It was a revolutionary idea: being able to conduct fast, cheap, and effective blood tests with only a tiny drop of blood.
But it turned out that the company behind it was one, huge fraud.
This is the fascinating story of how a Stanford dropout went from the youngest self-made female billionaire in history to facing 20 years in prison.
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:22] I'm Alastair Budge and today it is part two of our three-part mini-series on great American business frauds.
[00:00:31] Part one was on Enron, and the next one, part three is going to be on Bernie Madoff, the man who stole $65 billion. Those are both member-only ones, so you can get those over on the website, leonardoenglish.com.
[00:00:47] But in today’s episode we are going to be talking about The Theranos Scandal.
[00:00:53] It is the story of a Silicon Valley company that was once worth $9 billion dollars, a company that promised to revolutionise blood testing, preventing diseases, and allowing all of us to lead longer, happier lives.
[00:01:09] It is a nice idea in theory, but the entire company was a huge fraud, it was all one gigantic lie.
[00:01:19] It has gone down as one of the most spectacular failures in recent Silicon Valley history, and today we are going to tell the story of how it all happened.
[00:01:31] Before we get right into that though, I want to remind you that you can become a member of Leonardo English and follow along with the subtitles, the transcript and its key vocabulary over on the website, which is leonardoenglish.com.
[00:01:46] Membership of Leonardo English gives you access to all of our learning materials, all of our bonus episodes, so that’s more than 170 different episodes now, including parts one and three of this mini-series, plus access to our awesome private community where we do live events, challenges, and much, much more.
[00:02:07] Our community now has members from over 50 countries, and it's my mission to make it the most interesting place for curious people like you to improve their English.
[00:02:19] So, if that is of interest, - and I can't see a reason why it wouldn't be - then the place to go to is leonardoenglish.com.
[00:02:29] OK, let’s get started, and talk about Theranos.
[00:02:34] Our story starts at the University of Stanford, in the heart of Silicon Valley, in 2003.
[00:02:43] Elizabeth Holmes was a 19 year old chemical engineering student, and was exceptionally bright, she was very clever.
[00:02:52] She came from a wealthy background - her father had been an executive at Enron, the company we learned about in the last episode - but she had won a scholarship to study at Stanford on merit.
[00:03:06] There is no doubt that Elizabeth Holmes was very smart.
[00:03:11] It seems that she had always felt she was destined to change the world, and she would later refer back to a letter that she had written to her father when she was nine years old, saying “What I really want out of life is to discover something new, something that mankind didn’t know was possible to do.”
[00:03:33] Quite something for a nine-year-old, right?
[00:03:36] This ambition only increased during her time at Stanford, and she became interested in the idea of making blood tests better.
[00:03:46] There is a lot that an analysis of your blood can tell a doctor about your health, but actually doing this analysis has historically been time-consuming, quite difficult, expensive, and unpleasant.
[00:04:02] Actually getting the blood out of your body isn’t very nice - you have to have a syringe inside a vein to take the blood out, which means it needs to be done by a trained medical professional.
[00:04:16] And then it would be sent off to a laboratory, it would take time for the results to come back, and it was all quite expensive.
[00:04:26] What if, thought Holmes, you didn’t need to use a syringe, and instead it only took a tiny drop of blood from your finger?
[00:04:35] And what if, instead of being sent to a laboratory, the data was sent via the internet, and results were returned within a few minutes?
[00:04:47] And what if, instead of being something expensive that was dominated by medical professionals, it was cheap, and was something you could do yourself?
[00:04:57] It sounds like an excellent idea in theory, and Holmes went to her professors at Stanford and proposed this idea.
[00:05:05] Nice idea, they said, but it won’t work.
[00:05:09] Such a small sample of blood won’t tell you very much, plus the blood from your fingertip won’t give you the right data, and the technology simply doesn’t exist.
[00:05:22] You can’t do it.
[00:05:24] But Elizabeth Holmes wasn’t the sort of person to give up lightly.
[00:05:29] She felt that she was destined for greatness, and Silicon Valley, the home of companies such as Apple and Google, wasn’t the sort of place where people took no for an answer.
[00:05:43] Holmes dropped out of Stanford, she left university, and decided to work on this problem herself.
[00:05:52] She started a company with the money that her parents had set aside for her university education, but that wouldn’t be enough to create this breakthrough device she dreamed of.
[00:06:04] Revolutionising the world of blood testing was going to be expensive, and she needed to find some money from somewhere.
[00:06:12] She needed to raise investment. And when you are raising investment, you need people to buy your dream, you need people to buy the story you are selling.
[00:06:24] Luckily, much like Adam Neumann in our story of WeWork, as well as the executives at Enron, Elizabeth Holmes was a brilliant storyteller.
[00:06:35] Her story was of a young woman who was afraid of needles, who dreamed of a world where nobody had to say goodbye too soon, and just wanted to make the world a better place.
[00:06:49] It was a spellbinding story, from someone different to the norm in Silicon Valley.
[00:06:55] For starters, she was a woman.
[00:06:58] She was working on a problem with a much greater impact than a lot of the other companies that had been raising money from investors.
[00:07:07] While others were building websites to sell pets, or creating new social networks, Holmes promised to save millions of lives.
[00:07:18] If she could do it, it would clearly be a fantastic thing for humanity.
[00:07:23] She was also clearly incredibly intelligent, and had a firm belief that she was changing the world.
[00:07:31] Money started flowing towards her, and by the end of 2004 she had raised $6 million dollars in investment, hired a small team, and started working on the prototype of her blood testing device.
[00:07:47] From the very beginnings of the company, the atmosphere was secretive. Departments weren’t allowed to know what other people were working on.
[00:07:56] There were fingerprint scanners on the doors.
[00:08:00] There was a culture of paranoia, which was fostered by Holmes herself.
[00:08:07] She believed, or at least seemed to believe, that the company was on the cusp of inventing the most important development in healthcare ever, and she was incredibly paranoid about employees stealing this technology.
[00:08:24] But the reality was that there wasn’t really much technology being developed at all.
[00:08:31] Holmes had been busy selling investors and partners the idea that Theranos had been developing this revolutionary blood testing device, but it actually hadn’t built anything that worked reliably at all.
