At age 19, Elizabeth Holmes dropped out of Stanford to start Theranos, a blood-testing company that promised to revolutionize the industry. Seventeen years later, she’s set to go on trial for conspiracy and fraud and faces up to 20 years in prison, because the highly touted Theranos blood tests didn’t work like they were supposed to, and the company was using standard commercial machines even while they told everyone—doctors, patients, and the media—otherwise.
On Friday’s episode of What Next: TBD, I spoke with Rebecca Jarvis—ABC News’ chief business, technology, and economics correspondent, who has spent years covering Elizabeth Holmes and made an investigative podcast about her called The Dropout. We discussed Holmes’ rise and fall, how she might fare at trial, and what Silicon Valley can learn from the cautionary tale of Theranos.
Lizzie O’Leary: What was the elevator pitch for Theranos, and why do you think it was so appealing?
Rebecca Jarvis: Holmes had this message, “I was afraid of needles. I sought to change the world. I started out as this precocious young woman. I am a dropout of Stanford, one of the best universities in the country, so I was weeded out of many students.” She’s an outlier. She raised almost a billion dollars in capital, and this is something that—for women—it’s almost unheard of.
In 2015, the Wall Street Journal reported that the Theranos machines didn’t work like the company said they did, and that they were instead using commercial machines to test patient samples. Since then, Holmes has settled separate civil fraud charges with the Securities and Exchange Commission without admitting guilt. But what the government has to prove now, in the criminal case, is that Holmes wasn’t just a true believer with bad luck, but someone who intended to deceive investors and patients.
The case with the investors is an easier one for Elizabeth because of this idea of Silicon Valley puffery, fake it till you make it, that might work. These were early-stage investments, and the investors should have had a better sense of things. Now that said, she’s lost some of the civil battles on that front. There have been settlements along the way where investors have been paid some degree back of their original investments because they claimed that they made the investment under false pretenses, and that claim was settled out of court.
The second part of the prosecution’s case is about patients. People who used Theranos blood tests and got inaccurate and sometimes devastating results. People like breast cancer survivor Sheri Ackert.
Sheri had breast cancer. She had recovered. She went out, got a Theranos test. The Theranos test came back showing levels that indicated her breast cancer had returned. Sheri has a week of her life where she believes, based on a Theranos test, that her breast cancer has returned. It only becomes clear that that is not the case when she takes a blood test that is not a Theranos test.
There are people who thought one thing about their lives, and the diametric opposite was the case, and it was because of a Theranos test. In the last year and a half, I’ve thought so much about these Theranos tests. What if in the time of COVID, there was something like that that existed? What if we were fully misinformed about health care and our healthcare decisions based on faulty information?
Sheri Ackert has been subpoenaed to testify. There are 11 patients whose experiences you’ll be hearing about in the courtroom.
The defense is multi-pronged but really central to it is this issue of a missing database. What is that? Why does it matter?
There’s this database that includes results of Theranos tests, millions of them, over the course of a handful of years. They could be very useful because you’d love to see if millions of tests were inaccurate. If a huge percentage of the test based on these results were inaccurate. That is very useful to the government’s case, that this company wasn’t doing what they said that they were supposed to be doing, and they knew it because they have the results.
That someone must have known that these results were inaccurate if there were so many of them.
That’s right. Theranos gave the government what they say is access to this database. The government says, “We never actually got access to it. The file never worked. We could never access the data.” Once the company was dissolved, Theranos wiped its servers. The database is gone. The question is now, how’s the jury going to respond to the evidence of individuals coming forward and saying, “here’s my story, I got an inaccurate test,” versus having a database to back up and say, statistically, here’s a large percentage of people who got inaccurate tests. The defense will argue that it’s all anecdotal. You’ve got 11 people who say that they got bad results, but like that’s 11 people—millions of people got these tests. At the end of the day, though, I have talked to a lot of legal experts on this. They don’t think this makes or breaks the case. Every single legal expert comes back to Elizabeth—that Elizabeth Holmes herself, what she presents to the jury, whether 12 people by the story that Elizabeth Holmes did not intend to do wrong.
When Theranos started to unravel, Holmes was argumentative and denied that anything was wrong. When the company started to be exposed, Holmes seemed to double down. I wonder, as we prepare for the trial, what that behavior might tell you about her, and how she is going to come into this trial?
That is such an important question. I’ve asked a lot of legal analysts and people who are close to Elizabeth what they expect. I think the key question is, is Elizabeth herself going to testify at her trial? The issue there is the SEC depositions, which Elizabeth conducted in 2017. In the depositions, it’s mostly taking the Fifth. I mean, she might not explicitly say that, but—
She says, I don’t know. I don’t know. I don’t know.
Yeah. So which Elizabeth are we going to see at trial? One thing that we will see at trial is that we will see a recent mom, new mom. She will have time to be with her newborn son. There’s breaks that will be set up, and she will also have three individuals in the courtroom with her, family and/or friends who will be at her side.
Holmes’ defense may also try to argue that she was under extreme duress and couldn’t tell right from wrong at the time. We don’t know a lot about this approach yet, but court documents hint at it.
The defense has filed a number of documents to this effect that there could be a conversation around a mental disease or defect. The defense has, in these documents, suggested that there’s a specialist, an expert that they could call on at trial, who is an expert in sexual assault and the impact of that.
I’ve talked to a number of legal experts who believe that that type of defense, a mental disease or defect, can really backfire with a jury. Juries are far less likely to buy into the idea of insanity or somebody doing something not in their right mind, particularly when it’s a series of events over the course of many years versus a one-time breaking point.
Gender is so complicated in this story. And on the one hand, the path for a female founder is unquestionably harder than it is for a man. On the other, so many people, including George Shultz and Jim Mattis, who were on her board, seemed to look the other way past some of the red flags. In part, because they wanted a young woman to succeed. What role you think gender plays in all of this and how might that play out in the courtroom?
I think it’s incredibly complicated. I read an article just the other day, and I’ve heard this from a handful of female founders who say they have struggled in the wake of Elizabeth Holmes to raise money from the venture community because there are people in that community who look at Elizabeth Holmes and say, “Are you the next Elizabeth Holmes?” as though that would only fit one gender. Fraud is genderless.
I’m really struck by the fact that many of the board members and investors never had to own up for their part in promoting Elizabeth Holmes and her lies. Do you think that Silicon Valley has learned anything about what role investors and professional board member class plays in things like this?
I would love to say yes. I think that the sad truth is that history continues to repeat itself. This idea of affinity investing, it still exists, saying, “Oh, I know that guy or girl. They’re great. They’re brilliant. Put your money with them.” That still fully exists today. I do think there are some who will be more cautious. I don’t mean to be cynical, but I don’t get that impression.
I’ve heard people say that there’s more riding on this than just Elizabeth Holmes. That if she goes to prison, that it might be something that says to Silicon Valley, “Hey, fake it till you make it is not a great way to do business.” And if she doesn’t, then it’s game on for whatever you want to do. Do you think that’s fair?
I do. I think a lot of people in Silicon Valley are watching this case. They certainly watched the story unfold, and it will send a signal.