Bad Blood: Secrets and Lies in a Silicon Valley Startup

Theranos laboratory director Alan Beam was, by October 2014, having trouble justifying the company’s practices. He was no longer privy to quality-control data, and he figured out that Theranos was cheating on its proficiency testing, which was against the law. Faced with a barrage of complaints from doctors whose patients were receiving inaccurate test results from Theranos, Alan could no longer suppress his conscience. He announced his resignation.

Sunny knew Alan had sent himself copies of in-house emails that detailed his concerns about dishonest practices at Theranos, and he threatened Alan with a lawsuit. Realizing he couldn’t stand up to the company’s enormous resources, Alan capitulated and removed the incriminating documents from his own mail accounts.

Richard Fuisz, still fuming about the lawsuit results, contacted Alan, who told him of the malfeasance, mismanagement, and criminal falsehoods at Theranos. Fuisz wanted to break the story and told it to medical blogger Dr. Adam Clapper, who was already skeptical of the glowing media coverage around a revolutionary process he believed wasn’t possible. Clapper didn’t want to stand up to a large corporation represented by a powerhouse like David Boies. Instead, he contacted The Wall Street Journal.

In February 2015, journalist Carreyrou heard from Clapper, who had worked with Carreyrou on an earlier report on Medicare fraud. Clapper offered him a tip about suspicious goings-on at Theranos. Carreyrou had read a recent article about Elizabeth and her company in The New Yorker and had been skeptical of her claims. Clapper put him in contact with Richard and Joe Fuisz, as well as Ian Gibbons’ widow, Rochelle. Intrigued by their stories, Carreyrou dug deeper.

He contacted Alan Beam, who confirmed Rochelle’s claim that Ian believed Theranos’ Edison machines didn’t work and were largely sidelined by the company, which instead diluted the finger-stick blood samples for use in larger, conventional machines. The dilution made the results inaccurate, returning results that were “off the charts” and “crazy” (226). Alan also confirmed that Elizabeth was relatively ignorant about most of the technology behind Theranos’ machines, that the company was run day-to-day by Sunny, “a dishonest bully who managed through intimidation" (227), and that the two were having an affair that Elizabeth had kept secret from news media and her own board of directors.

Carreyrou followed up with two of Alan's former colleagues, who confirmed, under terms of anonymity, his allegations about dishonest practices at Theranos and the company’s culture of fear. Other former associates were leery of speaking at all, but a few did corroborate the story, and Carreyrou continued his investigation. Before destroying his copies of the emails between himself and Theranos officers, Alan had forwarded a set to a whistleblower law firm, which now returned copies to him, and he forwarded them to Carreyrou. The emails proved Elizabeth and Sunny were aware of the problems with Theranos technology.

Carreyrou contacted an official at UC San Francisco’s laboratory medicine department, who said finger-stick blood samples tend to be contaminated with spurious tissues and are less accurate than blood drawn directly from a vein. A nurse at an Arizona Walgreens blood clinic told him patients were getting extremely high results on certain tests, but when retested, the results suddenly were very low.

Tyler Shultz finally returned Carreyrou’s many calls, telling the reporter he decided the Theranos story should be expedited in part to give his aging grandfather, George Shultz, a chance to clear his own name before he died. Tyler also forwarded documents he’d smuggled out of Theranos.

Carreyrou flies to Phoenix, where Theranos had a presence in over 40 Walgreens stores, and interviewed doctors and patients who had used the clinics. One patient had to pay $3,000 out of pocket for follow-up tests that disproved Theranos results that had suggested she was about to have a stroke. The patient’s doctor, Nicole Sundene, had 11 more clients who’d tested abnormally for calcium and potassium; Sundene’s letter about this to Theranos had gone unanswered.

Sundene and Carreyrou conducted an experiment: Both got blood tests from Theranos clinics at nearby Walgreens stores as well as at LabCorp clinics. The Theranos phlebotomists required standard venous blood draws as well as finger sticks. Theranos reported that three of Carreyrou’s results were abnormal, while LabCorp found them to be within norms; Theranos also rated his cholesterol levels as high, but LabCorp pronounced them “desirable” and “near optimal.”

Dr. Sundene’s LabCorp report put her cortisol level within the normal range, but Theranos had it a one-eighteenth of normal, suggesting she should be suffering from symptoms of Addison’s disease, including “extreme fatigue and low blood pressure that could result in death if it went untreated" (236).

During interviews with other doctors who had used Walgreens clinics, Carreyrou heard several complaints. One patient had to miss a planned vacation because of a Theranos blood report that was later disproven in testing elsewhere. Another patient’s pregnancy might have been put at risk had her Theranos test result not later been refuted. Theranos learned of the Journal investigation, and their public relations firm contacted Carreyrou, who asked for an interview with Elizabeth when he visited the Bay Area in a couple of weeks. They turned him down, saying Elizabeth would be booked up during that time frame. Carreyrou traveled to the region anyway to interview others.