[00:08:47] Its first product, called Theranos 1.0, was very unreliable, and the live demonstrations that the company did to its potential customers were often fake, they were pre-recorded, or the machines would show fake results.
[00:09:06] Of course, this only came to light, it was only discovered years afterwards, and any employee who tried to complain about this procedure, or point out that it was completely unethical, was fired from the company.
[00:09:24] In Silicon Valley there is a culture of “fake it until you make it”, meaning that you can fake the technology until you have actually built it.
[00:09:34] This might work with apps that allow you to order food, or book a taxi, but healthcare was something very different.
[00:09:44] Lives were literally at stake, and because the machines were so unreliable, the demonstrations would often show false results. They would show false positives, scaring someone into believing that they were suffering from a particular disease when they weren’t, or they wouldn’t pick up diseases or illnesses that they claimed to.
[00:10:08] But this didn’t deter Elizabeth Holmes.
[00:10:11] Her ambitions were growing bigger and bigger. She had managed to recruit some very influential people to be investors and board members, including two former US Secretaries of State, one being Henry Kissinger, a former and a future US Secretary of Defence, as well as other grandees, other important people from corporate America.
[00:10:36] They were almost all old men with no medical background who were completely captivated by this young, brilliant, entrepreneur.
[00:10:46] In their mind, she could do no wrong, and they introduced her to people within the US military, as well as America’s largest pharmacy, Walgreens.
[00:10:57] Theranos started doing deals to put its machines into real American pharmacies, despite knowing that the technology in its machines didn’t actually work.
[00:11:08] Holmes didn’t seem to care, and put huge pressure on the scientists to get the invention to work.
[00:11:16] This pressure was too much for her head scientist, a well-liked British scientist with several degrees from Cambridge University called Ian Gibbons.
[00:11:27] He ended up taking his own life, killing himself the night before he was going to be required to testify in court about the company’s technology.
[00:11:37] Gibbons knew that Holmes had spent most of the previous 10 years outright lying to investors, and being deliberately tight-lipped, deliberately not revealing the truth, about what Theranos actually did.
[00:11:52] When she did try to explain what Theranos did, it was, as the New Yorker put it, comically vague.
[00:12:01] She said, and I’m quoting directly here, “a chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel."
[00:12:19] Now, you don’t need to be a chemical engineer to realise that this isn’t a very helpful explanation.
[00:12:26] But it seemed that, apart from Holmes and a few senior executives at Theranos, not many other people knew that the technology didn’t work.
[00:12:37] Holmes had created an atmosphere of such paranoia and secrecy that even the employees didn’t really know what was going on at the company.
[00:12:47] Blood samples would be taken from department to department, which would all operate in their own siloes, separate from one another.
[00:12:57] Nobody seemed to know what was really going on.
[00:13:01] To keep the lie afloat, Holmes pressed on towards a big, public launch of the product.
[00:13:08] From its founding in 2003 until 2013 Theranos had operated in complete secrecy.
[00:13:17] Its employees were not allowed to say that they worked at Theranos on LinkedIn, nobody was allowed into the company offices without signing a non-disclosure-agreement, and the company was in complete stealth mode, it was hidden to the outside world.
[00:13:33] By 2013, even though the technology still didn’t work, Holmes wanted to launch it to the world.
[00:13:41] She hired some of the most expensive marketing and PR agencies in the world, and she ended up appearing on the cover of magazines such as Fortune magazine.
[00:13:53] At the same time, Theranos had continued to raise more and more money in investment, valuing the company at $9 billion.
[00:14:03] Holmes owned half of the company, making her worth $4.5 billion.
[00:14:09] She had become the youngest self-made female billionaire in history, and was made a US ambassador for global entrepreneurship by Barack Obama.
[00:14:21] She loved the fame and fortune that she was getting, and became even more self-obsessed.
[00:14:28] She redesigned her office to look like the Oval, the president’s office, complete with bulletproof glass.
[00:14:35] She even had a security detail of 20, she had 20 private security guards with her at all times,
[00:14:44] By this time, she had also become completely obsessed with the late boss of Apple, Steve Jobs.
[00:14:51] She wore the same type of clothes as he did, she had hired his top designers, and she copied his behaviour. Reportedly she even started holding her Marketing meetings on a Wednesday, after finding out that this was the day that Jobs held his.
[00:15:08] It was clear that she wanted to be seen as the next Steve Jobs, a female visionary that was about to change the world.
[00:15:16] She continued to do magazine and TV interviews, claiming that Theranos could do 200 different tests, and shortly was going to be able to do 1,000 different tests.
[00:15:28] She said that this was all possible only by taking a tiny pinprick of blood from your finger, a tiny drop of blood from your finger.
[00:15:40] The reality was that the Theranos machines could reliably do a grand total of zero tests.
[00:15:47] When the company did demonstration tests it would frequently do them on non-Theranos machines, on machines made by the German company, Siemens.
[00:15:58] The scientists would go to another room where the Theranos machine reportedly was, but they would use a completely different machine that Theranos had bought from Siemens.
[00:16:10] Plus, to get any kind of reliable data, they typically needed to take much more blood than from a finger pinprick, and often it would have to be taken via a syringe, from a patient’s vein.
[00:16:25] We know this now because of the fantastic brave reporting of a journalist called John Carreyrou, who was a reporter from the The Wall Street Journal.
[00:16:35] He had grown suspicious of Theranos’ claims, and had received information from several employees inside the company revealing the truth.
[00:16:46] After months of diligent research, and being threatened by Theranos’ aggressive lawyers, and even followed by private investigators, Carreyrou published his article in the Wall Street Journal with the title “Hot Startup Theranos Has Struggled With Its Blood-Test Technology”.
[00:17:06] Holmes was furious, and immediately went on TV to defend herself. Here’s a clip of her opening line, where she is on CNBC about to lie again.
[00:17:18] Elizabeth Holmes: [00:17:18] "This is what happens when you work to change things and, first they think you're crazy, and then they fight you and then all of a sudden you change the world.",
[00:17:27] Alastair Budge: [00:17:27] Holmes seemed to think that the story would go away, that it would all blow over.
