How a $9-Billion Unicorn Imploded

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Fooled investors flooded Theranos with cash.

By Andrew May, a FINRA attorney at May Law in Chicago:

In the early 2000’s, the world was gripped by the SARS epidemic unfolding in Southeast Asia. Mankind was yet again battling a deadly disease, and at the forefront of this battle was the Genome Institute in Singapore.

At the time, Elizabeth Holmes, a young volunteer from Stanford traveled to help the team work on their software. Holmes left Stanford a few years later and decided she wanted to get into medicine and help save lives.

The only problem was that she hated the sight of blood and needles. Assuming that there were a lot of other people who hated needles and blood as much as she did, she decided to tackle the most basic health care service on the planet – blood tests.

Her company, Theranos, was based on the design for handheld blood testing instrument that could instantly give results with just a few drops of blood. It was meant to work just like the diabetes self-test kits, but detect a lot more than just blood sugar levels. A tiny drop of blood could be used for more than 70 different tests at the Theranos labs. The company started selling kits at Walgreens and testing at more than 41 locations in the country.

Investors flooded the inspiring company with cash, with some of the most prominent Silicon Valley names getting seats on the board and shares in the firm. After the last round of funding, the company was valued at over $9 billion. Since Holmes held more than 50% of the stake, she was labeled the youngest female billionaire on the planet.

If that story sounds a bit too good to be true, that’s because it now seems like it probably is. The revolutionary health tech company has been dogged by controversy right from the get go. The problems really hit the spotlight in October of last year when some former employees accused the company’s testing kits of yielding inaccurate results.

The flagship handheld testing kit, named Edison by now, was using a dilution solution that made the test results inaccurate. Because of this, the FDA intervened and a formal complaint was lodged with the New York State Department of Health. Medicare and Medicaid got involved soon after.

But it gets worse than a critical blood test giving the wrong results – it turns out a vast majority of the tests conducted on blood samples at the Theranos labs were done using regular machines from companies like Siemens. Nine out of ten of the tests the company conducted on blood samples were done using the same machines your local pathology lab used. That’s a troubling statistic for a company that promised pain-free blood-testing people could do at home.

Over the past few months, the company has come under attack from all angles because of these controversies. Many of their ties with partners like Walgreens have been threatened and the media has lost confidence in the company’s statements altogether.

Just in the last few weeks, the SEC and Justice Department launched investigations into the company’s operations. The authorities have threatened to shut down all testing facilities and revoke the federal license for the company. Chief Executive Elizabeth Holmes and President Sunny Balwani are also threatened with a ban on conducting any business in the blood testing market for over two years if the charges stick.

Part of the problem was always the company’s lack of transparency.

The press was given access to the startup back in 2013, but many of the reporters who visited came away with quick blood tests without having seen the testing machine at work. Ever since the company gained media attention, observers have been waiting for peer-reviewed studies on the new technology to be published in scientific journals. Peer-reviewed studies are a sort of seal-scientific-approval, and for the company to delay such publications for so long was already pretty suspicious.

When the Wall Street Journal accused the company of spinning gold out of pure startup hype, the company attacked the WSJ but didn’t refute any of the allegations.

Whether or not the Silicon Valley newcomer can survive this storm of regulatory pressure is yet to be seen. But the damage to the brand is already done. And even if the investors haven’t lost confidence, these investigations could result in serious action that would force them to reconsider.

As things stand now, the authorities haven’t charged the company formally with anything and investigations are still ongoing. What still needs to be determined is if the technology actually works the way it was supposed to, whether the company lied to potential investors about the testing kit’s abilities, and if the company can continue doing business in this highly regulated and competitive industry. By Andrew May, a FINRA attorney and founding member of May Law in Chicago.

The consequences of misconduct by financial advisors cost middle-class and working families about $17 billion every year. Read…  “Economy-Wide Misconduct” among Financial Advisers

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  50 comments for “How a $9-Billion Unicorn Imploded

  1. Rb
    April 23, 2016 at 9:42 am

    She did not graduate from Stanford.

      April 23, 2016 at 11:39 am

      The richest people in the world didn’t go to college.

      I’ve been to “college”. 3 degrees. People call me “Doctor” and I can tell you, 8 of my 9 years in college were a waste of time…..other than the parties, Gator Football and endless supply of new young chicks.

      • night-train
        April 24, 2016 at 3:09 am

        College was the best 15 years of my life. Came away with two degrees, as I worked part-time to pay for the experience. Parties, Bama Football, and yes, new young coeds. But I did find gainful employment and enjoyed a nice career. I thought I saw some conmen in the oil patch, but these Silicon Valley con-people take the cake. The cake, the plate and the table the cake was sitting on.

  2. Shawn
    April 23, 2016 at 11:36 am

    Silicon Valley snake oil salesmen.

