The latest chapter in corporate scandals is closing: Elizabeth Holmes is convicted of defrauding investors with her blood testing company Theranos
Lesson summary
Hi there everyone, it’s Jeff and this is Plain English, where we help you upgrade your English with current events and trending topics. This story is about a month old now, but I think it still counts as a trending topic.
It’s all about a company called Theranos, which promised to revolutionize blood testing. No more going into a lab to get blood drawn with a scary needle. Theranos was going to let you do all that from your house…”was” going to, because Theranos went out of business in 2019 and its celebrity founder, Elizabeth Holmes, was found guilty of defrauding investors in late January.
That’s today’s topic. You can find the full lesson at PlainEnglish.com/446. The expression we’ll talk about in today’s lesson is “buy into.” And we have a quote of the week from the inventor of the lightbulb. Let’s get started.
Rise and fall of Theranos
Elizabeth Holmes, the founder of a company called Theranos, was once a darling of Silicon Valley business. She graced the covers of business magazines, she gave interviews on television, and she shared a stage with celebrities, ranging from Bill Clinton to Chinese entrepreneur Jack Ma. In 2015, then-Vice President Joe Biden lavished praise on Holmes and Theranos, saying that her company was “the laboratory of the future.”
And for a time, it seemed to be true. Like so many successful entrepreneurs, Holmes dropped out of Stanford University to develop a new product. She called it the Edison test. This simple, at-home blood test, she said, would be able to detect hundreds of conditions like cancer and diabetes without using needles. Consumers could take just a tiny sample of blood from a pinprick, mail it into a lab, and get comprehensive, high-quality results.
If this were true, it would revolutionize the detection of disease, allowing more tests to be done in a less painful, more accessible way. With simple, pain-free blood tests, patients would be able to detect diseases earlier, saving countless lives. What’s more , the tests were easy to administer from home, saving expensive and disruptive trips to a laboratory or doctor’s office.
But the promise wasn’t true. The test simply didn’t work the way she said it did. But that didn’t stop her from raising over $900 million from investors, all of whom bought into her vision and product. And then it all came crashing down. Her business fell apart after an investigation revealed that the tests didn’t work; Theranos was liquidated in 2019. And in January, the 37-year-old Elizabeth Holmes was convicted of defrauding investors.
This was a stunning fall from grace . As CEO, Holmes maintained a captivating image. She carried herself with the confidence of a seasoned executive. She wore only black turtlenecks, in the style of Steve Jobs. She was great on TV. In interviews, she manipulated her voice to sound more masculine. It didn’t hurt that her name was “Elizabeth”, at a time when so few Silicon Valley founders were women. At one point, Forbes magazine called her the “world’s youngest self-made female billionaire.” At its peak, her company was valued at ten billion dollars.
Her image helped her secure partnerships with trusted brands. Pharmacy giant Walgreens and the grocery chain Safeway sold her product in their stores, lending some credibility to her tests. Outside investors, ranging from U.S. Senators to diplomats to finance executives, jumped on board, lending additional credibility to Theranos and to Holmes personally.
But Holmes deceived these investors. She peppered her investor presentations with logos of pharmaceutical companies, implying that those companies had validated her tests. In fact , they had not done so. She also implied she had a partnership with the U.S. military to administer blood tests in the field; that wasn’t true either. But numbers don’t lie, right? Maybe so, but Holmes didn’t provide the same kind of technical and financial information that other companies in the industry provide. Still, things seemed to be working. So many investors, so many customers, couldn’t be wrong, right?
Then, in 2014, an employee blew the whistle on Theranos. Tyler Shultz was only 22 at the time, but he could see that Theranos’s tests weren’t revolutionary; they were no different than tests he could run with basic lab equipment. Many of the test results that Theranos gave customers were actually done with other companies’ equipment. And when Theranos was “validating” the results of the Edison test, it used other companies’ advanced lab tests. In other words , they measured the accuracy of other companies’ equipment, and then said the results validated their own equipment.
Shultz contacted government regulators and journalists with what he knew. That was the beginning of the end. A relentless investigative series by the Wall Street Journal newspaper revealed the layers of deceit and fraud in the company. An outside scientific study by the Cleveland Clinic found that Theranos’s tests were much less accurate than other lab tests; one found problems in 68 percent of the Edison test results. Theranos eventually retracted the results of two years’ worth of Edison tests. That means that for two entire years–and probably more–Theranos customers got lab results that were inaccurate.
In 2019, Theranos went out of business. And then in late 2021, the trial of Elizabeth Holmes started. She was charged with defrauding investors and defrauding patients. Prosecutors said she repeatedly told a misleading story about the technology and the company’s finances when raising money from outside investors. In her defense, she said she believed the technology was accurate, but that she, the founder and CEO, was manipulated by other employees at the company, including the chief financial officer, her former romantic partner.
After a four-month trial, she was convicted of four counts of defrauding investors; each count carries up to 20 years in jail, though she will probably serve much less than that. Her sentencing is scheduled for September.
Don’t feel bad for the investors
If you’re tempted to feel sorry for the investors who lost all their money—don’t. These are people who should have known better. It’s perfectly fine for companies to go out of business; investors lose money on early-stage businesses all the time. But these investors loved the narrative more than the business. They loved Elizabeth Holmes on CNBC; they loved her on the cover of Forbes.
They loved everything about Theranos, except the thing that mattered the most: whether the product worked. They turned a blind eye to all the warning signs. They didn’t do their due diligence because they wanted the image; they wanted to be associated with a person and a company that appeared to be successful. What a disaster. You can catch the upcoming miniseries on Hulu; they’re also working on a movie chronicling Theranos’s rise and fall.
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