[00:17:33] She had influential friends who she thought could help Theranos weather this storm.
[00:17:39] Rupert Murdoch, whose company owned The Wall Street Journal, was an investor in Theranos, and she had hoped he would be able to help stop the story.
[00:17:50] To his credit, he didn’t, saying that he trusted his editors.
[00:17:56] It was all too late for Theranos.
[00:17:58] The FDA, the government body dealing with drugs and medicines in the US, and the SEC, the body dealing with investments, started to look into the company, and the house of cards started to collapse.
[00:18:14] The technology simply didn’t work.
[00:18:17] It had never been peer reviewed, which is when something is evaluated by experts in the field. Whenever it had been tested, it had proved unreliable.
[00:18:28] What's more, Holmes had said that the company was making $100 million a year.
[00:18:34] The reality was it had made $100,000, a thousand times less than what Holmes had claimed.
[00:18:42] Theranos, and Holmes, were in big trouble.
[00:18:46] Not only had the company violated drugs laws, by faking the tests and testing on live patients, it had also violated financial laws by misleading investors.
[00:18:59] You can’t say that something is true in order to raise money from investors if you clearly know that it is a lie.
[00:19:06] By June 2016, Holmes' personal net worth, how much money she was worth, had dropped from $4.5 billion to zero.
[00:19:17] She had owned 50% of Theranos, but given that the company was now worthless, so were her shares.
[00:19:25] She was banned from being an officer of a company for 10 years, and forced to pay a $500,000 fine.
[00:19:33] But she is still not completely off the hook, she’s not completely safe.
[00:19:38] She is currently awaiting trial for fraud, which was scheduled to start in July of this year, July 2021.
[00:19:46] But in March of 2021 she announced that she was 5 months pregnant, so the trial will end up taking place in August.
[00:19:56] Her sceptics have suggested that this might be yet another way for Holmes to manipulate those judging her.
[00:20:04] She is facing up to 20 years in prison, and no matter what crimes a person might have done, it is hard to imagine forcing a new baby to be without its mother for the first 20 years of its life.
[00:20:18] In the aftermath of the Theranos collapse, as one might expect, people started asking themselves questions.
[00:20:26] Why were so many smart people taken in by Holmes, why did they believe her?
[00:20:33] Did nobody think it was a little strange that Holmes couldn’t explain how her marvelous machines actually worked?
[00:20:41] And why was everything so secretive?
[00:20:45] It seemed that Holmes’ charisma, her charm, and her fantastic ability to tell a story was mainly to blame.
[00:20:53] She seemed so driven, so fantastically determined to achieve her goal, that betting against her, or disagreeing with her, seemed unwise.
[00:21:05] She told such a convincing story that Theranos was changing the world, and who wouldn’t like to believe that she was capable of doing it?
[00:21:14] The question that nobody seems to have really figured out, and perhaps even Elizabeth Holmes herself doesn’t know, is did she actually believe it?
[00:21:24] When she was saying that Theranos was going to revolutionise healthcare and save millions of lives, did she really think that this was true?
[00:21:34] Did she believe that she was just about to make the breakthrough that she had been hoping for?
[00:21:39] Or was it a huge lie all along, that she knew she was out of her depth, but didn’t know what else to do?
[00:21:48] Was she left with no other option but to go along with the lie?
[00:21:52] Who knows what the truth really is, but there is something that tells me that the world hasn’t seen the last of Elizabeth Holmes.
[00:22:02] OK then, that is it for The Theranos Scandal, part two of our three-part mini-series on great American business frauds.
[00:22:11] As a reminder, part one was on The Enron Scandal, the company that spectacularly collapsed after trying to recreate an energy stock market, and part three will be on Bernie Madoff, the man who stole $65 billion.
[00:22:28] Both of those are member-only episodes, so if you like the sound of those two, and you aren’t yet a member of Leonardo English, then perhaps today is the day to change that.
[00:22:39] Membership of Leonardo English means unlocking access to all of our bonus episodes, as well as the transcripts, subtitles, key vocabulary, live events, and all sorts of other amazing things to help you improve your English in a more interesting way.
[00:22:54] We are now curious minds from over 50 different countries, and I would love for you to join us.
[00:23:01] The place you can go to for all of that is leonardoenglish.com.
[00:23:07] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:23:12] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:22] I'm Alastair Budge and today it is part two of our three-part mini-series on great American business frauds.
[00:00:31] Part one was on Enron, and the next one, part three is going to be on Bernie Madoff, the man who stole $65 billion. Those are both member-only ones, so you can get those over on the website, leonardoenglish.com.
[00:00:47] But in today’s episode we are going to be talking about The Theranos Scandal.
[00:00:53] It is the story of a Silicon Valley company that was once worth $9 billion dollars, a company that promised to revolutionise blood testing, preventing diseases, and allowing all of us to lead longer, happier lives.
[00:01:09] It is a nice idea in theory, but the entire company was a huge fraud, it was all one gigantic lie.
[00:01:19] It has gone down as one of the most spectacular failures in recent Silicon Valley history, and today we are going to tell the story of how it all happened.
[00:01:31] Before we get right into that though, I want to remind you that you can become a member of Leonardo English and follow along with the subtitles, the transcript and its key vocabulary over on the website, which is leonardoenglish.com.
[00:01:46] Membership of Leonardo English gives you access to all of our learning materials, all of our bonus episodes, so that’s more than 170 different episodes now, including parts one and three of this mini-series, plus access to our awesome private community where we do live events, challenges, and much, much more.
[00:02:07] Our community now has members from over 50 countries, and it's my mission to make it the most interesting place for curious people like you to improve their English.
[00:02:19] So, if that is of interest, - and I can't see a reason why it wouldn't be - then the place to go to is leonardoenglish.com.
[00:02:29] OK, let’s get started, and talk about Theranos.
[00:02:34] Our story starts at the University of Stanford, in the heart of Silicon Valley, in 2003.
[00:02:43] Elizabeth Holmes was a 19 year old chemical engineering student, and was exceptionally bright, she was very clever.
[00:02:52] She came from a wealthy background - her father had been an executive at Enron, the company we learned about in the last episode - but she had won a scholarship to study at Stanford on merit.