    April 23, 2016 at 11:37 am

    If this is a “highly regulated” industry, how did it get this far?

    When these “kits” were developed, should not a “highly regulated” industry immediately looked at them and “highly regulated” them?

    I hope she sold her shares, got them off-shore to Panama and has bought a nice villa in the Caymans.

    • Chip Javert
      April 23, 2016 at 11:27 pm


      So cute to see somebody claiming 3 university degrees who actually expects regulators to “do something” simply because it’s the law or (even better) “they should have done it”, or (best of all) “they should have known to do it”.

      Why do you think she had all those national politicians on her board of directors? If any of those guys (Kissinger, some senators) took their board responsibilities seriously (excluding cashing paychecks), they would have demanded board members who actually knew what they were supposed to do in a firm like Theranos (for example: understand medicine & lab testing).

      Regulators are political creations, sensitive to the blowing of political winds. and are generally paid a whole lot less that the folks they’re “overseeing”. NOTE: A Fannie Mae regulator tried to blow the whistle before the 2007-8 financial melt-down and was publicly trashed by Rep. Barney Frank on national TV.

        April 25, 2016 at 9:56 am

        You are right. My 3 degrees didn’t teach me how to right better sarcasm so that even the most jaded could “get it”.

        In my day job, my greatest source of “sarcasm” is Medicare, followed closely by ObmacaSCare, but the public don’t get the joke even though they ARE the joke.

        All of life is a comedy club and we are all Clowns.

        • CENTURION
          April 25, 2016 at 9:59 am

          AND, it didn’t teach me how to spell “right” from “write”…when one is laughing at their own lame jokes. (Hey, we need an edit button)………..”public ‘doesn’t’ get the joke…If I took my own comments seriously, I would feel embarrassment.

        • chip javert
          April 25, 2016 at 12:41 pm


          Not to worry – I don’t take your comments seriously either, and only some of us are clowns.

      • Intos
        April 25, 2016 at 11:49 am


        If regulators did their job, we wouldn’t have “Wall Street”.

  4. Paulo
    April 23, 2016 at 12:10 pm

    A good investment might be upcoming technology for a quick breathalizer test for impaired/marijuana driving. I know they now have them in development, but their accuracy is in dispute. I beleive they still use blood tests if someone fails the roadside sobriety test.

    With the trend to legalisation it is necessary. Canada will be legalizing pot in 2017 and I think the big hope is for a rodside machine to be in full operation by that time. With the change in drug laws people can either see unicorns, or maybe invest in one. :-)

    • Paulo
      April 23, 2016 at 12:12 pm

      excuse my typos, a friend pulled up and I rushed to post.

      April 23, 2016 at 1:23 pm

      There is an easy test for Marijuana usage.

      When you pull over the driver, have in your left hand a bag of Doritos, and in your right hand a bag of Taco Bell tacos.

    • nick kelly
      April 23, 2016 at 1:37 pm

      Don’t hold your breath re: legalization. Very large agri-business (Tilray etc.) thought planned and invested based on the former government’s plan to cancel thousands of medical grow licenses (12,500 in BC) and move to a very few giant growers. The big Tilray plant here in Nanaimo laid off a bunch as soon as the new Liberal government got in-
      As you may be aware, the small growers keep getting Supreme Court injunctions to prevent their shutdown.
      For at least 20 years the Canadian government has said that it couldn’t legalize without inviting US wrath- if BC was declared a narco-state for example the US would have to halt trade. Before you laugh, remember in the Home of the Free it was illegal to have a beer for 14 years.

      So what about Colorado, the first state to do away with the medical window dressing? Two things- there is no provincial equivalent of ‘states’ rights’ The United States has 50 different legal systems, and although the ban on cannabis was of course federal there is more room for a state to
      stand up to their Feds.
      Second: the decision not to interfere with Colorado was an administrative one taken by the Obama exec and is not binding on future execs- e.g. Cruz who may well take a harder line.
      Finally the Trudeau darling is burning through its honeymoon almost as fast as it burns through money. A lot of political capital has been spent convincing Canadians that deficits are good.
      The marijuana file and court cases could languish for years- which won’t keep Trudeau up at night.
      That being said, there will be lots of pot around and a roadside tester could be a money maker.

        April 23, 2016 at 2:04 pm

        A drugged population is an obedient tax paying population.

        • Petunia
          April 23, 2016 at 4:27 pm

          A stoned population may be obedient but it won’t be employed for long. I hear that in Colorado most people show up for work stoned most of the time. No wonder they didn’t notice the election was cancelled.

        • Colorado Kid
          April 24, 2016 at 12:26 pm

          Petunia, I live in Colorado and that’s just plain BS about everyone showing up stoned.

    • Wyatt Earp
      April 24, 2016 at 6:08 pm

      Except that experience in Colorado since legalisation has shown that drivers who are high have a lower rate of vehicle accidents.

