LATEST UPDATE: On January 3rd, 2022 Elizabeth Holmes was convicted on 4 counts of fraud. She is now awaiting sentencing.
In the history of corporate scandals few have captured as many headlines as the story of Theranos and Elizabeth Holmes. Holmes was just 19 when she dropped out of Stanford in 2003 and used the rest of her college funds to launch a blood testing startup called Theranos. Theranos claimed that the proprietary mini lab called Edison could run diagnostics using just a pinprick of blood at a much lower cost than anything else on the market while also detecting medical conditions like cancer and high cholesterol.
While raising funds in 2009, Holmes received a massive loan from her alleged co-conspirator, former software executive Ramesh Balwani. The two would go on to have a clandestine relationship while they were running the company. Theranos remained privately held while raising millions of dollars and attracted many high profile investors. By 2014, Holmes’s company had raised more than $400 million and had an estimated valuation of nearly $10 billion.
As the youngest female self-made billionaire in America at the time, Holmes became a celebrity appearing on magazine covers and was lauded as a Silicon Valley superstar.
The company’s success seemed too good to be true and as it turned out, it was. Several former employees came forward with claims that the tests were being done on third party machines and many patients were receiving inaccurate test results. In 2015, the FDA launched an investigation of Theranos and found quote, “Major inaccuracies in its testing.” This was followed by a criminal investigation and then a second failed US regulatory inspection in 2017, which led to more layoffs and a threat by Holmes to seek bankruptcy protection if investors considered legal action.
Things really started to fall apart in March 2018 when Theranos, Holmes, and a former executive were charged with quote, “Massive fraud,” by the US Securities and Exchange Commission. Holmes agreed to give up financial and voting control of Theranos, pay a $500,000 fine, and return her shares in the company. She was also barred from being a director or officer of a publicly traded company for 10 years.
The final liquidation of the company in September 2018, made any equity investments worthless with investor losses estimated at $700 million. Holmes’s trial is scheduled to begin in March 2021 with federal prosecutors alleging she and former president Ramesh Balwani bilked investors out of hundreds of millions of dollars while deceiving doctors and patients about their testing methodologies and results.
Theranos is one of the great cautionary tales of Silicon Valley. Holmes convinced those around her. They were going to change the world and who wouldn’t want to be a part of that? The appeal to a higher calling is often used by fraudsters to get people to overlook red flags and with Theranos, the appeal was pronounced. In the end, Holmes will always be infamous for her failed Silicon Valley startup.