[00:03:06] There is no doubt that Elizabeth Holmes was very smart.
[00:03:11] It seems that she had always felt she was destined to change the world, and she would later refer back to a letter that she had written to her father when she was nine years old, saying “What I really want out of life is to discover something new, something that mankind didn’t know was possible to do.”
[00:03:33] Quite something for a nine-year-old, right?
[00:03:36] This ambition only increased during her time at Stanford, and she became interested in the idea of making blood tests better.
[00:03:46] There is a lot that an analysis of your blood can tell a doctor about your health, but actually doing this analysis has historically been time-consuming, quite difficult, expensive, and unpleasant.
[00:04:02] Actually getting the blood out of your body isn’t very nice - you have to have a syringe inside a vein to take the blood out, which means it needs to be done by a trained medical professional.
[00:04:16] And then it would be sent off to a laboratory, it would take time for the results to come back, and it was all quite expensive.
[00:04:26] What if, thought Holmes, you didn’t need to use a syringe, and instead it only took a tiny drop of blood from your finger?
[00:04:35] And what if, instead of being sent to a laboratory, the data was sent via the internet, and results were returned within a few minutes?
[00:04:47] And what if, instead of being something expensive that was dominated by medical professionals, it was cheap, and was something you could do yourself?
[00:04:57] It sounds like an excellent idea in theory, and Holmes went to her professors at Stanford and proposed this idea.
[00:05:05] Nice idea, they said, but it won’t work.
[00:05:09] Such a small sample of blood won’t tell you very much, plus the blood from your fingertip won’t give you the right data, and the technology simply doesn’t exist.
[00:05:22] You can’t do it.
[00:05:24] But Elizabeth Holmes wasn’t the sort of person to give up lightly.
[00:05:29] She felt that she was destined for greatness, and Silicon Valley, the home of companies such as Apple and Google, wasn’t the sort of place where people took no for an answer.
[00:05:43] Holmes dropped out of Stanford, she left university, and decided to work on this problem herself.
[00:05:52] She started a company with the money that her parents had set aside for her university education, but that wouldn’t be enough to create this breakthrough device she dreamed of.
[00:06:04] Revolutionising the world of blood testing was going to be expensive, and she needed to find some money from somewhere.
[00:06:12] She needed to raise investment. And when you are raising investment, you need people to buy your dream, you need people to buy the story you are selling.
[00:06:24] Luckily, much like Adam Neumann in our story of WeWork, as well as the executives at Enron, Elizabeth Holmes was a brilliant storyteller.
[00:06:35] Her story was of a young woman who was afraid of needles, who dreamed of a world where nobody had to say goodbye too soon, and just wanted to make the world a better place.
[00:06:49] It was a spellbinding story, from someone different to the norm in Silicon Valley.
[00:06:55] For starters, she was a woman.
[00:06:58] She was working on a problem with a much greater impact than a lot of the other companies that had been raising money from investors.
[00:07:07] While others were building websites to sell pets, or creating new social networks, Holmes promised to save millions of lives.
[00:07:18] If she could do it, it would clearly be a fantastic thing for humanity.
[00:07:23] She was also clearly incredibly intelligent, and had a firm belief that she was changing the world.
[00:07:31] Money started flowing towards her, and by the end of 2004 she had raised $6 million dollars in investment, hired a small team, and started working on the prototype of her blood testing device.
[00:07:47] From the very beginnings of the company, the atmosphere was secretive. Departments weren’t allowed to know what other people were working on.
[00:07:56] There were fingerprint scanners on the doors.
[00:08:00] There was a culture of paranoia, which was fostered by Holmes herself.
[00:08:07] She believed, or at least seemed to believe, that the company was on the cusp of inventing the most important development in healthcare ever, and she was incredibly paranoid about employees stealing this technology.
[00:08:24] But the reality was that there wasn’t really much technology being developed at all.
[00:08:31] Holmes had been busy selling investors and partners the idea that Theranos had been developing this revolutionary blood testing device, but it actually hadn’t built anything that worked reliably at all.
[00:08:47] Its first product, called Theranos 1.0, was very unreliable, and the live demonstrations that the company did to its potential customers were often fake, they were pre-recorded, or the machines would show fake results.
[00:09:06] Of course, this only came to light, it was only discovered years afterwards, and any employee who tried to complain about this procedure, or point out that it was completely unethical, was fired from the company.
[00:09:24] In Silicon Valley there is a culture of “fake it until you make it”, meaning that you can fake the technology until you have actually built it.
[00:09:34] This might work with apps that allow you to order food, or book a taxi, but healthcare was something very different.
[00:09:44] Lives were literally at stake, and because the machines were so unreliable, the demonstrations would often show false results. They would show false positives, scaring someone into believing that they were suffering from a particular disease when they weren’t, or they wouldn’t pick up diseases or illnesses that they claimed to.
[00:10:08] But this didn’t deter Elizabeth Holmes.
[00:10:11] Her ambitions were growing bigger and bigger. She had managed to recruit some very influential people to be investors and board members, including two former US Secretaries of State, one being Henry Kissinger, a former and a future US Secretary of Defence, as well as other grandees, other important people from corporate America.
[00:10:36] They were almost all old men with no medical background who were completely captivated by this young, brilliant, entrepreneur.
[00:10:46] In their mind, she could do no wrong, and they introduced her to people within the US military, as well as America’s largest pharmacy, Walgreens.
[00:10:57] Theranos started doing deals to put its machines into real American pharmacies, despite knowing that the technology in its machines didn’t actually work.
[00:11:08] Holmes didn’t seem to care, and put huge pressure on the scientists to get the invention to work.
[00:11:16] This pressure was too much for her head scientist, a well-liked British scientist with several degrees from Cambridge University called Ian Gibbons.
[00:11:27] He ended up taking his own life, killing himself the night before he was going to be required to testify in court about the company’s technology.
[00:11:37] Gibbons knew that Holmes had spent most of the previous 10 years outright lying to investors, and being deliberately tight-lipped, deliberately not revealing the truth, about what Theranos actually did.