      Thanks for playing!

  5. NoOneOfConsequence
    April 23, 2016 at 1:04 pm

    Testing for impaired driving is problematic for marijuana. The problem is that THC (the active component in marijuana) is flushed very slowly from the user’s system.
    We cannot conclusively charge for impaired driving without a baseline of a particular user’s THC levels. Habitual users will have elevated levels of THC, and not be impaired at all.
    Sporadic users can be impaired with very low THC levels.

    Without consistency, the law cannot be enforced.

      April 23, 2016 at 2:05 pm

      That is why I drink Bud Lite and drive. Easier.

      • hidflect
        April 23, 2016 at 5:56 pm

        If you keep a small vial of vinegar in the car, and swill and swallow a small amount, it beats the breathalyzer. The acid fumes interfere with the Chromate-Dichromate balance in the machine that reacts with alcohol. All disclaimers apply…

        • CENTURION
          April 23, 2016 at 9:22 pm

          Cool….I love driving home drunk, but society thinks that is a bad thing. So I smoke week &sh*t and that makes me cool, and hip and with it,…and I get laid a lot (cauze I am cool) by ball freaks since I smoke Ganja, and I am cool and hip………and my old man is some freak who thinks I should “get a job”….what a loser. Hey, man, I love you……………….Hillary and Bernie will get me the Health care those White racist pigs deny me..yeah, dude…I have rights you. know….I have a right to EDUCATIONS, duh, and rights to FREE Health Care and if the stupid, greedy White Doctors won’t cure me of my Syphilis from the chicks I party with, or the anal warts I have from my free love friends, then I hope they put a GUN to the heads of these White Racist Pig Doc who won’t take care of ME!!!! Kill these bastards if they don’t love the people. !!!!!

        • Colorado Kid
          April 24, 2016 at 12:28 pm

          Centurian, Your posts are not worthy of this fine blog. You can do better, please do.

  6. Michael
    April 23, 2016 at 2:04 pm

    This fraud was allowed to continue because the board has some influential people. What should happen, if it is pure fraud Ms. Holmes and the rest of the management team should see the inside of a nice jail while all their “gains” are clawed back to compensate the investors. However, given that the government and the FDA is just another big fraud that would be unlikely.

  7. Ptb
    April 23, 2016 at 3:48 pm

    She was being heralded as the beautiful darling of women starting companies. Sounds like things have gone a little off message.

      April 23, 2016 at 9:27 pm

      Don’t you EVER criticize a womyn

      • Negotiam Perambulans in Tenebris
        April 24, 2016 at 4:45 pm

        Centurion Gloriosus…. Why do I get the impression that you get your information from brother Rush Limbaugh, Glenn Beck and the coterie of other demagogic lairs hired at great expense(400 million for Limbaugh) to dispense disinformation to deceive the naive and simple?
        If you keep doing that, I fear that you are going to get AIDS of the ears.

        Ye Thing that Walketh in Darkness

    • Intosh
      April 25, 2016 at 1:02 pm

      The tech world has been trying very hard to find that elusive emblematic female idol-leader. But this is not the pop music business where you can simply “manufacture” a star idol.

      Marissa Mayer and Elizabeth Holmes can found a club together.

  8. Brian Richards
    April 23, 2016 at 4:48 pm

    Those of us who grew up watching “Star Wars” and later, Star Trek, are pre-programmed to believe in techno-wizardry. When I read about Therano’s blood test, I didn’t even question it. I expect a device which is just held to your wrist, giving you an instant blood test within 10 years.

  9. Starfish
    April 23, 2016 at 5:14 pm

    Michael nailed it concerning the FRAUD and the Board.

    Add to it the gubbermint frauds and the
    fact Henry Kissinger was on the Board and the rest of his double-dealing ilk?

    How ’bout her parents – or after her assistant told his wife many times “it won’t work” over time then commits suicide? See the Corbett Report.

    Design a scam with a young pretty female spinning a good yarn – and oh my!

  10. chris hauser
    April 23, 2016 at 6:18 pm

    but she looks so…..trustworthy, with those big blue eyes and that golden blonde hair.

    and then you hear her speak, and she’s completely daft.

    it don’t work, there’s no there there.

    show me otherwise, and i’ll do eight tequila shots with her and tell her how smart and pretty she is, and how she doesn’t need all those dumb old board members.

      April 23, 2016 at 9:29 pm

      She is the date you get drunk, take home, get naked, and abuse for an hour or two………………….and hope to God you never see again.

      • walter map
        April 25, 2016 at 7:04 am

        Is that a boast or a confession?

    • TeeJay
      April 23, 2016 at 11:36 pm

      “but she looks so…..trustworthy, with those big blue eyes and that golden blonde hair. and then you hear her speak, and she’s completely daft.”

