Empress Has No Clothes/ Fake It Until She Is Indicted
Dear Friends & Neighbors,
Elizabeth Holmes, 2014 (Attribution: Max Morse for TechCrunch, https://creativecommons.org/licenses/by/2.0/deed.en, Presented at: WindermereSun.com)
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Some said she was overly ambitious. Some said she was the victim of Silicon Valley’s “Fake it til you make it” etho where vision outpaced reality. Personally, I felt that she was the empress who had no clothes on and no conscience toward those whom she may had harmed in the process of either fake it ’til she makes it or fake it ’til she is indicted. The difference between Elizabeth Holmes and most other Silicon Valley startup founders lies in the fact that Theranos’ unreliable testing device had caused harm to potentially far more people’s lives.
The former billionaire and Theranos founder is set to appear in court today, accused of fraud, in the video published on Sep. 8, 2021, “Opening statements set to begin in Elizabeth Holmes trial“, below:
In the video published on March 1, 2019, “Theranos – Silicon Valley’s Greatest Disaster“, below:
ABC News’ Rebecca Jarvis, creator and host of “The Dropout” podcast, breaks down the case against Theranos founder Elizabeth Holmes after the first day of her fraud trial, in the video published on Sep. 9, 2021, “Theranos founder Elizabeth Holmes trial for fraud begins“, below:
Elizabeth Holmes became the world’s youngest self-made female billionaire as CEO of her biotech startup, Theranos. The former Silicon Valley darling now faces criminal trial and 20 years in prison over the Justice Department’s charges that she used the once-hyped blood testing company to defraud investors. Yahoo Finance is turning the page on Theranos, examining arguments to be raised in Holmes’ defense and the culture that fueled her rise and fall. Interviews with a Theranos board member and employee who have never spoken out, as well as experts on Silicon Valley, raise the possibility that Holmes, rather than being a villain, is a victim of a Silicon Valley ethos that values a perfect pitch over proven results, in the video published on Aug. 31, 2021, “Elizabeth Holmes: The ‘Valley of Hype’ behind the rise and fall of Theranos [documentary]“, below:
On March 14, 2018, Theranos, Elizabeth Holmes, and former company president Ramesh “Sunny” Balwani were charged with fraud by the U.S. Securities and Exchange Commission (SEC) for taking more than $700 million from investors while advertising a false product. Holmes settled an SEC lawsuit. On June 15, 2018, the United States Attorney for the Northern District of California announced the indictment of Holmes on wire fraud and conspiracy charges (In June 2018, a federal grand jury indicted Holmes and former Theranos Chief Operating Officer (COO) Ramesh Balwani on nine counts of wire fraud and two counts of conspiracy to commit wire fraud for distributing blood tests with falsified results to consumers.[7][8]). Balwani was also indicted on the same charges. The trial was scheduled to commence in August 2020, but was delayed due to the COVID-19 pandemic and Holmes’ pregnancy. Holmes’ trial began on August 31, 2021 (The case, U.S. v. Holmes, et al.), while Balwani’s trial has been postponed until January 11, 2022. More about this is taken from excerpt in wikipedia, in italics, below:
The charges of fraud included the company’s false claim that its technology was being used by the U.S. Department of Defense in combat situations.[58] The company also lied when it claimed to have a $100 million revenue stream in 2014. That year, the company only made $100,000.[59] The terms of Holmes’ settlement included surrendering voting control of Theranos, a ban on holding an officer position in a public company for 10 years, and a $500,000 fine.[60][61][62]
At its height in 2015, Theranos had more than 800 employees.[63] It dismissed 340 people in October 2016 and an additional 155 in January 2017.[64] In April 2018, Theranos filed a WARN Act notice with the State of California, announcing its plans to permanently lay off 105 employees, leaving it with fewer than two dozen employees.[63][65] Most of the remaining employees were laid off in August 2018. On September 5, 2018, the company announced that it had begun the process of formally dissolving, with its remaining cash and assets to be distributed to its creditors.[66]
Excerpt from The case, in italics, below U.S. v. Holmes, et al.
Elizabeth Holmes and Ramesh “Sunny” Balwani are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. According to the indictment, the charges stem from allegations that Holmes and Balwani engaged in a multi-million-dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients. Both schemes involved efforts to promote Theranos, a company founded by Holmes and based in Palo Alto, California. Theranos was a private health care and life sciences company with the stated mission to revolutionize medical laboratory testing through allegedly innovative methods for drawing blood, testing blood, and interpreting the resulting patient data.
Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos’s blood testing laboratory services, even though, according to the government, the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests. It is further alleged that the tests performed on Theranos technology were likely to contain inaccurate and unreliable results.
The indictment alleges that Holmes and Balwani defrauded doctors and patients (1) by making false claims concerning Theranos’s ability to provide accurate, fast, reliable, and cheap blood tests and test results, and (2) by omitting information concerning the limits of and problems with Theranos’s technologies. The defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests, including the tests for calcium, chloride, potassium, bicarbonate, HIV, Hba1C, hCG, and sodium. The defendants nevertheless used interstate electronic wires to purchase advertisements intended to induce individuals to purchase Theranos blood tests at Walgreens stores in California and Arizona. Through these advertisements, the defendants explicitly represented to individuals that Theranos’s blood tests were cheaper than blood tests from conventional laboratories to induce individuals to purchase Theranos’s blood tests.
According to the indictment, the defendants also allegedly made numerous misrepresentations to potential investors about Theranos’s financial condition and its future prospects. For example, the defendants represented to investors that Theranos conducted its patients’ tests using Theranos-manufactured analyzers; when, in truth, Holmes and Balwani knew that Theranos purchased and used for patient testing third party, commercially-available analyzers. The defendants also represented to investors that Theranos would generate over $100 million in revenues and break even in 2014 and that Theranos expected to generate approximately $1 billion in revenues in 2015; when, in truth, the defendants knew Theranos would generate only negligible or modest revues in 2014 and 2015.
The indictment alleges that the defendants used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors. Specifically, the defendants claimed that Theranos developed a revolutionary and proprietary analyzer that the defendants referred to by various names, including as the TSPU, Edison, or minilab. The defendants claimed the analyzer was able to perform a full range of clinical tests using small blood samples drawn from a finger stick. The defendants also represented that the analyzer could produce results that were more accurate and reliable than those yielded by conventional methods – all at a faster speed than previously possible. The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false. For example, it is alleged that Holmes and Balwani knew that the analyzer had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines.
The indictment charges each defendant with two counts of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and nine counts of wire fraud, in violation of 18 U.S.C. § 1343. If convicted, the defendants face a maximum sentence of twenty (20) years in prison, and a fine of $250,000, plus restitution, for each count of wire fraud and for each conspiracy count. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553. Both defendants are currently out of custody.
Founding of Theranos (based on excerpt from wikipedia, in italics, below)
In 2003 Holmes founded the company Real-Time Cures in Palo Alto, California, to “democratize healthcare”.[14][20][21][22] Holmes described her fear of needles as a motivation and sought to perform blood tests using only small amounts of blood.[11][20] When Holmes initially pitched the idea to reap “vast amounts of data from a few droplets of blood derived from the tip of a finger” to her medicine professor Phyllis Gardner at Stanford, Gardner responded, “I don’t think your idea is going to work”, explaining it was impossible to do what Holmes was claiming could be done. Several other expert medical professors told Holmes the same thing.[11] However, Holmes did not relent, and she succeeded in getting her advisor and dean at the School of Engineering, Channing Robertson, to back her idea.[11]
In 2003, Holmes renamed the company Theranos (a portmanteau of “therapy” and “diagnosis”).[23][24] Robertson became the company’s first board member and introduced Holmes to venture capitalists.[12]
As the long-awaited trial of Theranos founder and former CEO Elizabeth Holmes gets underway, WSJ looks back at the scandal’s biggest milestones and speaks with legal reporter Sara Randazzo about what we can expect to see in the fraud trial, in the video published on Aug. 24, 2021, “Theranos Founder Elizabeth Holmes on Trial: What to Expect | WSJ“, below:
In the video published on Aug. 8, 2021, “Elizabeth Holmes exposed: the $9 billion medical ‘miracle’ that never existed | 60 Minutes Australia“
More details from wikipedia regarding Theranos, in italics, below:
Downfall
John Carreyrou of The Wall Street Journal initiated a secret, months-long investigation of Theranos after he received a tip from a medical expert who thought the Edison blood testing device seemed suspicious.[15] Carreyrou spoke to ex-employee whistleblowers and obtained company documents. When Holmes learned of the investigation, she initiated a campaign through her lawyer David Boies to stop Carreyrou from publishing, which included legal and financial threats against both the Journal and the whistleblowers.[15][39]