[00:11:52] When she did try to explain what Theranos did, it was, as the New Yorker put it, comically vague.
[00:12:01] She said, and I’m quoting directly here, “a chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel."
[00:12:19] Now, you don’t need to be a chemical engineer to realise that this isn’t a very helpful explanation.
[00:12:26] But it seemed that, apart from Holmes and a few senior executives at Theranos, not many other people knew that the technology didn’t work.
[00:12:37] Holmes had created an atmosphere of such paranoia and secrecy that even the employees didn’t really know what was going on at the company.
[00:12:47] Blood samples would be taken from department to department, which would all operate in their own siloes, separate from one another.
[00:12:57] Nobody seemed to know what was really going on.
[00:13:01] To keep the lie afloat, Holmes pressed on towards a big, public launch of the product.
[00:13:08] From its founding in 2003 until 2013 Theranos had operated in complete secrecy.
[00:13:17] Its employees were not allowed to say that they worked at Theranos on LinkedIn, nobody was allowed into the company offices without signing a non-disclosure-agreement, and the company was in complete stealth mode, it was hidden to the outside world.
[00:13:33] By 2013, even though the technology still didn’t work, Holmes wanted to launch it to the world.
[00:13:41] She hired some of the most expensive marketing and PR agencies in the world, and she ended up appearing on the cover of magazines such as Fortune magazine.
[00:13:53] At the same time, Theranos had continued to raise more and more money in investment, valuing the company at $9 billion.
[00:14:03] Holmes owned half of the company, making her worth $4.5 billion.
[00:14:09] She had become the youngest self-made female billionaire in history, and was made a US ambassador for global entrepreneurship by Barack Obama.
[00:14:21] She loved the fame and fortune that she was getting, and became even more self-obsessed.
[00:14:28] She redesigned her office to look like the Oval, the president’s office, complete with bulletproof glass.
[00:14:35] She even had a security detail of 20, she had 20 private security guards with her at all times,
[00:14:44] By this time, she had also become completely obsessed with the late boss of Apple, Steve Jobs.
[00:14:51] She wore the same type of clothes as he did, she had hired his top designers, and she copied his behaviour. Reportedly she even started holding her Marketing meetings on a Wednesday, after finding out that this was the day that Jobs held his.
[00:15:08] It was clear that she wanted to be seen as the next Steve Jobs, a female visionary that was about to change the world.
[00:15:16] She continued to do magazine and TV interviews, claiming that Theranos could do 200 different tests, and shortly was going to be able to do 1,000 different tests.
[00:15:28] She said that this was all possible only by taking a tiny pinprick of blood from your finger, a tiny drop of blood from your finger.
[00:15:40] The reality was that the Theranos machines could reliably do a grand total of zero tests.
[00:15:47] When the company did demonstration tests it would frequently do them on non-Theranos machines, on machines made by the German company, Siemens.
[00:15:58] The scientists would go to another room where the Theranos machine reportedly was, but they would use a completely different machine that Theranos had bought from Siemens.
[00:16:10] Plus, to get any kind of reliable data, they typically needed to take much more blood than from a finger pinprick, and often it would have to be taken via a syringe, from a patient’s vein.
[00:16:25] We know this now because of the fantastic brave reporting of a journalist called John Carreyrou, who was a reporter from the The Wall Street Journal.
[00:16:35] He had grown suspicious of Theranos’ claims, and had received information from several employees inside the company revealing the truth.
[00:16:46] After months of diligent research, and being threatened by Theranos’ aggressive lawyers, and even followed by private investigators, Carreyrou published his article in the Wall Street Journal with the title “Hot Startup Theranos Has Struggled With Its Blood-Test Technology”.
[00:17:06] Holmes was furious, and immediately went on TV to defend herself. Here’s a clip of her opening line, where she is on CNBC about to lie again.
[00:17:18] Elizabeth Holmes: [00:17:18] "This is what happens when you work to change things and, first they think you're crazy, and then they fight you and then all of a sudden you change the world.",
[00:17:27] Alastair Budge: [00:17:27] Holmes seemed to think that the story would go away, that it would all blow over.
[00:17:33] She had influential friends who she thought could help Theranos weather this storm.
[00:17:39] Rupert Murdoch, whose company owned The Wall Street Journal, was an investor in Theranos, and she had hoped he would be able to help stop the story.
[00:17:50] To his credit, he didn’t, saying that he trusted his editors.
[00:17:56] It was all too late for Theranos.
[00:17:58] The FDA, the government body dealing with drugs and medicines in the US, and the SEC, the body dealing with investments, started to look into the company, and the house of cards started to collapse.
[00:18:14] The technology simply didn’t work.
[00:18:17] It had never been peer reviewed, which is when something is evaluated by experts in the field. Whenever it had been tested, it had proved unreliable.
[00:18:28] What's more, Holmes had said that the company was making $100 million a year.
[00:18:34] The reality was it had made $100,000, a thousand times less than what Holmes had claimed.
[00:18:42] Theranos, and Holmes, were in big trouble.
[00:18:46] Not only had the company violated drugs laws, by faking the tests and testing on live patients, it had also violated financial laws by misleading investors.
[00:18:59] You can’t say that something is true in order to raise money from investors if you clearly know that it is a lie.
[00:19:06] By June 2016, Holmes' personal net worth, how much money she was worth, had dropped from $4.5 billion to zero.
[00:19:17] She had owned 50% of Theranos, but given that the company was now worthless, so were her shares.
[00:19:25] She was banned from being an officer of a company for 10 years, and forced to pay a $500,000 fine.
[00:19:33] But she is still not completely off the hook, she’s not completely safe.
[00:19:38] She is currently awaiting trial for fraud, which was scheduled to start in July of this year, July 2021.
[00:19:46] But in March of 2021 she announced that she was 5 months pregnant, so the trial will end up taking place in August.
[00:19:56] Her sceptics have suggested that this might be yet another way for Holmes to manipulate those judging her.
[00:20:04] She is facing up to 20 years in prison, and no matter what crimes a person might have done, it is hard to imagine forcing a new baby to be without its mother for the first 20 years of its life.
[00:20:18] In the aftermath of the Theranos collapse, as one might expect, people started asking themselves questions.