      No, no… you’re thinking of that CEO over at… Yahoo.

  11. OutLookingIn
    April 23, 2016 at 8:49 pm


    Maybe populating the board with elderly members contributes?
    They are are bunch of octogenarians, with George Shultz being the oldest at 94 years of age. George Shultz on the board of a blood testing company?
    What? Why? Here’s a rubber stamp and a stack of paper – get busy.

  12. Californiawoman
    April 23, 2016 at 8:51 pm

    She is a he. Google it.

      April 23, 2016 at 9:30 pm

      Actually, that is a good thing. “She” can’t get pregnant.

  13. Bali
    April 23, 2016 at 9:45 pm

    I’ve heard that venture funds search for ‘founders’ with a certain-

    1) visual appeal – geeky but somewhat good looking
    2) firm delivery – persuasive
    3) appear to believe what they’re pitching
    4) have the necessary Ivy background (graduation optional)
    5) must be greedy, that is profit trumps product
    6) lie whenever needed (the venture capital people want to be lied to)

    Criteria 1-6 trump innovative ability (mildly insane) or technical ability (hey those are applied, anyone can have those).

    No need for real products or services anymore , it’s all just one long dance of deception by the god-king founder(s).
    Phony products to match phony stock prices.

    My goodness, why does anyone work anymore?

    • HD
      April 24, 2016 at 3:09 am

      That’s exactly what you get when you bring unicorn money into existence: a unicorn economy primarily composed of promising but most times hardly tangible, useful or well developed products and services.

      When we’ll finally reach the hangover stage, that printing press will have a lot of explaining to do.

    • walter map
      April 25, 2016 at 7:20 am

      “My goodness, why does anyone work anymore?”

      So the predators will have someone to cheat.

      And you thought I was kidding when I said the U.S. had a collection of rackets and scams instead of an actual economy.

  14. AJ
    April 24, 2016 at 9:28 am

    If the founder was a male, would we be discussing his looks? Would we be talking about taking him home, getting him “naked” and “abusing” him for hours? Some not so subtle misogyny in this thread…

    • April 24, 2016 at 10:01 am

      THANK YOU!

      • Colorado Kid
        April 24, 2016 at 12:30 pm

        Wolf, Maybe it’s time to block Centurian – he’s lowering the quality of your blog.

        • Jerry Bear
          April 24, 2016 at 4:58 pm

          Nah! At his worst, he is good for a laugh and he does at times make valid points. I am not at all “politically correct” but I understand the need to be discrete (I hope Centurion is paying attention) about it. PC has pretty much replaced sexual prud9ery as a basis for making moral judgments on people. But I strongly oppose people purely on grounds of Political Correctness. This doesn’t apply if they really are promoting hatred and racism or fascist ideology but I don’t think he has crossed that like yet.

        • Colorado Kid
          April 25, 2016 at 8:33 am

          I don’t care about being PC, but I do care about subjecting others to your poor taste and lack of class.

  15. californiawoman
    April 24, 2016 at 10:16 am

    I brought up the she/he secret issue because it is another layer of deception. Honesty is a rare commodity these days.

    • Jerry Bear
      April 24, 2016 at 5:01 pm

      ….. I strongly oppose CENSORING people purely on the grounds of Political Correctness…..
      Sorry, my bad! ^,..,^

  16. JimTan
    April 26, 2016 at 11:51 am

    Looks like Elizabeth Holmes started this hype machine early with big names and big money. Her father held senior positions in Washington, worked for Enron, and then the United States Agency for International Development. Her mother was a congressional aide to Representative Charlie Wilson (see movie – Charlie Wilson’s War).

    “But when it came to fund-raising, Ms. Holmes had an ace up her sleeve: family connections. Timothy Draper, the well-known venture capitalist, had been a neighbor when the Holmeses lived in California. The children played together. “I gave her her first million bucks to get the business going,” Mr. Draper says.”

    “Another anchor investor was Don Lucas. Mr. Lucas is a godfatherlike figure in Silicon Valley who built his reputation by investing in a little start-up called Oracle. To get to Mr. Lucas, Ms. Holmes relied on an introduction from a former top banking executive who went to school with her father at Wesleyan. Mr. Lucas, who wasn’t available for an interview, served as chairman of the Theranos board for a time and brought in Lawrence Ellison, the founder and chief executive of Oracle, as another investor. In short order, Theranos raised more than $400 million, giving it, at one point, a valuation of $9 billion.”

  17. discgman
    April 26, 2016 at 2:49 pm

    I have a two year degree and I could see this coming a mile away. Just remember, this might be one of the many dominos that could drop if this unicorn phase drops from the sky. There are already a call for cash positive, “show me a profit” requests from investors and the IPO market has stopped almost completely. If one falls, the rest will sure follow. Bye easy money, tech bros, overpriced houses, silicon valley and cheap investor money.

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