How Elizabeth Holmes’ House of Cards Came Crashing Down

Who is Elizabeth Holmes, and why is she on trial?

Elizabeth Holmes. Elizabeth Holmes is the founder of Theranos, a privately held corporation oft-touted as a breakthrough health-tech company at the helm of revolutionizing diagnostic testing. The Silicon Valley lab is largely known for its blood-testing technology and next-generation Edison machines. Holmes started working on the company in 2003 when she was just 19 years old, positioning herself as the youngest self-made female billionaire in the world.

Theranos. Theranos raised more than $700 million and, at its peak, was valued at $9 billion. Silicon Valley venture capitalists had taken a keen interest in Theranos as they continue to invest in promising health-tech startups. Several high-profile investors — like former U.S. Secretary of State Henry Kissinger, News Corp Executive Chairman Rupert Murdoch, members of the Walton family who are heirs to the Walmart empire, and former Education Secretary Betsy DeVos — have hopped abroad. The company has established partnerships with giants like Safeway, Pfizer and Walgreens.

The epic downfall. In August 2015, the FDA investigated Theranos, inspecting the facilities. At around the same time, Centers for Medicare and Medicaid Services regulators unearthed inaccuracies in the company’s tests, alleging that it’d provided patients with questionable lab results for conditions like cancer, HIV, miscarriages and more (i.e. major ethical concerns). Flash forward another two months, and reporter John Carreyrou of the Wall Street Journal published an investigation that claimed only 15 of Theranos’ 240 tests were performed on the company’s Edison machines, while the others were done via traditional technology for diagnostic blood testing. Additionally, Holmes is accused of making false claims that Theranos’ blood tests were vetted by pharmaceutical giant Pfizer and used by the US military in order to continue to secure investing dollars.

The end of an era. In July 2016, the SEC also began an investigation into Theranos, ultimately banning Holmes from working in lab testing for two years. Walgreens also sued around that time, seeking $140 million in damages. Theranos shut down lab operations soon thereafter, and Holmes stepped down as CEO in June 2018. That’s the same day that the Department of Justice charged her with 10 counts of wire fraud and two counts of conspiracy.

Holme’s hot take. Of the charges, Holmes has reportedly said: “This is what happens when you work to change things. First they think you’re crazy, then they fight you, then you change the world.”

Theranos’ official company statement. Theranos clapped back at the WSJ story, asserting that it was “grounded in baseless assertions by inexperienced and disgruntled former employees and industry incumbents.”

This long-anticipated trial. This week, Holmes stands on trial, pleading not guilty of defrauding investors, doctors and patients alike. If convicted for the aforementioned charges, she could land upwards of 20 years in federal prison for each count and $250,000 in fines, as well as restitution to victims. The trial is expected to last 13 weeks and is taking place in San Jose, California.

What are people saying about Holmes?

Holmes is a fraud. The US Department of Justice purports that Holmes engaged in defrauding schemes by making deceptive claims about her company, its technology and, ultimately, its financial future. “Out of time and out of money, Elizabeth Holmes decided to lie,” Assistant U.S. Attorney Robert Leach reportedly said in his opening statements. The company reportedly had zero revenue in 2012 and 2013, but Holmes allegedly assured investors that it’d be $140 million by 2014 (while it was only $150,000).

Holmes is a failure. Holmes’ lawyers put it simply: Her firm failed. “Failure is not a crime; trying your hardest, and coming up short, is not a crime,” Lance Wade, a defence lawyer reportedly said in his opening statement at Wednesday’s trial.

Q.ai’s Take on the Trial

In theory. What could have happened if Theranos’ partnerships with major healthcare companies like Safeway, Pfizer, Walgreens were successful may have been detrimental to the health of the market. After all, if major investors had dumped all of their money in a sinking ship — even if it were a big ole’ shiny ship — this means less dollars are being allocated to successful securities that could actually take off. Never mind that investing in health-tech innovation that’s not actually happening could stunt the growth of the industry in and of itself.

In reality. What’s likely to happen now that Theranos is in shambles and Holmes is standing on trial facing decades of behind-the-bars time is a deeper dive into investor relationships. Investors are likely going to take closer looks at how their dollars are being spent, analyze the hard data and possible illusory truths, and further weigh the risks of investing in companies against the risks of not investing in them.

The struggle. There will always be risks involved when investing. After all, investing in innovation requires trust in the journey; without it, emerging technologies would never emerge. This is especially true in the health-tech space. “In some of the harder tech spaces like health care and bio sciences, it would be impossible for any investor to apply enough due diligence to figure out whether the core science [behind a project], which might have taken a PhD or a team of postdocs literally decades to come up with, [is accurate]; there’s a bit more trust involved,” Steve Vassallo, a general partner at Foundation Capital, told Time. “We know these CEOs don’t have audited financials when they’re pitching us, but we also don’t think they’re completely fudging them. So if you’re intending to be dishonest or mislead, you can confuse any investor no matter how hard they’re working.”

Next steps. While the world awaits the outcome of Holmes’ trial, investors across all corners of the globe should be gearing up to dig deeper.

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