In 2003, Elizabeth Holmes dropped out of Standard University to launch Theranos. The Silicon Valley startup made the claim that it was able to offer more complete and efficient blood tests for everything under the sun — cholesterol, cancer, diabetes. You name it. Instead of going to a doctor’s office to have vials and vials of blood extracted, Theranos would be capable of accomplishing in-depth blood tests with just a prick and a few drops of blood. Needless to say, the alleged groundbreaking technology had investors digging deep into their pockets, and Holmes managed to collect $400 million.
So how did Holmes go from wunderkind to facing charges of wire fraud? Here’s how it all happened.
Was Theranos everything it claimed to be?
All signs point to no. Just like mom always said, “If it is too good to be true, it probably is.”
By 2014, Holmes had managed to solidify herself as the wealthiest woman in America with a net worth of $9 billion. Yet, backstage, the startup scrambled to live up to its claim to fame. A handful of employees exited the company when they realized that, in fact, the Edison technology was not actually capable of doing all the tests on which it raised those hundreds of millions.
One employee reported to the Wall Street Journal that the Edison device was only able to produce results for 15 tests, and the accuracy of those tests was questionable. When the company was questioned about its testing methods, it floundered. David Boies, Theranos’ lawyer, spoke on its behalf saying that the transition to fully using the Edison device was “a journey.” Until it completed a full transition, the company would continue to traditional lab machines.
When did the waters turn murky for Theranos?
October 2015 marked a pivotal shift in the multi-million startup’s fate, and it was not a good one. The initial accolades turned into suspicion on a governmental level when the FDA cited that Theranos’ blood-collection method appeared to be coming from an “uncleared medical device.”
Fast forward to July 2016. The FDA revoked the company’s right to run labs on blood samples for two years. And by October of that year, Theranos closed its labs and eliminated 340 of its employees based on a hefty 121-page report that cited some major issues with its business practices.
By May 2016, Theranos president and COO Ramesh “Sunny” Balwani tipped his hat and said “buh-bye.” It is safe to assume he had no plans of moving on to bigger and better endeavors. Then, Holmes’ enormous net worth bottomed out to $0, according to Forbes. At this point, investors starting squirming. Walgreens put the kibosh on its partnership with the company, closing the doors to nearly 40 different testing facilities across the nation.
However, it was October 2016 when massive investor Partner Fund Management pulled the trigger on a lawsuit citing securities fraud. To no surprise, the case was settled outside of court. Walgreens followed suit and also received a private settlement — the amount unknown.
- 155 more employees are laid off
- More lawsuits ensue — Theranos paid out $4.65 million to Arizona customers
- Additionally, Theranos agrees to not participate in a single blood test for two whole years
The SEC gets serious with Holmes and Balwani
March 14, 2018, marked the day that Holmes and Balwani became the subject of Securities and Exchange Commission fraud charges. The SEC cited that the millions of investment dollars raised by the pair were “through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.”
Strangely enough, Holmes was given the opportunity to settle for $500,000 while simultaneously agreeing to forego all decision-making for Theranos and not take part in any top management roles for publicly traded companies.
Unfortunately for Holmes and Balwani, more serious charges are knocking on their doors. In June 2018, the U.S. District Attorney for the Northern District of California indicted Holmes and Balwani for wire fraud. The pair could face up to 20 years in the slammer if found guilty of the nine counts wire fraud plus two more counts of conspiracy to commit wire fraud of which they are being accused.
The accusations point to a multi-million dollar bamboozle of doctors, investors, and patients. The Theranos technology appears not to be everything Holmes and Balwani claimed it to be. Along with prison time, the two would have to fork out $250,000 in fines, if convicted. She has also stepped down as the CEO of Theranos.