Theranos Fraud | A case of scientific fraud that shook Silicon Valley

Theranos fraud

United States: we explain the Theranos Fraud trial, a case of scientific fraud that shook Silicon Valley

Elizabeth Holmes, founder of the start-up Theranos, which promised to revolutionize blood tests, is on trial for fraud and criminal association. Her Theranos fraud meteoric rise ended abruptly.

Created in 2003, Theranos claimed to revolutionize blood tests with devices to analyze a tiny drop of blood, obtained by pricking your finger. Its founder claimed that this equipment was capable of carrying out more than 200 blood tests. In reality, they managed to perform only twelve, and their results were random. The deception was exposed in 2015, in an article published by the “Wall Street Journal”.

Her meteoric rise ended abruptly. The trial of Elizabeth Holmes, founder of Theranos, opens Tuesday, September 7, 2021 in the court of San José (California), a week after the selection of the jurors. Having become a billionaire at 30, thanks to her company which promised to transform the blood test market, often compared to Steve Jobs, the American is now on trial for fraud and criminal association (Ramesh “Sunny” Balwani, her former chief operating officer and ex-boyfriend, will be judged separately). Eleven counts are brought against Elizabeth Holmes, who faces up to twenty years in prison and severe fines.

A company supposed to revolutionize blood tests

Elizabeth Holmes created Theranos in 2003, from a portmanteau word born from the contraction of the English words therapy (therapy) and diagnosis (diagnosis). She was then 19 years old and still a student at Stanford University. With Theranos, the young woman plans to simplify laboratory blood tests. The company plans to produce diagnostic tools on a large scale that are faster and cheaper than traditional laboratories, thanks to new technologies.

The entrepreneur promises that a very small quantity of blood will make it possible to carry out up to 200 analyzes at the same time and very quickly interests investors. In 2014, Theranos was valued at $9 billion. Elizabeth Holmes then becomes the youngest billionaire who has not inherited her fortune, valued at 3.6 billion dollars by Forbes magazine. In 2015, Time magazine named her one of the 100 most influential people in the world.

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A scam revealed in 2015

In October 2015, journalist John Carreyrou published several articles on the start-up in the Wall Street Journal and cast doubt on the company’s reliability. Elizabeth Holmes is suspected of having lied about the performance of the machine supposed to revolutionize blood tests, deceiving its investors. The US Department of Health is taking up the case. Not enough to worry Elizabeth Holmes, who then explained to the American television channel CNBC that “this is what happens when you work to change things. First they think you are crazy, then they fight you until to change the world”.

In March 2018, the police of the American Stock Exchange, the SEC, accused him of fraud. He is accused of having raised $700 million on lies, such as the use of false pharmaceutical reports and false financial statements. The results of her company have been inflated: estimated at 100 million dollars, the turnover of Theranos actually amounts to 100,000 dollars in 2014. After an amicable agreement with the SEC, Elizabeth Holmes undertakes to pay a fine of 500,000 dollars as well as to cede control of his company. The SEC bars him from directing any other publicly traded company for ten years. This agreement settles the financial aspect of the case, but not the criminal proceedings.

Hundreds of patients paid for blood tests at Theranos, which “delivered test results that were inaccurate”, explains the American justice, which adds that a large part of the tests were carried out thanks to other systems available in the trade. Thus, victims of faulty analyzes could be called to the bar to tell how they experienced misdiagnoses of cancer, AIDS or even pregnancy.

There are household names among the potential witnesses, such as former Secretary of State Henry Kissinger and former Defense Secretary James Mattis, who served on Theranos’ board of directors. Rupert Murdoch, media mogul and owner of the Wall Street Journal who exposed the case, could also be called, having invested in Theranos.

A warning for Silicon Valley

The Theranos case has gradually turned into a trial of Silicon Valley, accused of betting on companies that all present themselves as revolutionary. In 2018, SEC San Francisco Bureau Director Jina Choi said the case “is an important lesson for Silicon Valley.” She also calls on “innovators looking to revolutionize and disrupt an industry” to “tell investors the truth about what their technologies are capable of today, not what they hope they can do one day.”

Meanwhile, Northern California District Attorney Alex Tse promises to prosecute anyone “who breaks the rules that make Silicon Valley work.”

After multiple postponements due to the Covid-19 pandemic and the accused’s pregnancy, the first hearings of the Theranos trial will begin on Tuesday, September 7 and will last four months. This story worthy of a Hollywood movie will be brought to the screen in 2022 with the feature film Bad Blood, in which Jennifer Lawrence will take on the role of Elizabeth Holmes.

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Guilty on four counts and jailed for fraud

According to the jurors, between 2010 and 2015, Elizabeth Holmes worked to deceive investors, who swallowed several hundred million dollars in her start-up. She was also found guilty of three other counts relating to individual investments.

In theory, each of them can carry a maximum sentence of up to twenty years in prison, and these sentences add up. According to the American media, however, it is unlikely that the judge will decide to impose such heavy sentences. The former CEO of Theranos should appeal.

The jurors, on the other hand, concluded that the founder of Theranos did not seek to mislead patients. On the other three counts, relating to individual investments in the start-up, the jury failed to reach unanimous agreement. Prosecutors could decide to initiate a new trial to settle these outstanding points.

Key dates in the Theranos fraud

2003: Elisabeth Holmes, aged 19 and still a student at Stanford, creates the company promising to carry out more than 200 analyzes from a few drops of blood.

2014: The startupper becomes the youngest billionaire in the world (excluding heiress) thanks to her shares in Theranos, valued at $9 billion by investors.

2015: Journalist John Carreyrou publishes several articles in the Wall Street Journal casting doubt on the start-up’s promises.

2018: In March, the SEC accuses him of fraud with false financial and pharmaceutical reports. She concludes an amicable agreement, but the criminal aspect remains open.

2021: His criminal trial opens in September and results in a guilty verdict on one of three counts relating to investor fraud. She faces decades of imprisonment.

2022: An appeal trial should take place and Bad Blood, the book by John Carreyrou relating the facts, will be adapted to the cinema with Jennifer Lawrence in the role of Elizabeth Holmes.

Sources: Consultant4Companies, PinterPandai, BBC, Insider Inc, The New York Times

Photo credit: shameersrk via Pixabay

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