The first source was Erika Cheung, the lab worker who’d accompanied Tyler Shultz to his grandfather’s house the night Tyler had tried and failed to convince him that Theranos was up to mischief. Erika told Carreyrou that Theranos had “routinely ignored quality-control failures and test errors and showed a complete disregard for the well-being of patients" (237). Carreyrou also met with Tyler, who corroborated Erika’s and Alan Beam’s information on Theranos.

The other sources were Stanford med school professor Phyllis Gardner, who had spoken to Elizabeth years earlier about the young student’s idea for a skin patch that would diagnose and treat diseases, and Rochelle Gibbons, who presented evidence that Theranos had pressured her late husband, Ian, not to testify in the Fuisz lawsuit, and that the pressure had led directly to Ian’s suicide. 

A few weeks after talking to Carreyrou, Tyler Shultz was threatened by Theranos lawyers from Boies Schiller, who suspected he had tattled to The Wall Street Journal. They demanded he meet at company headquarters to “sign something.” Instead, everyone met at George Shultz’s house, where the attorneys badgered Tyler, insisting he sign various affidavits or be sued. Tyler refused and contacted a Shultz family lawyer, who arranged a delay in the proceedings.

Because the Shultz lawyer’s firm also represented Elizabeth, Tyler was referred to an outside attorney, Stephen Taylor. He negotiated with the Boies Schiller lawyers, who wanted Tyler to give up the names of others who had spoken to the Journal reporter. As negotiations dragged on, Tyler was threatened again by Boies’ attorneys, who promised to bankrupt him and his family, and who put him under surveillance. Tyler’s mother’s car was broken into and her notes about the case were stolen.

Theranos continued to dodge Carreyrou’s request for an interview with Elizabeth. Instead, they wanted him to meet with Boies Schiller attorneys at their New York office. Carreyrou counters that they must meet him at Journal headquarters. 

The meeting between the Theranos team and Carreyrou took place in late June 2015. David Boies headed up the visitors, who included two other Boies Schiller attorneys, Theranos general counsel Heather King and executive Daniel Young, and a couple of observers. Carreyrou sat with his editor, Mike Siconolfi, and Journal general counsel Jay Conti. The meeting was tense; Boies Schiller lawyers tried to intimidate the Journal team, but they held fast. Carreyrou started in on a list of 80 questions he had sent them, searching for answers from Daniel Young. Young refused to answer several of them, invoking trade secrets.

The questioning dragged on for four hours and devolved into a standoff. Carreyrou’s questions were central to his report, but the Theranos team kept refusing to answer on the grounds that the information was proprietary. Carreyrou realized he was onto something: “They wouldn’t be stonewalling if they had nothing to hide" (253). Young did answer some of the questions; a few of his responses directly contradicted Alan Beam’s report. Carreyrou suspected Young was lying outright.

Three days later, Erika Cheung was served with a letter from David Boies threatening her with a lawsuit unless she disclosed information on any conversations she may have had with Carreyrou. Terrified, Erika goes into hiding at a friend’s house. Meanwhile, Carreyrou hears from Alan Beam, who had been incommunicado for two months. Beam had retained a former Medicare fraud prosecutor and felt re-energized about the fight against his former bosses.

A Theranos sales rep threatened one of Carreyrou’s Phoenix doctor contacts with “negative consequences” if she refused to meet with Sunny, who was in town at the time. A few days later, the Journal received a 23-page letter that threatened the paper with a lawsuit if they “published a story that defamed Theranos or disclosed any of its trade secrets” (257). The letter included affidavits from two doctors Carreyrou had interviewed, who now claimed he had misled them.

Sunny visits Dr. Stewart, one of Carreyrou’s best witnesses, and threatens her. She begs Carreyrou to keep her out of his report. Carreyrou realizes “there was nothing these people would stop at to make my story go away" (258).

By July 2015, Theranos had won approval for one of its simpler finger-stick tests and was touting it as a sign of the company’s high quality. Elizabeth also had made inroads with the Obama administration, increasing her political clout. At a demonstration of the miniLabs for Fortune reporter Parloff, the tests stalled and the machine’s onscreen progress bar slowed to a crawl. Parloff finally had to leave; he didn't know that Sunny had ordered a small piece of computer code added to the machines that blocked error messages, replacing them with the slowed-down progress bar.