[00:20:26] Why were so many smart people taken in by Holmes, why did they believe her?
[00:20:33] Did nobody think it was a little strange that Holmes couldn’t explain how her marvelous machines actually worked?
[00:20:41] And why was everything so secretive?
[00:20:45] It seemed that Holmes’ charisma, her charm, and her fantastic ability to tell a story was mainly to blame.
[00:20:53] She seemed so driven, so fantastically determined to achieve her goal, that betting against her, or disagreeing with her, seemed unwise.
[00:21:05] She told such a convincing story that Theranos was changing the world, and who wouldn’t like to believe that she was capable of doing it?
[00:21:14] The question that nobody seems to have really figured out, and perhaps even Elizabeth Holmes herself doesn’t know, is did she actually believe it?
[00:21:24] When she was saying that Theranos was going to revolutionise healthcare and save millions of lives, did she really think that this was true?
[00:21:34] Did she believe that she was just about to make the breakthrough that she had been hoping for?
[00:21:39] Or was it a huge lie all along, that she knew she was out of her depth, but didn’t know what else to do?
[00:21:48] Was she left with no other option but to go along with the lie?
[00:21:52] Who knows what the truth really is, but there is something that tells me that the world hasn’t seen the last of Elizabeth Holmes.
[00:22:02] OK then, that is it for The Theranos Scandal, part two of our three-part mini-series on great American business frauds.
[00:22:11] As a reminder, part one was on The Enron Scandal, the company that spectacularly collapsed after trying to recreate an energy stock market, and part three will be on Bernie Madoff, the man who stole $65 billion.
[00:22:28] Both of those are member-only episodes, so if you like the sound of those two, and you aren’t yet a member of Leonardo English, then perhaps today is the day to change that.
[00:22:39] Membership of Leonardo English means unlocking access to all of our bonus episodes, as well as the transcripts, subtitles, key vocabulary, live events, and all sorts of other amazing things to help you improve your English in a more interesting way.
[00:22:54] We are now curious minds from over 50 different countries, and I would love for you to join us.
[00:23:01] The place you can go to for all of that is leonardoenglish.com.
[00:23:07] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:23:12] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:22] I'm Alastair Budge and today it is part two of our three-part mini-series on great American business frauds.
[00:00:31] Part one was on Enron, and the next one, part three is going to be on Bernie Madoff, the man who stole $65 billion. Those are both member-only ones, so you can get those over on the website, leonardoenglish.com.
[00:00:47] But in today’s episode we are going to be talking about The Theranos Scandal.
[00:00:53] It is the story of a Silicon Valley company that was once worth $9 billion dollars, a company that promised to revolutionise blood testing, preventing diseases, and allowing all of us to lead longer, happier lives.
[00:01:09] It is a nice idea in theory, but the entire company was a huge fraud, it was all one gigantic lie.
[00:01:19] It has gone down as one of the most spectacular failures in recent Silicon Valley history, and today we are going to tell the story of how it all happened.
[00:01:31] Before we get right into that though, I want to remind you that you can become a member of Leonardo English and follow along with the subtitles, the transcript and its key vocabulary over on the website, which is leonardoenglish.com.
[00:01:46] Membership of Leonardo English gives you access to all of our learning materials, all of our bonus episodes, so that’s more than 170 different episodes now, including parts one and three of this mini-series, plus access to our awesome private community where we do live events, challenges, and much, much more.
[00:02:07] Our community now has members from over 50 countries, and it's my mission to make it the most interesting place for curious people like you to improve their English.
[00:02:19] So, if that is of interest, - and I can't see a reason why it wouldn't be - then the place to go to is leonardoenglish.com.
[00:02:29] OK, let’s get started, and talk about Theranos.
[00:02:34] Our story starts at the University of Stanford, in the heart of Silicon Valley, in 2003.
[00:02:43] Elizabeth Holmes was a 19 year old chemical engineering student, and was exceptionally bright, she was very clever.
[00:02:52] She came from a wealthy background - her father had been an executive at Enron, the company we learned about in the last episode - but she had won a scholarship to study at Stanford on merit.
[00:03:06] There is no doubt that Elizabeth Holmes was very smart.
[00:03:11] It seems that she had always felt she was destined to change the world, and she would later refer back to a letter that she had written to her father when she was nine years old, saying “What I really want out of life is to discover something new, something that mankind didn’t know was possible to do.”
[00:03:33] Quite something for a nine-year-old, right?
[00:03:36] This ambition only increased during her time at Stanford, and she became interested in the idea of making blood tests better.
[00:03:46] There is a lot that an analysis of your blood can tell a doctor about your health, but actually doing this analysis has historically been time-consuming, quite difficult, expensive, and unpleasant.
[00:04:02] Actually getting the blood out of your body isn’t very nice - you have to have a syringe inside a vein to take the blood out, which means it needs to be done by a trained medical professional.
[00:04:16] And then it would be sent off to a laboratory, it would take time for the results to come back, and it was all quite expensive.
[00:04:26] What if, thought Holmes, you didn’t need to use a syringe, and instead it only took a tiny drop of blood from your finger?
[00:04:35] And what if, instead of being sent to a laboratory, the data was sent via the internet, and results were returned within a few minutes?
[00:04:47] And what if, instead of being something expensive that was dominated by medical professionals, it was cheap, and was something you could do yourself?
[00:04:57] It sounds like an excellent idea in theory, and Holmes went to her professors at Stanford and proposed this idea.
[00:05:05] Nice idea, they said, but it won’t work.
[00:05:09] Such a small sample of blood won’t tell you very much, plus the blood from your fingertip won’t give you the right data, and the technology simply doesn’t exist.
[00:05:22] You can’t do it.
[00:05:24] But Elizabeth Holmes wasn’t the sort of person to give up lightly.
[00:05:29] She felt that she was destined for greatness, and Silicon Valley, the home of companies such as Apple and Google, wasn’t the sort of place where people took no for an answer.
[00:05:43] Holmes dropped out of Stanford, she left university, and decided to work on this problem herself.
[00:05:52] She started a company with the money that her parents had set aside for her university education, but that wouldn’t be enough to create this breakthrough device she dreamed of.
