headquarters and they manipulated his test results when the blood tests for demonstration were performed on him.
On April 27th, she is anticipated to begin serving an 11-year prison sentence, following her conviction on four counts of fraud last year. Despite her legal team's efforts to postpone her incarceration, including a request for a new trial, Judge Edward Davila, who oversaw her high-profile case, has denied her bail application. Although Davila acknowledges that Holmes does not pose a flight risk or a danger to her community, the court has not discovered any compelling grounds to keep her out of jail. Holmes is expected to appeal this decision to the 9th Circuit Court, but her appeal is unlikely to succeed, as the court rejected a similar appeal from former Theranos COO Ramesh "Sunny" Balwani, who was convicted on 12 counts of fraud.
Holmes had claimed that she would raise "significant questions" that could justify a new trial. Her legal team also argued that she should be allowed to remain free to care for her two young children, one of whom was born this year.
However, US District Judge Edward Davila, in his ruling on Monday, stated that Holmes had failed to demonstrate that her appeal would result in a new trial. He remarked that Holmes' misrepresentations to Theranos investors went beyond just the accuracy and reliability of Theranos technology.
Prosecutors, on the other hand, contended that Holmes was a flight risk because she had purchased a one-way plane ticket to Mexico during her trial. Holmes' lawyers argued that she and her partner Billy Evans had intended to attend a wedding and hoped that she would be acquitted.
In his ruling, Judge Davila acknowledged that the ticket purchase was "unwise," but he stated that it did not indicate an attempt to flee. He added that "booking international travel plans for a criminal defendant in anticipation of a complete defence victory is a bold move, and the failure to promptly cancel those plans after a guilty verdict is a perilously careless oversight."
Holmes was found guilty of four counts of fraud in January of last year and expressed "deep pain" for those who were deceived by the scam during her court appearance.
It is anticipated that Holmes will make another attempt to avoid imprisonment while her appeal is pending, which may take at least a year, by appealing to a San Francisco court to overturn her conviction. The BBC has attempted to contact Holmes' legal team for a response.
Last year, Holmes' former business associate, Sunny Balwani, was sentenced to almost 13 years in jail for fraud.
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