During demos at Theranos headquarters, VIPs would watch as their finger-stick blood samples were inserted into a miniLab, but when the VIPs left the room, technicians would quickly withdraw the samples and rush them to the lab for the real testing. Theranos built a fake lab filled with blood-reader machines and showed it to US vice president Joe Biden, pretending that it was a fully automated system for blood analysis. Meanwhile, Sunny continued his campaign of intimidation, putting renewed pressure on Alan Beam and threatening lab workers as well as patients who had spoken to Carreyrou.

Carreyrou finished the draft of his report and sent it to editor Mike Siconolfi, who would edit it, send it to another desk for review, and then put it in the hands of the paper’s lawyers for a final vetting. A week later, worried that Theranos would soon silence all his sources, Carreyrou asked Mike for a progress report. Mike told him the story of la mattanza, in which Sicilian fishermen would wade out into shallow seawaters with clubs and wait quietly until the fish no longer feared them and swam closer, whereupon the men would club the fish for their catch. The Journal, Mike explains, was doing a news version of la mattanza, waiting for the right time to strike. 

Rupert Murdoch, owner of the corporation that controlled the Journal, met Elizabeth and was very impressed. In March 2015, he sank $125 million into Theranos; it was the largest investment he had ever made outside his own companies. Elizabeth met with him in July, asking him to quash Carreyrou’s exposé. Murdoch trusted his editors and declined. She repeated her request in September, but again he turned her down. Theranos continued its campaign of intimidation, turning up the heat on several of Carreyrou’s informants and issuing a second letter that threatened suit if the Journal published what it termed a “false, misleading, and unfair” report (271), that would improperly reveal trade secrets.

Early in October 2015, Boies and two of his attorneys returned to the Journal’s New York offices to meet with editor-in-chief Gerry Baker, along with Carreyrou, Jay Conti, and standards editor Neal Lipschutz. At the meeting, the Boies group admitted that Theranos was using conventional machines to do some of its testing, but that this was part of an ongoing “journey,” like a work in progress. They also confessed that the Theranos website had dropped its promise that its tests “require only a few drops of blood,” saying this was for reasons of “marketing accuracy” (272).

Boies offered to provide a demonstration of a Theranos machine within several weeks. Baker turned them down; he wanted to publish sooner. Boies then offered to get Elizabeth to consent to an interview within a few days; Baker accepted, but Elizabeth didn’t follow through. The article, “A Prized Startup’s Struggles” (273), was published on October 15, 2015. It said Theranos’ blood tests were mostly run on conventional machines, that its own devices were inaccurate, that proficiency tests were fudged, and that the company was effectively endangering patients.

The story was a sensation. Major magazines that had once praised Theranos now questioned it; debate raged in Silicon Valley, with many big players openly wondering about the company’s competence, expressing doubts they had previously kept to themselves. Just before the story went to press, both the FDA and CMS conducted surprise inspections of Theranos plants in California. The FDA found that the company’s nanotainer vial fell under its jurisdiction and constituted an “uncleared medical device” not lawful for use (274). Carreyrou reported this in a follow-up article the day after the exposé was published.

That afternoon, Elizabeth called a staff meeting at Theranos headquarters. She dismissed the Journal story as a mishmash of falsehoods perpetrated by disgruntled competitors and ex-employees. She also claimed that Theranos had voluntarily withdrawn its nanotainers and would resubmit them for approval. Sunny then whipped the staffers into a frenzied chant of defiance against Carreyrou.

The following week, Elizabeth attended the Journal’s annual technology conference, where she insisted that the nanotainer withdrawal was voluntary, that Theranos didn’t use conventional testing machines for finger-stick tests, that regulators had completely approved the company’s system, and that Theranos never diluted blood for testing. She denigrated Carreyrou’s sources and called the Journal a “tabloid.” The Journal issued a reply, saying it stood by its article.

Theranos removed several board members, including Shultz and Kissinger, shifting them to “a new ceremonial body called a board of counselors” (279), and replacing them with Boies, who launched new legal and public-relations salvos against the Journal. In response, the paper published four more stories that reported Walgreens’ halt of a planned expansion of its clinics, Safeway’s cancellation of its partnership with Theranos, and the lack of a director at Theranos’ testing lab. Elizabeth continued her public counterpunches, raising the specter of sexism as one cause of her troubles and urging young women to follow her lead and enter scientific and engineering fields. 

Three weeks before Carreyrou’s exposé was published, Erika Cheung sent an email to CMS field inspector Gary Yamamoto, alleging irregularities and misconduct at Theranos, and adding that their tests gave false results. Yamamoto and Sarah Bennett responded with a surprise inspection of Theranos, where they were stonewalled for hours, confronted by Boies Schiller attorneys, and frustrated during their lab walk-through because so much documentation was missing. Sunny made excuses, and Yamamoto agreed to return in November.

