The Complete Demise of Theranos and The Fraud that Occurred

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Words: 3002 |

Pages: 7|

16 min read

Published: Jan 31, 2024

Words: 3002|Pages: 7|16 min read

Published: Jan 31, 2024

The scandal stories about Enron and Bernie Madoff are infamous. They cleverly were able to fool the press at the beginning and this allowed them to operate for several additional years before their schemes were finally uncovered. Recently, a company by the name of Theranos has followed in their footsteps and found itself out of business for glaring failures of corporate governance at the top of the company. Larker and Tayan (2016) define corporate governance as, “the collection of control mechanisms that an organization adopts to prevent or dissuade potentially self-interested managers from engaging in activities detrimental to the welfare of shareholders and stakeholders” (p.7). The Corporate Executive Officer (CEO), Elizabeth Holmes, made several fraudulent claims about their ‘revolutionary product.’ An example of a fraudulent claim was when it was shared with stakeholders that the company had used their product in accordance with the government during oversees operations. They also completely fabricated scientific quality control data from a prestigious scientific company dramatically misrepresenting the quality and efficacy of their product. These are just two examples of the breakdown of corporate governance that occurred under Elizabeth Holmes. There were many different problems and issues that led to the ultimate demise of Theranos and the charges that were brought upon Elizabeth Holmes.

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Elizabeth Anne Holmes grew up a seemingly bright and driven even at a very young age. The work ethic that she put fourth was second to none and she was a straight A student. Her parents were very well connected politically. Her mother, Noel, being a Congressional committee staffer and her father, Christian, being a United States Government aid worker. During her childhood, Holmes moved around with her family spending time in Washington D.C., Houston and eventually ending up oversees in China. While her family was staying in China, she began to build ideas of her own and started to mold herself into a self-made entrepreneur. Holmes hard work finally paid off and she eventually started her own side business. Her first company that she developed sold C++ programs that would translate computer code to different schools in Asia. This was the beginning of her young entrepreneurial career but far from the end.

On Holmes return to the United States in 2002, she applied to the illustrious Stanford University and was accepted. While at Stanford, she majored in electrical and chemical engineering. When Holmes went on summer break, she was able to obtain a highly respected and coveted job in Singapore at the Genome Institute of Singapore. During her stay in Singapore, Holmes was tasked with working on a computer chip that would help detect Severe Acute Respiratory Syndrome (SARS) in the human body. Her work in Singapore was truly inspirational to Holmes and she the spark of a new grand idea. It gave her the idea to create new lab tests that would be less invasive and the turn-around time for receiving these test results would be just a fraction of the time as opposed to the current tests.

Upon Holmes return to Stanford, she resumed her sophomore year but her studies did not last long. With her experiences at the Genome Institute of Singapore under her belt, she could not ignore the temptation of creating an innovative non-invasive diagnostic test. At the tender age of 19, Elizabeth Holmes made the ultimate decision and she subsequently ended her college career at Stanford University to pursue her dream of innovating the medical world. Soon after, she moved forward and a brand-new company was started by the name of Real-Time Cures however, this name did not last long and it was soon changed to Theranos. This new company in the land of startup companies known as Silicon Valley had a noble idea and they thought that it could be a real game changer. With blood test, you usually have to take several vials of blood to do the battery of test that a doctor signs off on but at Theranos, they had the new and ground-breaking idea that you could run all of these tests with just a single drop of blood and the results would be back much quicker than the original blood test. On top of the less invasive and much quicker testing, Holmes thought that she could also do them at just a fraction of the price as opposed to the current blood test work done by other companies. Going one step further, it was said in a CBS article by O’Donnell (2018) that Holmes believed that Theranos was saving money, not only for the common person, but also saving money for Medicare and Medicaid in numbers that could go all the way up to the billions of dollars.

One of the strongest attributes that Elizabeth Holmes had was her ability to talk investors into believing what she was selling and getting them to invest very large sums of money. Some of the very first investors were Larry Ellison, Tim Draper and Victor Palmieri which is a veritable who’s who of the business world and they all wholeheartedly believed in what Holmes had to offer. On top of that, the board of directors of Theranos was packed with heavy hitters from different government agencies. A few of the more illustrious people on the board were Henry Kissinger who has held several prestigious positions, James Mattis who is the former defense secretary and George P. Shultz who is a former secretary of state. George Schultz was eventually able to get his grandson Tyler Shultz a job with Theranos. With all of the star power and connections that Theranos had, according to Lydia Ramsey (2019), there had been $6 million raised by Theranos.

In 2005, Theranos came out with a device called Theranos 1.0. It was supposed to find side effects in patients who were taking part in drug trials. It was eventually tested on terminal cancer patients in study in 2007 but Theranos 1.0 was scrapped soon after that. In September of 2007, the darling of the medical community was being developed and it came in the form of a prototype by the name of Edison. This was the machine that Holmes had dreamed about creating. It was going to be able to take a single drop of blood and run a full battery of blood test, the results would return much quicker, and it was going to be a significantly cheaper option as opposed to other labs.

