Theranos, The Trial of Elizabeth Holmes, ch. 12: all bucks stop with the CEO (updated)

Tuesday was the last day this week of Elizabeth Holmes’ cross-examination by Federal prosecutors. Despite Monday’s excursion by the defense into how emotional and physical abuse by her live-in partner and corporate president could have warped her business judgment (a ‘me-too’ variation on the infamous Twinkie Defense relating to diminished capacity), and perhaps concealed from her the depth of Theranos’ problems, the cross-examination returned to the essentials. Who was the boss? Assistant US Attorney Robert Leach drew from her this: “Ultimately all roads led to the CEO?” “Yes,” she replied. “The buck stops with you.“ “I felt that.” 

The prosecution was highly effective in drawing out of her how Holmes controlled the company, and despite her claims of not knowing its finances, she knew what to say to round up funding. This countered the emotional drama of the prior day around ‘Svengali’ Balwani’s abuse and controlling actions. Holmes confirmed that she was the New Elizabeth in her hands-on role in altering pharma company reports, marketing materials, investor presentations, knowing their financials–and trying to kill unfavorable stories:

  • She added logos to Theranos’ pharma reports about partnerships with Pfizer and Schering-Plough to make it appear that the documents came from them. Add to these an altered analysis that came from GlaxoSmithKline (GSK), where Holmes admitted adding a logo but couldn’t recall deleting the conclusion “finger prick/blood draw procedure was difficult (needed larger lancet and better syringe system).”
  • She hired lawyers to review the Theranos website for claims at the time of the Walgreens launch in 2013. The language drew quite the critical eye for its language in their report to her. Our Readers will recognize these walk-backs on superiority claims: replacing “highest quality” with “high quality,” “highest levels of accuracy” with “high levels of accuracy,” and “more precise” to “precise.” Claims made needed to be substantiated. It’s not clear from the articles whether these were made.
  • Where walk-backs on these claims were most certainly not made were the investor presentations, including not disclosing that most testing was done on third-party machines, leaving the impression that Theranos labs were capable of running 1,000 tests.
  • Texts between Balwani and Holmes confirmed she knew that Theranos was in critical financial shape throughout 2013, burning through funding like tinder. 2014 was ‘fake till you make it’ time with sunny (sic) revenue projections–convincing to PFM Management and the DeVos family office, kicking in funds totaling close to $200 million, and then a cascade of funds following them. All of whom should have known better, admittedly.

In 2015, Holmes went directly to one of her investors, Rupert Murdoch, CEO of News Corporation and owner of the Wall Street Journal, to have John Carreyrou’s investigative reports killed. To Murdoch’s great credit, not only did the stories run, but also Carreyrou was legally defended against the mad-dog attorneys of Boies Schiller snapping at his heels. Boies Schiller also harassed and tracked former employees-turned-whistleblowers Erika Cheung and Tyler Shultz. Holmes also approved hiring the killer ‘oppo’ research of Fusion GPS. The latter became infamous a year later in sourcing and promoting now-debunked ‘evidence’ of Russian ties to then-candidate Donald Trump.

To counter the rising tide of negative news, Holmes went on CNBC’s ‘Mad Money’, hosted by, in this Editor’s opinion, the ever-credulous, often unhinged, and in recent years de trop Jim Cramer, and bald-face lied that “Every test we run on our laboratory can run on our proprietary devices.”–when only 12 did, not even the 15 Carreyrou documented.

It isn’t known yet whether Holmes will return to the stand next week for more cross-examination or a rebuttal by the defense. What is most likely is that the defense will continue with the themes of diffusion and deflection, creating cognitive dissonance in the jurors’ minds that while Holmes acted in control and committed fraudulent acts, Balwani had so thoroughly emotionally abused her that she was not in control of herself even after he departed. Look for expert testimony from Mindy Mechanic, an expert on intimate partner violence and abuse, to show that words of ‘love’ in 500-odd texts isn’t love at all. (Cue ‘What’s Love Got To Do With It’)

The Verge, CNBC, Yahoo Finance, Ars Technica

Updated: Theranos junkies (Judge Davila’s pronunciation of which is the subject of an entire Mercury News article) may want to follow John Carreyrou’s podcast, epically titled Bad Blood: The Final Chapter. He’s up to 11 episodes and close to 11 hours, so if you think your Editor is focused on this…it’s a deep dive indeed from the reporter who found that Theranos should have been spelled with an F for Fake. The link here is to the ThreeUncannyFour player, but Sony Media has made it available on other podcast platforms such as Spotify.

To be continued…

TTA’s earlier coverage: Chapter 11, Chapter 10Chapter 9Chapter 8Chapter 7Chapter 6Chapter 5Chapter 4 (w/comment from Malcolm Fisk)Chapter 3Chapter 2Chapter 1

 

The Theranos Story, ch. 60: becoming a Cautionary Tale of Silicon Valley Ethics

It’s just weird. It’s just a bit surreal. When you see someone have this situation and pretend that everything is normal. It’s so bizarre.–Erika Cheung, former Theranos lab associate, whistleblower

Will health tech learn its lesson? As in Chapter 58, we are now in Full Retrospective on Theranos, with Cautionary Tales abounding. One of the better ones is from one of the two young whistleblowers profiled in John Carreyrou’s ‘Bad Blood’, Erika Cheung. She was the young (23) lab associate who saw patient samples from Walgreens and other patients constantly fail quality controls, finally reported it to regulators when nobody listened, then quit. The interview in STAT is refreshing. Ms. Cheung’s contrast of what she saw on the lab bench and in her encounters with Ms. Holmes versus the wide-eyed hype of Elizabeth Holmes in Fortune and Forbes circa 2014 is worth the read, along with her restart at 28 in Hong Kong founding an accelerator, Betatron, and a non-profit with fellow Theranos whistleblower Tyler Shultz, Ethics in Entrepreneurship, to try to pin the Jello On The (Shady) Wall that embodies Silicon Valley Ethics. Also Mobihealthnews on Ms. Cheung’s appearance at The Atlantic’s Pulse event. (The Atlantic still has a pulse?–Ed.)

Cautionary Tales continue, with the recent examples of Nurx, an e-prescriber specializing in women’s health, storing returned birth control pills in a closet shoe organizer and illegally remailing them to new customers (NY Times) and uBiome, a company that sells tests that sequence the bacteria of the body’s microbiome, on fraudulent billing that triggered an FBI raid. Both companies raised significant funding of late: Nurx over $41 million and uBiome over $100 million. The Silicon Valley rules–fake it to make it, and move fast, break things–once again blowing back on what may be good companies. The temptation may be too great for these health tech startups, something reflected on in this CNBC article.

TechCrunch, which breathlessly hyped Theranos back in the day, while duly noting and linking to the programs on How Theranos Fell, puts on its hair shirt for Dear Hollywood, here are 5 female founders to showcase instead of Elizabeth Holmes. Interestingly, one is not Anne Wojcicki of 23andme.