By then, the Journal exposé had come out and CMS was under pressure to get results. Yamamoto and Bennett’s second visit to Theranos took four days; their work was closely monitored by company executives and security, and their attempt to interview privately one employee ended when the worker demanded an attorney and behaved as if coached.

In January 2016, CMS posted a letter to Theranos, saying their business posed “immediate jeopardy to patient health and safety” (283), and giving them 10 days to produce a remediation plan or lose its Clinical Laboratory Improvement Amendments (CLIA) certification, without which it couldn’t do business. Carreyrou got hold of the still-secret inspection report and found that the company’s Edison readers had been used on a few of the blood tests, despite Elizabeth’s denials, that they produced “wildly erratic” test results, and that the remaining tests had been run on conventional equipment.

As well, the lab had employed unqualified personnel, samples had been stored at wrong temperatures, reagents had expired, and patients hadn’t been alerted about faulty test results. One expert, shown the report, said the “Edisons’ results were no better than guesswork" (286). Nonetheless, Theranos failed to correct 43 of 45 conditions cited by CMS, and the agency threatened to ban the company from blood testing for two years.

Carreyrou visited Tyler in May 2016 and learned that the young scientist’s parents had spent $400,000 on his legal defense. Tyler had become estranged from his grandfather, who continued to believe in Elizabeth’s project despite the exposé. Even with these problems, Tyler is glad the story came out.

Elizabeth fired Sunny and secretly voided all of Theranos’ blood tests to date. Carreyrou found out and published the information in June; Walgreens promptly scuttled its partnership with Theranos and shut down its store clinics. In July, CMS banned Theranos from testing blood. The US attorney for San Francisco launched a criminal investigation, and the Securities and Exchange Commission (SEC) opened a civil probe.

In August, Elizabeth appeared at the annual meeting of the American Association for Clinical Chemistry (AACC), which had invited her, despite protests from members, to speak about Theranos technology. A dozen journalists were on hand. Elizabeth promoted her new-and-improved miniLab for use by patients, doctors, and hospitals. The device still hadn’t been independently vetted, and it could only make 11 types of blood test.

Elizabeth’s presentation was widely panned, and Theranos investors mutinied. Some venture funds filed litigation; others accepted extra stock for a promise not to sue. Murdoch sold back his shares for a dollar and took more than $100 million as a write-off on his taxes. Boies Schiller stopped representing Theranos. Walgreens sued. Elizabeth shuttered her labs and settled with Arizona’s attorney general, paying $4.65 million into a fund that reimbursed more than 76,000 patients who had used the Theranos blood-test system. Test corrections or voids in Arizona and California eventually reached more than 1 million, and 10 patients filed suit. 

In January 2018, Theranos published a detailed description of its miniLab. The report showed that the devices relied, not on the promised finger sticks, but on venous blood draws. Moreover, the machines could only perform a few different blood tests; they had to perform the tests one at a time; different tests required the machine to be reconfigured internally; and both cholesterol tests failed the FDA’s recommended accuracy standards.

Early in 2017, Theranos settled the biggest investor lawsuit for $43 million. Later, it agreed to pay Walgreens $25 million. Late in the year, the company laid off most of its 800 employees and moved all its operations across the bay to the Newark facility. Elizabeth got for Theranos a $100 million loan, with her patents as collateral. The SEC filed suit in March 2018, charging Theranos with “an elaborate, years-long fraud” (296). Holmes settled by giving up voting control of the company, forfeiting most of her stock, and paying a $500,000 fine. The SEC banned her for 10 years from serving as an officer or director of a public company.

Silicon Valley has a long history of promoting “vaporware,” or software that’s much touted but never comes to market. Elizabeth “channeled this fake-it-until-you-make-it culture, and she went to extreme lengths to hide the fakery" (296). Some blame Sunny Balwani’s influence, but Elizabeth had been lying to pharmaceutical companies and threatening her employees long before Sunny arrived, and she always had the final say between them. Elizabeth also retained nearly 100% voting control over her board of directors. Psychologists might consider Elizabeth a sociopath due to her lack of conscience; in any case, “there’s no question that her moral compass was badly askew” (299). 

The FBI charged Elizabeth and Sunny with wire fraud in June 2018, accusing them of “overseeing the electronic wiring of blood-test results they knew to be of questionable accuracy across state lines” (300). The indictments were a warning to other Silicon Valley entrepreneurs who might be tempted to play fast and loose with the law. If convicted, the two would face a possible 20 years in prison and millions of dollars in fines and restitution to victims. In September 2018, Theranos was dissolved, its patents transferred to the investment group that had loaned the company money in 2017. It was revealed that the family of US Secretary of Education, Betsy DeVos, had lost $100 million on Theranos, as had the Cox family, along with a loss of $150 million for the Walton heirs. Total losses for all investors approached $1 billion.