Elizabeth Holmes Fraudulence Puts Silicon Valley on Trial

Elizabeth Holmes's Fraudulence Puts Silicon Valley on Trial

The poster child of Silicon Valley and girlbossery took another stumbling fall on January 4th, 2022. Elizabeth Holmes, former CEO and founder of the blood-testing startup, Theranos, was found guilty on four charges of defrauding investors. She now faces up to 20 years in prison and a fine of up to $250,000 (plus restitution) for each count. Yet, just seven years ago, Elizabeth Holmes was listed as one of Time’s 100 Most Influential People of 2015, being labeled as a “tech visionary” and became one of the youngest female billionaires in the process. Those unfamiliar with Holmes’ crimes may think of her defeat as a shocking debacle. Those familiar will understand the catastrophic impact Holmes’ downfall poses not to the wealthy elite she defrauded but to the fate of genuine entrepreneurship that pushes advancements to those who need it most.

Holmes’s story began when she was 19 years old. Partway through her fourth semester, Holmes dropped out of Stanford’s School of Engineering and used her tuition money to fund the seed of what would become Theranos. Funneling her fear of needles as motivation, Theranos centered around the idea of a machine – called “The Edison” – which was capable of generating vast amounts of data through a few droplets of blood pricked from the finger. By year-end, in the last months of 2004, Holmes managed to convince investors of her company’s prowess, raising at least $6.9 million to value Theranos at about $30 million. The company only grew from there. By 2013, Theranos announced a partnership with Walgreens and, by 2014, Holmes was named one of the richest women in America with over $400 million to her company’s name. The world was convinced that Holmes was on the verge of “transforming health care around the world.”

Then, the carefully-crafted company façade began to crumble. The Wall Street Journal reported in 2015 that Theranos only used its finger prick technique on 15 of the 240 tests the Edison claimed to perform. Hot on the tails of this report, the FDA released a statement citing 14 concerns regarding the company’s methods, most notably calling the Edison an “uncleared medical device.” Walgreens and Safeway would go on to pull their partnerships from Theranos just months after these reports and, by June of 2016, Forbes revised its estimate of Holmes’s net worth from $4.5 billion to nothing and Theranos’ value from $9 billion to $800 million. 

The company only fell further from there: CMS revoked Theranos’ license to operate a blood-testing lab for two years, investor Partner Fund Management sued the company for $96.1 million, 41 percent of staffers were laid off, all lab sites were closed, and Holmes became charged with massive fraud involving more than $700 million from investors. All of this was within the span of two years, marking one of the quickest downfalls of a massive investment project seen in Silicon Valley history. Holmes was indicted on federal wire fraud charges over engaging in a multi-million dollar scheme to defraud investors, finally reaching a trial in 2021 due to pandemic delays. As her company imploded, so too did Holmes. 

Testaments from the trial reveal the impact of Holmes’s exploits. Prosecutor John Bostic  noted that Theranos “concealed its use of third-party manufactured machines to test patient blood, overstated its financials, misrepresented its work with pharmaceutical companies and the military, and used the media to perpetuate the untruths,” and that by doing so, “[Holmes] bolstered Theranos’ own credibility…[and] caused others to believe that Theranos must have the legitimacy of…other entities.” The impact of this manufactured false credibility lies beyond the investors Holmes defrauded. She ultimately made it significantly more difficult for her peers and fellow entrepreneurs to garner legitimacy in Silicon Valley.

“This hasn’t only been Elizabeth Holmes on trial,” Joint Venture Silicon Valley President and CEO Russell Hancock remarked. “This has been Silicon Valley on trial.” Hancock believes that this verdict may force tech inventors to reign in their claims as “it’s not enough to simply talk about changing the world [anymore].” Now, claims will need to be significantly more substantiated to draw in outside investors. 

This transparency creates even more difficulties for diagnostic companies like Genalyte. CEO Ashraf Hanna’s company has “resorted to shipping [their] machine out to third pirates like the Mayo Clinic or Scripps [Clinic] and run it themselves and publish the results. We have to be more transparent.” Furthermore, other diagnostic companies with the capabilities to make beneficial medical advancements missed out and are currently missing out on investment. Actual progress was halted thanks to Holme’s defrauding scheme, and now the rippling effects of Theranos mean that less-sweeping projects re-thinking diagnostic blood testing are struggling to be seen as legitimate. “The reputation was so bad that everybody would run the other direction if they thought you were doing something like what Theranos was doing,” Dr. Paul Yager, the former director of bioengineering at the University of Washington, said

While the impact of Theranos can’t be measured quite yet, it’s probable that the ripple effect of the company’s egregious mistakes will be felt throughout its related sectors for years to come.