Who Is Elizabeth Holmes, And What Is The Theranos Fraud For Which The Start-Up Founder Is Standing Trial
In 2018, US charged Theranos founder Elizabeth Holmes and her business partner Ramesh ‘Sunny’ Balwani with multiple counts of wire fraud. Holmes’ trial is underway, Balwani's will begin next year.
New Delhi: In 2003, Elizabeth Holmes was a chemical engineering student at Stanford University when she founded a start-up. She was only 19 years old then. Apparently scared of needles herself, Holmes wanted to create a better, cheaper and more efficient alternative to the traditional of method of drawing blood for tests.
By 2004, the sophomore was so driven by her mission that she dropped out of Stanford so she could pursue her dream, according to reports. The name of her start-up was Theranos — a combination of ‘therapy’ and ‘diagnosis’.
Holmes promised people a modern and painless service, claiming Theranos could test for conditions such as cancer and diabetes with just a few drops of blood, and give more accurate results.
“...what we think we're building is the first consumer health-care technology company,” an opinion piece in Wall Street Journal quoted her as saying in 2013, when she opened up about her inventions for the first time.
Theranos was building devices that could automate over a thousand laboratory tests — from routine to advanced. The processes were faster and didn’t require vials and vials of blood like in the conventional method.
As explained in the WSJ piece, a Theranos test involved a technician first increasing blood flow to the patient’s hand by applying a wrap that looked like skiing pocket warmers, and then using a “fingerstick to draw a few droplets of blood from the capillaries at the end of your hand”.
Next, the blood would find its way into a tube in a cartridge, or "nanotainer”, holding a sample “about the amount of a raindrop”. It was then time to run the nanotainer through the analysers in a Theranos lab.
Holmes had been able to attract hundreds of millions of dollars to fund her business, and managed to have a board of well-known political figures including former US defense secretary Bill Perry and former secretary of state George Shultz, besides key retail partners.
Her right hand man was Ramesh ‘Sunny’ Balwani, who was the president and chief operating officer and president of the company. They had met in Beijing in 2002, and the two were revealed to be in a romantic relationship. Balwani was said to be nearly 20 years her senior.
By 2014, Holmes was one of the richest women in the US, according to Forbes list, and her Theranos had raised over $400 million, as reported by The New Yorker.
The company had major expansion plans, with Holmes telling WSJ her long-term goal was to have a Theranos outlet "within five miles of virtually every American home".
But all was not hunky dory, it appeared soon.
WSJ, which said in 2013, quoting Shultz, that Holmes could be "the next Steve Jobs or Bill Gates”, started investigating Theranos in 2015, poking holes into its testing and technology and suggesting that its devices were flawed and inaccurate.
The downfall of Theranos started thereafter, and the company, which was once valued at $9 billion, collapsed soon. It lost partners, was handed a ban, and sued by its investor. There were layoffs too, and Theranos failed at least two regulatory lab inspections. Balwani stepped down and departed. Homes stepped down as CEO too.
In 2018, the US government charged Holmes and Balwani with nine counts of wire fraud and two counts of conspiracy to commit wire fraud. The two were indicted, facing up to 20 years in prison each. Both pleaded not guilty. The company was dissolved the same year.
After much delay due to several reasons, including the pandemic and also Holmes's pregnancy, over the next three years, her criminal trial finally began in August 2021.
A US court in San Jose is currently hearing her testimony, and prosecutors have said they could rest their case this week, according to media reports. Balwani’s trial, separated from Holmes’s since the indictment, starts next year.
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Charges Against Elizabeth Holmes
In June 2018, Holmes and Balwani were indicted on the wire fraud charges brought against them. They are accused of engaging in a “scheme, plan and artifice to defraud investors as to a material matter”, according to a report in The New York Times, and also a scheme to defraud doctors and patients.
In simple words, the two allegedly lied about Theranos’s business and technology.
According to the prosecution’s case, the company faked demonstrations of its technology, and also falsified validation reports from pharmaceutical companies, besides the financial health of its business.
Theranos is also accused of making wrong claims about the status of its partnership with Walgreens, and also its relationship with the military. The WSJ piece had specified that Theranos was about to launch a partnership with Walgreens for in-store sample-collection centres.
What Is Wire Fraud?
US law terms a case as wire fraud when it is committed with the aid of some form of electronic communication – telephone or computer. It is covered under the US Code, Title 18.
It's a felony that carries potential fines and a maximum sentence of 20 years. Both Holmes and Balwani face a fine of $250,000 each, according to a CNN report.
Who is Ramesh 'Sunny' Balwani?
Like Holmes, Ramesh 'Sunny' Balwani, the former president and COO of Theranos, has been charged with engaging "in a multi-million-dollar scheme to defraud investors" to promote Theranos, according to the US Department of Justice.
While the two were said to be in a relationship, Holmes has accused him of sexual harassment.
According to media reports, Sunny Balwani was born in 1965 to a Sindhi family in Pakistan, and was raised in India. The family later migrated to the US, and Balwani studied at the University of Texas (Austin).
He met Holmes in 2002, during a summer trip to Beijing, China, through Stanford University’s Mandarin programme, said a Yahoo News report. Balwani was 37 then, 20 years senior to Holmes. It was the same year he and his Japanese artist wife Keiko Fujimoto divorced.
Balwani joined Theranos in 2009 as the president of the company.
He told Fortune in 2014 that he got interested in Theranos due to Holmes’ ambition for the start-up.
A Film And A Documentary
The Theranos case, dubbed as the “Silicon Valley's biggest fraud", has inspired the plot of at least one film and a documentary.
In May 2018, WSJ reporter John Carreyrou, who first broke the Theranos story, published ‘Bad Blood’, giving all details of what happened inside Theranos. Director Adam McKay secured the rights to make a film by the same name, with Jennifer Lawrence as Holmes.
Well-known documentary filmmaker Alex Gibney made ‘The Inventor’ for HBO in March 2019, based on the rise and fall of Theranos.
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