The Theranos Fraud – WSJ


Theranos founder Elizabeth Holmes leaves the federal courthouse after attending her fraud trial in San Jose, Calif., Jan. 3



Startup businesses fail all the time, and very few are frauds. The difference with Theranos is that founder

Elizabeth Holmes

refused to accept that her company’s blood-testing technology wasn’t working as she advertised, and on Monday a federal jury convicted her on four counts of defrauding investors.

Ms. Holmes started Theranos with the vision of making lab tests cheaper, faster and more accessible to patients by developing a small device that needed only a finger-prick of blood. Such a test would be revolutionary, but Ms. Holmes’s ambition exceeded the technology. She raised hundreds of millions of dollars from venture firms and wealthy investors, but along the way she misrepresented Theranos’s prospects.

She affixed logos of pharmaceutical companies that had not validated Theranos’s technology to materials presented to investors. She also gave the false impression that the devices were used by the military in the field. Investors were none the wiser since she tightly controlled Theranos’s employees and information.

Theranos’s biggest coup was signing deals with


and Safeway to include its devices in hundreds of stores. Many investors saw these contracts as an endorsement of Theranos’s technology and growth potential. One mystery is why these companies bought Ms. Holmes’s hype.

They should have done more due diligence, yet Ms. Holmes failed to disclose problems with Theranos’s technology. Theranos engineers jerry-rigged commercial devices to run blood samples. Ms. Holmes concealed this from her investors, board and clients.

She claimed at trial the modified lab devices were a “trade secret.” This was also her explanation for hiring law firm

Boies Schiller

Flexner to intimidate former Journal reporter

John Carreyrou’s

sources, including former Theranos employees who had documented problems with the tests. But it was clear she was trying to cover up Theranos’s problems, not protect intellectual property.

The crux of her defense was to portray her ex-chief operating officer and paramour

Ramesh Balwani

(who is being tried separately) as a Svengali who psychologically abused and manipulated her. This was hard to credit by her testimony and evidence at the trial. She ultimately conceded that he didn’t make her deceive investors.

Ms. Holmes said at trial that “there are many things I wish I did differently” including soliciting

News Corp.

executive chairman

Rupert Murdoch

to squash Mr. Carreyrou’s story. News Corp. owns the Journal, and Mr. Murdoch refused. But Ms. Holmes otherwise remained unapologetic. Perhaps she deluded herself into believing the phantom technology she promoted would soon materialize.

Each of the four counts for which she was convicted carry a potential 20-year prison sentence, which is excessive. The investors she defrauded weren’t naifs. But she never did admit the truth that the company’s blood-test technology wasn’t what she promised, and for that she may now go to jail.

Journal Editorial Report: Kyle Peterson, Mary O’Grady, Dan Henninger and Paul Gigot foresee what’s coming in 2022. Images: AFP/Getty Images Composite: Mark Kelly

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Appeared in the January 5, 2022, print edition.