[00:06:04] Revolutionising the world of blood testing was going to be expensive, and she needed to find some money from somewhere.
[00:06:12] She needed to raise investment. And when you are raising investment, you need people to buy your dream, you need people to buy the story you are selling.
[00:06:24] Luckily, much like Adam Neumann in our story of WeWork, as well as the executives at Enron, Elizabeth Holmes was a brilliant storyteller.
[00:06:35] Her story was of a young woman who was afraid of needles, who dreamed of a world where nobody had to say goodbye too soon, and just wanted to make the world a better place.
[00:06:49] It was a spellbinding story, from someone different to the norm in Silicon Valley.
[00:06:55] For starters, she was a woman.
[00:06:58] She was working on a problem with a much greater impact than a lot of the other companies that had been raising money from investors.
[00:07:07] While others were building websites to sell pets, or creating new social networks, Holmes promised to save millions of lives.
[00:07:18] If she could do it, it would clearly be a fantastic thing for humanity.
[00:07:23] She was also clearly incredibly intelligent, and had a firm belief that she was changing the world.
[00:07:31] Money started flowing towards her, and by the end of 2004 she had raised $6 million dollars in investment, hired a small team, and started working on the prototype of her blood testing device.
[00:07:47] From the very beginnings of the company, the atmosphere was secretive. Departments weren’t allowed to know what other people were working on.
[00:07:56] There were fingerprint scanners on the doors.
[00:08:00] There was a culture of paranoia, which was fostered by Holmes herself.
[00:08:07] She believed, or at least seemed to believe, that the company was on the cusp of inventing the most important development in healthcare ever, and she was incredibly paranoid about employees stealing this technology.
[00:08:24] But the reality was that there wasn’t really much technology being developed at all.
[00:08:31] Holmes had been busy selling investors and partners the idea that Theranos had been developing this revolutionary blood testing device, but it actually hadn’t built anything that worked reliably at all.
[00:08:47] Its first product, called Theranos 1.0, was very unreliable, and the live demonstrations that the company did to its potential customers were often fake, they were pre-recorded, or the machines would show fake results.
[00:09:06] Of course, this only came to light, it was only discovered years afterwards, and any employee who tried to complain about this procedure, or point out that it was completely unethical, was fired from the company.
[00:09:24] In Silicon Valley there is a culture of “fake it until you make it”, meaning that you can fake the technology until you have actually built it.
[00:09:34] This might work with apps that allow you to order food, or book a taxi, but healthcare was something very different.
[00:09:44] Lives were literally at stake, and because the machines were so unreliable, the demonstrations would often show false results. They would show false positives, scaring someone into believing that they were suffering from a particular disease when they weren’t, or they wouldn’t pick up diseases or illnesses that they claimed to.
[00:10:08] But this didn’t deter Elizabeth Holmes.
[00:10:11] Her ambitions were growing bigger and bigger. She had managed to recruit some very influential people to be investors and board members, including two former US Secretaries of State, one being Henry Kissinger, a former and a future US Secretary of Defence, as well as other grandees, other important people from corporate America.
[00:10:36] They were almost all old men with no medical background who were completely captivated by this young, brilliant, entrepreneur.
[00:10:46] In their mind, she could do no wrong, and they introduced her to people within the US military, as well as America’s largest pharmacy, Walgreens.
[00:10:57] Theranos started doing deals to put its machines into real American pharmacies, despite knowing that the technology in its machines didn’t actually work.
[00:11:08] Holmes didn’t seem to care, and put huge pressure on the scientists to get the invention to work.
[00:11:16] This pressure was too much for her head scientist, a well-liked British scientist with several degrees from Cambridge University called Ian Gibbons.
[00:11:27] He ended up taking his own life, killing himself the night before he was going to be required to testify in court about the company’s technology.
[00:11:37] Gibbons knew that Holmes had spent most of the previous 10 years outright lying to investors, and being deliberately tight-lipped, deliberately not revealing the truth, about what Theranos actually did.
[00:11:52] When she did try to explain what Theranos did, it was, as the New Yorker put it, comically vague.
[00:12:01] She said, and I’m quoting directly here, “a chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel."
[00:12:19] Now, you don’t need to be a chemical engineer to realise that this isn’t a very helpful explanation.
[00:12:26] But it seemed that, apart from Holmes and a few senior executives at Theranos, not many other people knew that the technology didn’t work.
[00:12:37] Holmes had created an atmosphere of such paranoia and secrecy that even the employees didn’t really know what was going on at the company.
[00:12:47] Blood samples would be taken from department to department, which would all operate in their own siloes, separate from one another.
[00:12:57] Nobody seemed to know what was really going on.
[00:13:01] To keep the lie afloat, Holmes pressed on towards a big, public launch of the product.
[00:13:08] From its founding in 2003 until 2013 Theranos had operated in complete secrecy.
[00:13:17] Its employees were not allowed to say that they worked at Theranos on LinkedIn, nobody was allowed into the company offices without signing a non-disclosure-agreement, and the company was in complete stealth mode, it was hidden to the outside world.
[00:13:33] By 2013, even though the technology still didn’t work, Holmes wanted to launch it to the world.
[00:13:41] She hired some of the most expensive marketing and PR agencies in the world, and she ended up appearing on the cover of magazines such as Fortune magazine.
[00:13:53] At the same time, Theranos had continued to raise more and more money in investment, valuing the company at $9 billion.
[00:14:03] Holmes owned half of the company, making her worth $4.5 billion.
[00:14:09] She had become the youngest self-made female billionaire in history, and was made a US ambassador for global entrepreneurship by Barack Obama.
[00:14:21] She loved the fame and fortune that she was getting, and became even more self-obsessed.
[00:14:28] She redesigned her office to look like the Oval, the president’s office, complete with bulletproof glass.
[00:14:35] She even had a security detail of 20, she had 20 private security guards with her at all times,
[00:14:44] By this time, she had also become completely obsessed with the late boss of Apple, Steve Jobs.
[00:14:51] She wore the same type of clothes as he did, she had hired his top designers, and she copied his behaviour. Reportedly she even started holding her Marketing meetings on a Wednesday, after finding out that this was the day that Jobs held his.
