Elizabeth Holmes, founder of Theranos, with her partner Billy Evans outside the federal courthouse in San Jose, California, on October 17, 2022. Photo / Jim Wilson, The New York Times
ANALYSIS:
This article was first published in January. Elizabeth Holmes was convicted of three counts of investor fraud and one count of conspiracy by a Californian jury in January. On Saturday, she was sentenced to more than 11 years in prison.
At first glance, the astonishing rise and fall of Elizabeth Holmes – the Silicon Valley entrepreneur turned convicted fraudster now facing years in jail – seems merely a tale of technological hubris.
Yet the story of how one young woman bamboozled and bewitched America’s great and good as she propelled the empty promise of her blood-testing company from nothing to a valuation of US$9 billion (NZ$14.7b) is so much more.
It is an age-old parable of human folly – of lust and greed, pride and power.
And at its heart is a single question: how? How did Holmes manage to sell a dream for so long, when the medical device upon which that dream was based had as little behind its sleek exterior as the Wizard of Oz’s curtain?
One by one the Theranos dupes marched down Holmes’s yellow brick road. As the journalist John Carreyou explains in his account of the affair, Bad Blood, they did so in a kind of reputational pyramid scheme. Having recruited former Secretary of State George Shultz to Theranos’s board (little matter that he was 92), it became easier to sign up James Mattis, Head of US Central Command. With him on side, former Secretary of Defence William Perry followed – hell, even Henry Kissinger joined up. And with names like those backing her, few dared doubt Holmes’s claims, examined in detail during her trial, that Theranos devices were being used in the field by US soldiers. And, of course, stories of working with the US military helped convince yet more people.
One possible motive for such credulity, of course, is greed. Holmes promised nothing less than a revolution in global healthcare, worth trillions of dollars each year, based on a machine that could quickly diagnose hundreds of conditions from a mere drop or two of blood. And even as she was selling Theranos to potential investors, board members, retailers, and employees, the world was watching Facebook’s vaulting valuation. Sometimes it doubled every few months. Hurry, hurry. No one wanted to miss out on the next big thing.
But money is an incomplete explanation. For if the Edison – as Theranos named its device – was the modern philosopher’s stone, capable of turning base metal to gold, it needed a captivating alchemist to sell it. And even in an industry jam-packed with entrepreneurs who promise the earth, Holmes was an almost supernaturally beguiling figure.
Steve Burd, boss of the US supermarket chain Safeway for two decades until his retirement in 2013, described how he sank US$367 million into preparing his shops to offer the Theranos diagnostic miracle, based almost solely on Holmes’s personality.
“There are very few people I had met in the business that I would actually say are charismatic,” he told the court. “She was charismatic, she was very smart.” He even compared the young entrepreneur – then just 26 – to the most powerful person on the planet. “I’ve had the privilege of meeting four US presidents. When the president is in the room, let me tell you, the president owns the room. No one talks unless spoken to.” Whenever she was talking,” Burd said of Holmes, “she owned the room.”
Such men were not only won over, they became passionate defenders of a woman they seemed to adopt far beyond the boardroom. According to Carreyou, Burd was so in her thrall that colleagues at Safeway, knowing he had two sons, wondered if he saw Holmes as the daughter he’d never had.
Shultz was another to succumb. His grandson, Tyler, joined Theranos but left when he saw through the bluster behind its promises. Rather than heed his warnings, however, his grandfather turned him away, communicating with him only through lawyers. As Shultz continued to side with Holmes, Tyler was not invited to his 95th birthday party.
It was a far cry from Holmes’s own birthday party – her 30th, in 2014. There the guests included Shultz and Kissinger; the latter even composing a limerick which he read in her honour.
By backing her, such men were also helping to right a palpable wrong; championing a female entrepreneur in a tech industry long damned by its scarcity of women leaders. With her pale skin and blue eyes set off by her black polo-neck, she even dressed to suggest she could become a female visionary to match the founder of Apple. “You start to realise you are looking in the eyes of another Bill Gates, or Steve Jobs,” sighed one male professor on Theranos’s board.
At the heart of her trial, then, was the conundrum of whether Holmes was so convincing, so driven, so messianic on behalf of her product because she was a con artist, pure and simple, or whether at some level because she, too, was sucked in by her own delusion, with hope morphing into certainty in her mind that even if Theranos wasn’t quite ready to change the world today, it would tomorrow.
The latter was the heart of her defence. Day after day on the stand, Holmes – still only 37 – presented herself as a starry-eyed do-gooder, a little naive perhaps, but in the best possible cause: the “really big idea”, as she branded it, of miniaturising and automating blood diagnostics. Prototype machines, she insisted, were created after “years [of research] with teams of scientists and engineers”. Those prototypes were “really good”, she recalled. But crucially, they could do little that was not already available.
As with conventional machines, they struggled with small samples like blood drops rather than blood taken from a vein. Indeed, Theranos ended up processing some samples using existing commercial technology. But, Holmes insisted, the promise of radical benefits never evaporated in her own mind. As such, she was not misleading investors, she maintained, but simply talking “about what this company could do a year from now, five years from now, 10 years from now”.
This potential future payoff seemed to excuse any deception, even that of plastering the names of big-pharma companies including Pfizer over marketing material, as if they endorsed Theranos, which they certainly did not. “I wish I had done it differently,” she said.
It was Sunny Balwani, her chief operating officer, who supervised the details, she told the court. It was Balwani who was in charge of the company’s lab, not her. Indeed, she claimed, Balwani was responsible for much more. The pair, it emerged during the trial, were in a relationship that Holmes described as controlling and abusive. Balwani would “force me to have sex with him even when I didn’t want to”, she alleged. According to her, he belittled and coerced her. “I have moulded you,” he once texted her. As a much older man (they met when she was 18 and he 37), she seemed to find security in his company. Holmes described during the trial how, before they met, she had been raped as a university student. “[Balwani] said I was safe now that I had met him,” she said.
Court reporters describe jurors sitting agog as Holmes positioned herself as an abuse survivor. The problem was that this victimhood ran counter to consistent testimony from witnesses that Holmes was herself highly controlling, across all details and vicious in defence of her project – a bully whose behaviour once brought a former CIA agent to tears. For the second time in a week, following the Ghislaine Maxwell trial, a US court failed to excuse a woman seeking to pin her crimes on another.
Even so, in a world in which technology companies like Apple continue to deliver astonishing riches or, like Tesla, prove it is possible to defy all the odds and change the world, it is almost possible to understand Holmes’s motives. Yet Carreyrou, among those who knows her story best, is not in a forgiving mood. “There’s this culture of faking it until you make it in Silicon Valley,” he said in September. “And I’ll be the first to grant you that a little bit of that is necessary… but I think there’s a line not to cross. And I think Elizabeth Holmes and Theranos crossed that line when the hyping and the exaggerating turned into outright lying for years and years. And it was lying to the point that she went live with blood tests that she knew were flawed.” Ultimately, he says, Holmes “knew she was conducting a giant experiment on patients”.
Such are the potential rewards in Silicon Valley, however, that the next great fake-it-till-you-make-it tech experiment is doubtless under way right now. Whether it will end in fraud or fanfare, even the entrepreneur behind it might not be able to say.
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