In October 2015, despite Boies’ legal threats and strong-arm tactics, Carreyrou published a “bombshell article”[40] detailing how the Edison device gave inaccurate results, and revealing that the company had been using commercially available machines made by other manufacturers for most of its testing.[41] Carreyrou continued to expose problems with the company and Holmes’ conduct and at in a series of articles and, in 2018, published a book titled Bad Blood: Secrets and Lies in a Silicon Valley Startup, detailing his investigation of Theranos.[42][43]
Holmes denied all the claims, calling the Journal a “tabloid” and promising the company would publish data on the accuracy of its tests.[44][45] She appeared on CNBC‘s Mad Money the same evening the article was published. Cramer said, “The article was pretty brutal”, to which Holmes responded, “This is what happens when you work to change things, first they think you’re crazy, then they fight you, and then all of a sudden you change the world.”[46]
In January 2016, the Centers for Medicare and Medicaid Services (CMS) sent a warning letter to Theranos after an inspection of its Newark, California laboratory uncovered irregularities with staff proficiency, procedures, and equipment.[47] CMS regulators proposed a two-year ban on Holmes from owning or operating a certified clinical laboratory after the company had not fixed problems in its California lab in March 2016.[48] On The Today Show, Holmes said she was “devastated we did not catch and fix these issues faster” and said the lab would be rebuilt with help from a new scientific and medical advisory board.[49][50]
In July 2016, CMS officially banned Holmes from owning, operating, or directing a blood-testing service for a period of two years. Theranos appealed that decision to a U.S. Department of Health and Human Services appeals board.[11][51] Shortly thereafter, Walgreens ended its relationship with Theranos and closed its in-store blood collection centers.[52] The U.S. Food and Drug Administration also ordered the company to cease use of its Capillary Tube Nanotainer device, one of its core inventions.[53]
In 2017, the State of Arizona filed suit against Theranos, alleging that the company had sold 1.5 million blood tests to Arizonans while concealing or misrepresenting important facts about those tests. In April 2017, the company settled the lawsuit by agreeing to refund the cost of the tests to consumers, and to pay $225,000 in civil fines and attorney fees, for a total of $4.65 million.[54] Other reported ongoing actions include an unspecified investigation by the U.S. Federal Bureau of Investigation and two class action fraud lawsuits. Holmes denied any wrongdoing.[11]
On May 16, 2017, approximately 99 percent of Theranos shareholders reached an agreement with the company to dismiss all current and potential litigation in exchange for shares of preferred stock. Holmes released a portion of her equity to offset any dilution of stock value to non-participating shareholders.[55][56]
In March 2018 the U.S. Securities and Exchange Commission (SEC) charged Holmes and Theranos’ former president, Ramesh Balwani, with fraud by taking more than $700 million from investors while advertising a false product. On March 14, 2018, Holmes settled an SEC lawsuit.[57] The charges of fraud included the company’s false claim that its technology was being used by the U.S. Department of Defense in combat situations.[58] The company also lied when it claimed to have a $100 million revenue stream in 2014. That year, the company only made $100,000.[59] The terms of Holmes’ settlement included surrendering voting control of Theranos, a ban on holding an officer position in a public company for 10 years, and a $500,000 fine.[60][61][62]
At its height in 2015, Theranos had more than 800 employees.[63] It dismissed 340 people in October 2016 and an additional 155 in January 2017.[64] In April 2018, Theranos filed a WARN Act notice with the State of California, announcing its plans to permanently lay off 105 employees, leaving it with fewer than two dozen employees.[63][65] Most of the remaining employees were laid off in August 2018. On September 5, 2018, the company announced that it had begun the process of formally dissolving, with its remaining cash and assets to be distributed to its creditors.[66]
Criminal charges
On June 15, 2018, following an investigation by the U.S. Attorney’s Office for the Northern District of California in San Francisco that lasted more than two years, a federal grand jury indicted Holmes and former Theranos chief operating officer and president, Ramesh “Sunny” Balwani, on nine counts of wire fraud and two counts of conspiracy to commit wire fraud. Both pleaded not guilty. Prosecutors allege that Holmes and Balwani engaged in two criminal schemes, one to defraud investors, the other to defraud doctors and patients.[7][67] After the indictment was issued, Holmes stepped down as CEO of Theranos but remained chair of the board.[8]
In June 2019, Bloomberg News reported Holmes and Balwani were looking into a possible defense strategy of blaming the media for the downfall of Theranos and whether journalist John Carreyrou’s reporting caused undue influence upon government regulatory agencies in order to write a sensational story for The Wall Street Journal.[68] Later unsealed documents indicated Holmes’ plans to blame Balwani, who “dominated” her to such an extent she was unable to make her own decisions. “Ms. Holmes plans to introduce evidence that Mr. Balwani verbally disparaged her and withdrew ‘affection if she displeased him’; controlled what she ate, how she dressed, how much money she could spend, who she could interact with – essentially dominating her and erasing her capacity to make decisions.” Holmes may also be preparing a “mental defect” defense, to explain why she was dominated by Balwani.[69]
