By Hilary Schmidtinternational banker

On January 3, 2022, Elizabeth Holmes was found guilty of four out of eleven counts: three counts of fraud and one count of conspiracy to defraud investors. “The guilty verdicts in this case reflect Ms. Holmes’ culpability in this large-scale investor fraud, and she must now face sentencing for her crimes,” California-based U.S. Attorney Stephanie Hinds said during the interview. of the conviction of the former director general of blood failure. -test the start-up Theranos. As such, it marks a milestone in the saga of the downfall of someone once considered one of Silicon Valley’s brightest lights.

Indeed, lofty descriptions of Holmes abounded when she was the head of Theranos, including being labeled “the next Steve Jobs,” while Forbes even described her as “the world’s youngest self-made billionaire woman”. And despite Theranos’ estimated $9 billion valuation at one point, shortcomings of his company – which promised to be able to perform hundreds of different medical tests from a few finger pricks of blood, obviating the need for an invasive needle – have finally been revealed to the public, largely through the investigative work carried out by The Wall Street Journal, who found significant inaccuracies and shortcomings with blood testing devices.

Holmes was charged in 2018 alongside former Theranos chief operating officer Ramesh “Sunny” Balwani; the four fraud convictions upheld by the jury earlier this year each carry a maximum sentence of 20 years in prison. According to David Ring, a lawyer who followed the Holmes case closely and spoke with The Guardian news publication, the verdicts were “a mixed bag for the prosecution, but it is a loss for Elizabeth Holmes as she is going to jail for at least a few years.” But how exactly did events unfold and lead to such a damning conclusion?

In March 2004, Holmes, a sophomore at Stanford University, decided to drop out of the famed Ivy League school to focus on her start-up Theranos, which she had founded a year earlier at just 19. . In September 2009, Balwani – who was romantically involved with her – joined Theranos as chief operating officer and president, having first met Holmes in 2002. A year later, Theranos had entered into a $400 million with Safeway, which resulted in 969 stores. of the supermarket chain being renovated to accommodate the new blood test machines.

And in September 2013, another major partnership – this time with US drugstore giant Walgreens – was in the bag, with the first Theranos Wellness Center opening in a Walgreens store that month in Palo Alto, in California ; customers could use Theranos Edison blood test machines – named after famous inventor Thomas Edison – and take their results home the same day. This partnership ended up playing a major role in convicting Holmes, who knew about the shortcomings of blood testing technology and yet decided to roll it out to dozens of Walgreens locations.

In October 2015, more widespread concerns about the legitimacy of the Theranos project began to be raised after a the wall street journal article questioned much of its technology. “Investors have invested more than $400 million in Theranos, valuing it at $9 billion and its majority stake at more than half,” the article said. “But Theranos has struggled behind the scenes to turn the excitement of its technology into reality. In late 2014, the lab instrument developed as the backbone of its strategy was processing only a small fraction of the tests sold to consumers, according to four alumni. The article also alleged that, unbeknownst to the public, Theranos conducts the vast majority of its testing with traditional machines purchased from companies such as Siemens AG, with one employee even accusing the company of not communicating the test results, which raised doubts about the accuracy of the Edison laboratory device.

A month later, Safeway reportedly sought to dissolve its partnership with Theranos before it could provide its services at a Safeway outlet. And in January 2016, the Centers for Medicare & Medicaid Services (CMS) sent an urgent letter to Theranos, identifying five key areas where the company had failed to meet compliance standards. “It has been determined that the laboratory’s deficient practices immediately compromise patient health and safety,” the letter states, and Theranos was given 10 days to correct those deficiencies. Walgreens quickly followed, announcing that in light of the CMS letter, Theranos “must immediately stop sending all clinical laboratory tests provided by Walgreens’ Theranos Wellness Centers to Theranos Laboratory in Newark, Calif. , for analysis”. The pharmacy chain has also suspended Theranos laboratory services at its Palo Alto store.

