Theranos is a Silicon Valley company that promised to produce desktop blood analysis machines that could perform hundreds of tests while you wait, using just a single drop of blood from a pinprick. Theranos’ machines would be a fraction of the price and a multiple of the speed of the huge, expensive testing machines available from large competitors. The company was founded by 19-year-old Stanford dropout Elizabeth Holmes who procured over $400 million in funding. Holmes became the youngest self-made woman billionaire in history, attaining a personal net worth of $4.5 billion. She recruited influential investors and board members including former Secretaries of State Henry Kissinger and George Schultz, former Secretary of Defense William Perry, future Secretary of State James Mattis, future Secretary of Education Betsy DeVos, media tycoon Rupert Murdoch, and legendary venture capitalist Tim Draper.
As it turned out, the machines never worked, despite 15 years of development, multimillion dollar deals with Walgreens, alleged (but fictional) deals with the U.S. military, and a continuous influx of money from investors eager to get in on the ground floor opportunity to invest in the next Apple. At best, the machines could perform 12 tests, not the tens, hundreds, or even 1,000 tests that Holmes personally claimed over the years, and the results of those 12 tests were often wrong, leading to misdiagnoses that could have caused serious damage to people’s health had they been widely distributed as planned. All of this was exposed in the investigation by Wall Street Journal reporter John Carreyrou and laid out in his book Bad Blood: Secrets and Lies in a Silicon Valley Startup. Holmes and former Theranos chief operating officer (and her ex-lover) Ramesh Balwani have been indicted for wire fraud and conspiracy to commit wire fraud for distributing blood tests with falsified results to consumers. The case is just wrapping up now, with final arguments expected soon.
As a high-tech entrepreneur and former Silicon Valley resident, I’m always fascinated by bleeding-edge technologies (so to speak) and the amazing and interesting personalities behind them. I always had doubts about Holmes and how she could create a technology, without any formal medical or biological education, that others in the industry couldn’t even approach. It’s not that outsiders can’t sometimes see what the insiders are missing. John Harrison did that. So did Georg Ohm, Nikola Tesla, and Steve Wozniak. I’m proud to say that I did it when I created the field of software forensics. But these people all worked for years to understand the subject, create prototypes, and run extensive tests until finally creating a working product. Elizabeth Holmes got an idea, then got the money and the publicity, and then spent 15 years claiming publicly, and falsely, that she had made the breakthrough.
Holmes’ defense rests on three issues. First, she didn’t know what was going on at her company. Second, she was distracted and confused because of the psychological abuse she suffered from Balwani, her lover at the time. Third, she gave out misleading information in order to protect the company’s trade secrets.
With regard to the first argument, that she didn’t know what was going on, it seems to be just another con job. This woman gave interview after interview about how she had founded the company, was directing its technology, and was hands-on with regard to every aspect. This has been confirmed by all of the ex-employees who testified at the trial.
With regard to the second argument, being bullied and subjugated by her lover, this conflicts with her public persona and her own statements about being a strong-willed, stubborn, brilliant entrepreneur who pushed forward with her dream despite all the contrarians who tried to dissuade her.
With regard to trade secrets, this is an area of expertise for me, having been an expert witness in over 60 trade secret cases. Trade secrets protect those things that are hard to define but that give your business an advantage over competitors. A trade secret is information that has these three properties:
- It is not generally known to the public.
- It has economic benefit from not being known.
- The owner took reasonable efforts to maintain its secrecy.
Although I’m not a lawyer, I do know that trade secrets don’t protect illegal activities like fraud, even though technically those things may satisfy the three requirements. Elizabeth Holmes has claimed at trial, under oath, that she misrepresented information about the failure of her devices in order to protect her trade secrets. However, there is no need to hide trade secrets from employees, investors, and business partners, and there is usually a requirement to disclose them so that they can do a full evaluation of the business. Even if non-disclosure agreements (NDAs) weren’t signed, these people have a legal requirement to maintain the secret due to their close relationship with the company. And lying to customers? Well, that’s not protecting trade secrets, that’s just fraud.
The jury will determine whether her actions and inactions were criminal, and I will respect whatever legal judgment they make because I respect the U.S. justice system. But from what I’ve read about her and her company’s serious failings, and what I know from personal knowledge, while she may or may not be criminally liable, she is definitely a liar and a con artist and was derelict in her duties as a CEO. We need to start holding leaders accountable for their actions when they put themselves in a position of authority and power. Though many Silicon Valley entrepreneurs have truly changed the world and deserve our respect, we need to stop worshipping “Silicon Valley heroes” who have done nothing to earn our respect. We’ll see if the jury agrees.
About the author
Bob Zeidman is the creator of the field of software forensics and the founder of several successful high-tech Silicon Valley firms including Zeidman Consulting and Software Analysis and Forensic Engineering. His latest venture is Good Beat Poker, a new way to play and watch poker online. He is the author of textbooks on engineering and intellectual property as well as screenplays and novels. His latest novel is the political satire Animal Lab, a modern sequel to George Orwell’s classic Animal Farm.