[00:15:08] It was clear that she wanted to be seen as the next Steve Jobs, a female visionary that was about to change the world.
[00:15:16] She continued to do magazine and TV interviews, claiming that Theranos could do 200 different tests, and shortly was going to be able to do 1,000 different tests.
[00:15:28] She said that this was all possible only by taking a tiny pinprick of blood from your finger, a tiny drop of blood from your finger.
[00:15:40] The reality was that the Theranos machines could reliably do a grand total of zero tests.
[00:15:47] When the company did demonstration tests it would frequently do them on non-Theranos machines, on machines made by the German company, Siemens.
[00:15:58] The scientists would go to another room where the Theranos machine reportedly was, but they would use a completely different machine that Theranos had bought from Siemens.
[00:16:10] Plus, to get any kind of reliable data, they typically needed to take much more blood than from a finger pinprick, and often it would have to be taken via a syringe, from a patient’s vein.
[00:16:25] We know this now because of the fantastic brave reporting of a journalist called John Carreyrou, who was a reporter from the The Wall Street Journal.
[00:16:35] He had grown suspicious of Theranos’ claims, and had received information from several employees inside the company revealing the truth.
[00:16:46] After months of diligent research, and being threatened by Theranos’ aggressive lawyers, and even followed by private investigators, Carreyrou published his article in the Wall Street Journal with the title “Hot Startup Theranos Has Struggled With Its Blood-Test Technology”.
[00:17:06] Holmes was furious, and immediately went on TV to defend herself. Here’s a clip of her opening line, where she is on CNBC about to lie again.
[00:17:18] Elizabeth Holmes: [00:17:18] "This is what happens when you work to change things and, first they think you're crazy, and then they fight you and then all of a sudden you change the world.",
[00:17:27] Alastair Budge: [00:17:27] Holmes seemed to think that the story would go away, that it would all blow over.
[00:17:33] She had influential friends who she thought could help Theranos weather this storm.
[00:17:39] Rupert Murdoch, whose company owned The Wall Street Journal, was an investor in Theranos, and she had hoped he would be able to help stop the story.
[00:17:50] To his credit, he didn’t, saying that he trusted his editors.
[00:17:56] It was all too late for Theranos.
[00:17:58] The FDA, the government body dealing with drugs and medicines in the US, and the SEC, the body dealing with investments, started to look into the company, and the house of cards started to collapse.
[00:18:14] The technology simply didn’t work.
[00:18:17] It had never been peer reviewed, which is when something is evaluated by experts in the field. Whenever it had been tested, it had proved unreliable.
[00:18:28] What's more, Holmes had said that the company was making $100 million a year.
[00:18:34] The reality was it had made $100,000, a thousand times less than what Holmes had claimed.
[00:18:42] Theranos, and Holmes, were in big trouble.
[00:18:46] Not only had the company violated drugs laws, by faking the tests and testing on live patients, it had also violated financial laws by misleading investors.
[00:18:59] You can’t say that something is true in order to raise money from investors if you clearly know that it is a lie.
[00:19:06] By June 2016, Holmes' personal net worth, how much money she was worth, had dropped from $4.5 billion to zero.
[00:19:17] She had owned 50% of Theranos, but given that the company was now worthless, so were her shares.
[00:19:25] She was banned from being an officer of a company for 10 years, and forced to pay a $500,000 fine.
[00:19:33] But she is still not completely off the hook, she’s not completely safe.
[00:19:38] She is currently awaiting trial for fraud, which was scheduled to start in July of this year, July 2021.
[00:19:46] But in March of 2021 she announced that she was 5 months pregnant, so the trial will end up taking place in August.
[00:19:56] Her sceptics have suggested that this might be yet another way for Holmes to manipulate those judging her.
[00:20:04] She is facing up to 20 years in prison, and no matter what crimes a person might have done, it is hard to imagine forcing a new baby to be without its mother for the first 20 years of its life.
[00:20:18] In the aftermath of the Theranos collapse, as one might expect, people started asking themselves questions.
[00:20:26] Why were so many smart people taken in by Holmes, why did they believe her?
[00:20:33] Did nobody think it was a little strange that Holmes couldn’t explain how her marvelous machines actually worked?
[00:20:41] And why was everything so secretive?
[00:20:45] It seemed that Holmes’ charisma, her charm, and her fantastic ability to tell a story was mainly to blame.
[00:20:53] She seemed so driven, so fantastically determined to achieve her goal, that betting against her, or disagreeing with her, seemed unwise.
[00:21:05] She told such a convincing story that Theranos was changing the world, and who wouldn’t like to believe that she was capable of doing it?
[00:21:14] The question that nobody seems to have really figured out, and perhaps even Elizabeth Holmes herself doesn’t know, is did she actually believe it?
[00:21:24] When she was saying that Theranos was going to revolutionise healthcare and save millions of lives, did she really think that this was true?
[00:21:34] Did she believe that she was just about to make the breakthrough that she had been hoping for?
[00:21:39] Or was it a huge lie all along, that she knew she was out of her depth, but didn’t know what else to do?
[00:21:48] Was she left with no other option but to go along with the lie?
[00:21:52] Who knows what the truth really is, but there is something that tells me that the world hasn’t seen the last of Elizabeth Holmes.
[00:22:02] OK then, that is it for The Theranos Scandal, part two of our three-part mini-series on great American business frauds.
[00:22:11] As a reminder, part one was on The Enron Scandal, the company that spectacularly collapsed after trying to recreate an energy stock market, and part three will be on Bernie Madoff, the man who stole $65 billion.
[00:22:28] Both of those are member-only episodes, so if you like the sound of those two, and you aren’t yet a member of Leonardo English, then perhaps today is the day to change that.
[00:22:39] Membership of Leonardo English means unlocking access to all of our bonus episodes, as well as the transcripts, subtitles, key vocabulary, live events, and all sorts of other amazing things to help you improve your English in a more interesting way.
[00:22:54] We are now curious minds from over 50 different countries, and I would love for you to join us.
[00:23:01] The place you can go to for all of that is leonardoenglish.com.
[00:23:07] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:23:12] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