In June 2016, Walgreens ended its partnership with Theranos and announced the closure of all 40 Theranos Wellness Centers established at that point. He then sued the company in November of that year for breach of contract. And because the company had failed to address reported shortcomings, in July 2016 CMS revoked Theranos’ license to operate its California lab and banned Holmes from operating a blood testing lab for two years. years. Theranos then reduced its activities by laying off more than 40% of its staff. In January 2017, another scathing the wall street journal article highlighted the company’s failure of another regulatory lab inspection in September. Shortly after, the last blood draw location was closed.

Holmes and Balwani were both charged with “massive fraud” totaling more than $700 million in March 2018, which the U.S. Securities and Exchange Commission (SEC) says was committed through a ” years of elaborate fraud in which they exaggerated or misrepresented the company’s technology, business and financial performance.” The SEC also alleged that the two were aware of the limitations of the proprietary Theranos analyzer, namely that he could only perform 12 of the 200 tests he claimed were possible on the patient testing menu he marketed.They were later charged with federal wire fraud in June of that year because they knew there were “accuracy and reliability issues” with the blood test technology and that it “could not compete with existing, more conventional machines,” the U.S. Attorney’s Office said .

Surekha Gangakhedkar, who worked as a senior scientist at Theranos for eight years and returned from vacation in August 2013 to find out about the impending launch of blood tests at Walgreens stores, revealed her concern about how the rollout was being carried out. “I was very stressed and upset and worried about how the launch was going. I wasn’t comfortable with the plans they had in place so I made the decision to quit and leave. not continuing to work on it,” Gangakhedkar recalled during her testimony in September 2021, adding that she did not believe the Edison blood testing devices were ready to be rolled out for consumer use and that “there had problems getting consistent results.” But Gangakhedkar also said Holmes pressured the team to validate the tests when he was aware of the accuracy issues. She described a meeting with Holmes, to whom she reported directly, which forced her to resign.” At that point, she mentioned that she had promised to deliver customers and she had no real choice to go ahead with the launch.”

Lab associate Erika Cheung also testified, revealing several significant quality control lapses that ultimately created testing delays. “We had people sleeping in their cars because it was taking too long…. Every few days we had to run samples over and over again,” Cheung said, adding that she resigned from her job just six months after joining Theranos as a graduate because she “got worried probably a months later with vitamin D samples. .

Ultimately, Holmes’ conviction rested on knowingly misleading patients about the effectiveness of blood tests and exaggerating the company’s credentials and performance to investors, including Notable figures included former U.S. Treasury Secretary George Schultz, media mogul Rupert Murdoch, and the Waltons, founders of Walmart and America’s richest family.

Plus, looking back on the multi-year saga, the dedicated business leader Holmes introduced to the world makes for a particularly fascinating examination, especially since many of the personality traits she sought to highlight were common among the biggest names in the industry. “I work all the time. I’m basically in the office from the time I wake up and then work until I fall asleep every day,” she once remarked, emulating the unbroken work ethic that Elon Musk and Steve Jobs made famous. “I’m never a minute late. I show no excitement. ALL ABOUT BUSINESS. I am not impulsive. I know the outcome of each match. I do not hesitate. I constantly make decisions and modify them as needed. I rarely speak. I call bullshit immediately.

The latter was clearly applicable to everyone but herself, demonstrating that it was possible to fake it in Silicon Valley, at least for some of the time. And the fact that others couldn’t “call bullshit” sooner will no doubt raise many questions for years to come about the substance of fundraising models for Silicon Valley start-ups and the importance of the role of hype and marketing in the rise of dubious projects. That said, Holmes clearly had the gift of persuasion. “I knew she had this brilliant idea and was able to convince all these investors and scientists,” said Dr. Jeffrey Flier, the former dean of Harvard Medical School, who met her for the lunch in 2015, at the British Broadcasting Corporation. (BBC). “She was confident, but when I asked her several questions about her technology, she didn’t seem to understand. It seemed a little strange, but I didn’t come away thinking it was a fraud.

Eventually, however, his dishonesty was discovered and Holmes, 37, is now awaiting sentencing, scheduled for September 26. She remains free on $500,000 bail until that date. Balwani, however, continues to face charges, with his trial due to begin later this year. “She chose fraud over business failure. She chose to be dishonest,” Assistant U.S. Attorney Jeff Schenk remarked during her sentencing. “That choice was not only ruthless, it was criminal.”