Raconteur

04 FIGHTING FRAUD Bad blood is being shed in Silicon Valley F ew companies seem to encap- sulate the worst excesses of Silicon Valley better than Theranos. The supposedly revolutionary blood-testing startup achieved a valuation of $9 billion, only to face allegations of hype and lies. John Carreyrou, a journalist at The Wall Street Journal, broke the story in 2015, just as Theranos's product was on the cusp of being rolled out in 8,000 Walgreen pharmacy stores. His book, Bad Blood: Secrets and Lies in a Silicon Valley Startup, docu - ments just how an alleged deception was nearly pulled off. A morality tale for our times, the Theranos saga centres on Elizabeth Holmes, a serious and driven young woman who dropped out of Stanford University in 2003 to found the com- pany when she was just 19 years old. "Elizabeth Holmes did not set out to pull a long con," says Mr Carreyrou. "She really did think her vision for this product would do good for society – that it would competitors. When Mr Carreyrou's investigations neared publica- tion, Ms Holmes allegedly leaned on Rupert Murdoch, who was a late investor in Theranos and whose News Corporation group owns The Wall Street Journal, to kill the story. Now indicted for criminal fraud, Ms Holmes is said to have cast herself as a victim. "She feels as if she is a startup founder who ended up failing and because she is a woman the press has piled in on her," says Mr Carreyrou. "She has this Joan of Arc syndrome. She feels like a martyr." The question remains whether Silicon Valley will learn from her experience and question the uncrit - ical adulation of startup founders. "I certainly believe there has been an evolution in the way the American press covers Silicon Valley, but I am not sure people's values in the Silicon Valley echo chamber have changed," says Mr Carreyrou. "Time will tell." "The greatest culprit of which is Steve Jobs. He has been turned into such an icon and hero of American capital- ism that it has created the myth of the startup founder who can see around corners and do no wrong. It has cre- ated this culture of incredible entitle- ment and magical thinking among startup founders in the Valley." It is claimed that Ms Holmes' vault- ing ambition and idealism were poi- soned by hubris. The corporate cul- ture she and Theranos's president Sunny Balwani fostered was alleg- edly dysfunctional to the point of dehumanising. Allegedly founded on fear, paranoia, secrecy and bul- lying, teams were siloed and pitted against each other. Unquestioning loyalty was demanded from employ- ees and dissent, however well inten- tioned, was punished with dis- missal, it is claimed. She took control of all deci- sion-making. The board could not achieve quorum without her and the company used non-disclo- sure agreements to silence former employees. A culture of secrecy seemingly enabled a small inner cir- cle allegedly to mislead and deceive Theranos staff, its board, inves- tors, commercial partners, clients, members of the press and even fed- eral regulators the Food and Drug Administration, and the Centers for Medicare and Medicaid Services. When challenged, the lengths Ms Holmes and Mr Balwani alleg- edly scaled to protect the com- pany stretch the limits of credu- lity. It is claimed they surveilled, blackmailed, intimidated and liti- gated against critics, enemies and Her only problem was that Theranos was allegedly nowhere near achieving her stated goals when its product was brought to market. Ms Holmes stands accused of mak- ing the fundamental and unforgiv- able error of applying Silicon Valley's "fake it until you make it" mindset to medical care, Mr Carreyrou claims. Releasing a "buggy" app in beta stage is one thing. "But she was try- ing to build a medical product upon which doctors and patients make very important decisions – some of them life and death," he says. Some 70 per cent of doctors' decisions are based on blood test results; a faulty Theranos product would endanger lives, a fact that Ms Holmes seemed to fail to see. At the same time, her sin - gle-minded drive, self-belief and brilliant sales pitch won her cham- pions in high places. A Palo Alto native, family connections intro- duced her to the Oracle billionaire Larry Ellison and the venture capi- tal hero Tim Draper. The Theranos board became peopled with military generals, such as John "Mad Dog" Mattis, now secretary of defence in the Trump administration, and former secretaries of state George Shultz and Henry Kissinger. "She wows all these guys with larger-than-life reputations with her vision; she convinces them to join her board and they increase her credibility," says Mr Carreyrou. Ms Holmes had a unique ability to win people's confidence. She idol- ised Steve Jobs to the extent that she adopted a daily uniform of black rollnecks and affected a deep bari- tone voice, speaking several octaves beneath her natural register. These curious qualities, combined with her charm, intelligence and large, blue and unblinking eyes created the aura of someone exceptional. "There is a myth in Silicon Valley around founders," says Mr Carreyrou, With billions at stake, along with pride and reputation, business leaders must avoid the trap of making fraudulent claims revolutionise blood testing and help medicine." With no medical training, Ms Holmes sought with her team to score an audacious hat trick that had eluded medical scientists for decades: to take diagnostic blood tests from a finger prick, rather than intravenous needle; to com - bine multiple blood tests from vita- min deficiency, to disease and preg- nancy tests in one diagnostic tool; and to miniaturise testing equip- ment into a portable device without compromising accuracy. The product would be low cost and available to use in every home in America. The power of such a thing was plain to see. It would revolution- ise healthcare. "I believe the individ- ual is the answer to the challenges of healthcare, but we can't engage the individual in changing outcomes unless individuals have access to the information they need," Ms Holmes said in her 2014 TED Talk. She yearned for success. "She wanted to join the pantheon of tech startup billionaires and be the first woman to do so," says Mr Carreyrou. 01 Theranos headquarters, Palo Alto, California 02 Journalist John Carreyrou 03 Theranos founder and chief executive Elizabeth Holmes SHARON THIRUCHELVAM THERANOS Jason Doiy/Getty Images David Paul Morris/Bloomberg via Getty Images Michael Lionstar Steve Jobs has been turned into such an icon and hero of American capitalism that it has created the myth of the startup founder who can see around corners and do no wrong 01 02 03

• Cover