BOUND to PLEASE / Ersatz wunderkind pulls off a multibillion-dollar scam

The Japan News

By Tom Baker / Japan News Staff WriterBad Blood: Secrets and Lies in a Silicon Valley Startup

By John Carreyrou

Knopf, 339pp

Imagine this wonderful scenario: A young college dropout invents a small machine that can run any of hundreds of different medical tests on a single drop of blood.

You have to imagine it, because it didn’t happen. But Elizabeth Holmes, who dropped out of Stanford University to start a medical technology company called Theranos in 2004, convinced the world that she had. Among her investors was media mogul Rupert Murdoch, who sank more than $100 million into her venture.

Holmes also charmed former U.S. secretaries of state George Shultz and Henry Kissinger, and retired army Gen. Jim Mattis (now secretary of defense) into sitting on her board. By the time Wall Street Journal investigative reporter John Carreyrou unmasked Holmes as a con artist, she and Theranos were worth billions. Carreyrou, a two-time Pulitzer Prize winner, lays out how it happened in “Bad Blood.”

Part of Holmes’ self-spun legend is that she, like many people, feared the big needles used to draw blood. A less invasive finger prick would make it easier for more people to get more tests more often. Diseases would be detected earlier, lives would be saved, and money would be made.

This was the vision Holmes sold to U.S. supermarket chain Safeway and drugstore chain Walgreen’s. Safeway spent $350 million to install clinics at half of its 1,700 stores — only to have those clinics sit empty month after month as Theranos postponed the rollout of its services. Safeway finally pulled the plug, and apparently gave its longtime CEO the boot over the project.

Walgreen’s did open Theranos clinics in some Arizona stores, but the blood tests were not done on-site as first planned. Instead, samples were flown to California for tests in Theranos’ secretive labs.

Why? Because Theranos machines didn’t really work. They could do immunoassay tests, which could be used “to measure vitamin D or to detect prostate cancer. But many other routine blood tests, ranging from cholesterol to blood sugar, required completely different laboratory techniques.”

Theranos devices could be used “for only twelve of the 250 tests on its menu,” with often inaccurate results. The rest were done on existing machines bought from other companies. In those cases, the tiny blood samples had to be diluted to give the machines enough fluid to work with, again undermining accuracy.

Holmes got away with her scam by compartmentalizing the company and keeping her underlings in the dark. The firm’s engineers were discouraged from speaking to its chemists, and even the director of the lab was not privy to quality control data. Only Holmes and Ramesh Balwani — her boyfriend and second-in-command — seemed to have the full picture. Employees who asked questions were quickly fired.

Eventually, some of those employees told their stories to Carreyrou. In the 19th of the book’s 24 chapters, the narrative shifts from third person to first as the author becomes part of the story. Theranos threatens him with legal action, but eventually the truth comes out, the results of 1 million tests are voided, and the investors are hit with inevitable losses.

In March this year, Holmes had to pay a $500,000 fine to the Securities and Exchange Commission. At the end of the book, which was published in May, Carreyrou predicted criminal indictments of Holmes and Balwani as “a distinct possibility.” According to subsequent news reports, the two were indicted on fraud charges in June.

As the story continues to unfold, “Bad Blood” serves as an eye-opening history of a jaw-dropping con.

Where to Read

At a lab that does real blood tests.

Maruzen price: ¥2,880 plus tax (as of Nov. 9)Speech

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