Clintons, Kissinger, Mattis Among Rich and Powerful Fooled by Silicon Valley Whiz Kid's $700M Fraud
Theranos founder and CEO Elizabeth Holmes has been accused of "massive fraud" by the U.S. Securities and Exchange Commission (SEC), it was announced on Wednesday. Holmes was a Silicon Valley entrepreneur who promised to revolutionize medical testing. She claimed to have developed a product that would change the way blood testing was done and do it for much less. Her product, called Edison, was a small portable device that could run 240 blood tests using just a few drops of blood.
The company was one of the most visible and promising Silicon Valley startups in recent years, raising hundreds of millions of dollars and assembling a prestigious board of directors. Holmes fit the image perfectly: she was a 19-year old college dropout on a mission to help the world, and one of the youngest female CEOs ever. She claimed she was inspired to create her product because she hated needles as a child. She dressed like Steve Jobs, wearing a black turtleneck sweater at most of her public appearances.
Holmes was able to attract supporters that included former Secretaries of State George Shultz and Henry Kissinger, former Secretary of Defense William Perry, former Senators Sam Nunn and Bill Frist, current Secretary of Defense James Mattis, Bill and Hillary Clinton, and famed attorney David Boies, among others. And money flowed in... well... like blood. She was able to raise more than $750 million, valuing the company at $9 billion.
But there was just one problem. No one was ever able to see Edison actually work. Not the board, not the investors, and not even Walgreens, which nevertheless invested $50 million sight unseen. That’s because Edison never did work.
While press coverage was mostly fawning, Wall Street Journal reporter John Carreyrou was skeptical and began to investigate the company. He wrote a series of articles beginning on October 16, 2015, in which he expressed doubts about the company’s claims.
Holmes reacted with indignation, calling the story “factually and scientifically erroneous and based on accusations by disgruntled former employees.”
She said, “Stories like this come along when you threaten to change things, seeded by entrenched interests that will do anything to prevent change, but in the end, nothing will deter us from making our tests the best and of the highest integrity for the people we serve, and continuing to fight for transformative change in health care.”
Holmes took her indignation to Jim Cramer’s "Mad Money" show on CNBC, sounding like Steve Jobs: “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.“
Holmes was masterful in her ability to convince most everyone that she was doing what she said, yet no one ever got a close look at the product. She lied about revenue, about how many tests they had conducted, and how about how successful they were. And, most seriously, the company put patients at risk, conducting blood tests whose results were bogus.