In October 2019, The Mercury News reported that Cooley LLP, Holmes’ legal team in a class-action civil case, requested that the court allow them to stop representing her, stating that she had not paid them in a year for services, and that “given Ms. Holmes’s current financial situation, Cooley has no expectation that Ms. Holmes will ever pay it for its services as her counsel.”[70] In November 2019, The Recorder reported that Senior District Judge H. Russel Holland, who was overseeing the civil case, indicated that he would allow Cooley to withdraw.[71]
In February 2020, Holmes’ defense requested a federal court to drop all charges against her and her co-defendant Balwani. A federal judge examined the charges and ruled that some charges should be dropped: since the Theranos blood tests were paid for by medical insurance companies, the patients were not deprived of any money or property. Prosecutors would hence not be allowed to argue that doctors and patients were fraud victims. However, the judge kept the 11 charges of wire fraud.[72][73]
In August 2020, prosecutors filed a third superseding indictment, adding a twelfth fraud charge relating to a patient’s blood test. Holmes and her legal team reacted by claiming the new indictment violates her rights because the grand jury that handled it was created during the pandemic and not selected at random from a fair cross-section of the community, and they requested access to the jury selection records. Subsequently, prosecutors urged the court to deny Holmes’ request, saying she was asking for too much by suggesting “without basis” that the jurors were improperly selected.[74][75]
In late August 2020, Holmes’ legal team filed new motions seeking the dismissal of seven of the 12 felony fraud charges, claiming that Judge Edward Davila had made a mistake about her obligations to the Theranos investors.[76]
In September 2020, Bloomberg News reported that Holmes was exploring a “mental disease” defense for her criminal fraud trial when the judge overseeing the case ruled that government prosecutors can examine Holmes.[77][78]
In February 2021, federal government prosecutors accused Holmes and other executives of destroying evidence in Theranos’ final days in business. The attorney for Holmes argued the government was to blame for their failure to preserve critical evidence. The specific evidence in question concerned the company’s history of internal testing, including the accuracy and failure rates of Theranos’ blood-testing systems.[79]
U.S. v. Holmes, et al.
The criminal trial of Holmes in the case of U.S. v. Holmes, et al. (5:18-cr-00258-EJD) is being held in the United States District Court for the Northern District of California. It began on August 31, 2021,[80] after being delayed for over a year due to the COVID-19 pandemic and Holmes’ pregnancy.[81] If convicted, Holmes faces a maximum sentence of twenty years in prison, and a fine of $250,000, plus restitution, for each count of wire fraud and for each conspiracy count.[80][82] The case is being prosecuted by the United States Attorney for the Northern District of California, and Holmes is defended by premier litigation firm Williams & Connolly LLP. A jury was selected on September 2, 2021, composed of 7 men and 5 women who are residents of Santa Clara County.[83] The trial is expected to last 13 weeks or longer.[83]
CNBC’s Scott Cohn reports on the opening statements set for the start of Theranos founder and CEO Elizabeth Holmes’ fraud trial, in the video published on Sep. 8, 2021, “What to expect from Elizabeth Holmes’ trial on alleged Theranos fraud“, below:
Remember the name Theranos? It was touted as a revolutionary blood-testing start-up–until 2018, when it came crashing down and its founder, Elizabeth Holmes, was charged with fraud. Tyler Shultz worked at the company before becoming a whistleblower about the technology, which didn’t actually work. In his new podcast, “Thicker Than Water,” he tells his side of the story. Hari Sreenivasan talks to Schultz about that, and about lessons learned as it relates to the hunt for a COVID-19 vaccine, in the video published on Aug. 7, 2020, “The Whistleblower Who Exposed Theranos | Amanpour and Company“, below:
It is amazing to find that hundreds of millions of dollars were raised and not a single investor ever saw or audited the financial statements of Theranos. It is also shocking to find these Theranos’ unreliable medical lab tests being used in public before the company, Elizabeth Holmes, and Ramesh “Sunny” Balwani were indicted.
CNBC’s Yasmin Khorram sits down with author and reporter John Carreyrou to discuss the criminal fraud trial of former Theranos CEO Elizabeth Holmes and his new podcast: “Bad Blood: The Final Chapter.” in the video published on July 9, 2021, “Reporter who broke Theranos scandal predicts outcome of trial“, below:
For more details about Theranos, please click HERE.
For more details about Elizabeth Holmes, please click HERE.
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