As Holmes continued raking in huge sums of money for Theranos, in 2009, a new player joined the team. Ramesh “Sunny” Balwani moved to the United States in 1986 and had a background in software engineering. He worked at Microsoft and Lotus for a time before becoming part of a startup company called During his stint at this startup, he rose through the ranks and eventually became the President of the company as well as the Chief Technology Officer. He was able to make a great deal of money during this venture and exit the company before they went under.

While on a trip to Beijing that had been arranged by Mandarin Program through Stanford, Holmes and Balwani met and the two instantly hit it off. Shortly after Holmes dropped out of Stanford to start Theranos, Balwani and Holmes had been in a secret relationship even though Balwani was nearly 20 years her elder. This relationship between the two would stay secret for several years to come

Balwani was hired in September 2009 and even though he didn’t have any medical knowledge, he was brought in as the President of Theranos. While Holmes appeared to be the face of the company, Balwani tried to stay in the background and worry more about running the daily operations of the company. By all account, he was an emotionally abusive boss who would try to terrorize and talk down to any and all employees at the drop of a hat. Even though his knowledge of any and all things medical was very limited, he would attempt to argue different results with expert scientist. By all accounts, he appeared to boarder on the side of paranoia about company secrets getting out. Balwani did not seem to fit into the company but although there appeared to be a number of issues, he remained Holmes number 2. Even with the distraction of this new tyrant, the well-oiled machine that was Theranos continued to roll on and gain momentum.

Finally, big things started to happen for Theranos in 2010. Holmes and Balwani made the bold move to go to Walgreens and begin business talks about the potential of running health clinics within there store. Not only were they in business talk with Walgreens, they were also attempting to start a relationship with Safeway for the same thing. With this potential huge step, Holmes would need to create something new that would be able to run blood test. In 2011, this device was created and it was coined with the nickname of 4s.

2012 was a big year for Theranos in a few different ways. First, Theranos was now the doing blood test at Safeway stores in their health clinic on a trail basis. Second, they had also signed a deal with Walgreens to place their machines in their stores. Neither of these events went off without having their own sets of issues and the first signs of possible cracks in the armor of Theranos began to show. Some people began to see that this new product may not be as perfect as it was once thought to be.

Although they had a deal with Safeway to allow them to bring in their equipment to different health centers, Safeway’s Chief Medical Officer had major concerns about some test that had come back. These tests had discrepancies that made him feel uneasy and although he brought this extremely important information to the Chief Executive Officer of Safeway, these concerns were ignored and business went on as usual.

Even though Walgreens had just signed a contract with Theranos that was north of $100 million, they were having their on issues with them. With the deal that they had in place, Walgreens was expecting to have the machines in their stores. However, these deadlines would seemingly come and go and there didn’t seem to be any progress being made. Theranos kept missing these deadlines that were put in place by Walgreens.

By 2013, everything was seemingly coming up roses and working out perfectly for Elizabeth Holmes. She was still bringing in huge sums of money and the company was eventually valued at $9 billion dollars. She had realized her dream and all of her hard work was finally paying off and it was paying off to the tune of a personal wealth in excess of $4.5 billion. People were really beginning to notice her publicly and she was seen as a top 30 under 30 person and was invited to do TED talks. The sky seems to be the limit and nothing could stop her. Then people started looking into things deeper and deeper and questions starting be asked. Things began to change. The shield of secrecy that Holmes had crafted since the company began started to crack.

Tyler Shultz, the grandson of one of the first big investors and a family friend to Holmes, began his career at Theranos in late 2013. He had graduated from Stanford University with a biology degree and after speaking with Holmes about Theranos, he had no doubt that this was the place that he wanted to be. This was around the time that Theranos and Walgreens had announced that they were going into business together and Shultz was very excited about the possibilities that could come from these two companies joining together.

Finally, things that had been hidden away for years started to come out. Shultz was eventually given an opportunity to look at the Edison machine and he was absolutely shocked by what he saw. Instead of being able to run all of the blood test by a single blood drop, the Edison was lucky if it didn’t fall apart. Not only did the machine not work like Holmes had preached, pieces were hanging off of it. It was not functional like it should be.

Shultz was not the only person that found numerous issues with the Edison machine. Doug Matje was a biochemist who joined the team in 2012. He was tasked with making sure that the blood testing was adaptable to the Edison. Investors were under the assumption that this technology was already functioning properly because Elizabeth Holmes had already told them as much. Not only had she told investors this, she had told Walgreens this exact same thing. She had told them that this machine could successfully run over 200 different types of blood test and would eventually be able to run over 1,000 different tests. From the findings of Doug Matje, everything that Holmes had told the investors and Walgreens was a complete fabrication of the truth. He found that the Edison machine did not work properly and that the test results would very rarely come back correctly. Soon after, they were not even using their revolutionary machine but normal blood testing machines just like every other rival blood testing facility was using.

Yet another employee of was seeing troubling signs while conducting her work at Theranos. Erica Cheung was a bright student who had recently graduated with a degree in cell and molecular biology from the University of California, Berkeley. Cheung joined Theranos soon after and almost immediately found issues with the blood test that were being performed. She found that results were coming back improper and upon reexamining these blood test, they would often times comeback contradictory to the original test. So unfortunately, nobody really knew what the actual test results were and the main people who would suffer would be the unsuspecting patients.

Elizabeth Holmes schemes were getting more and more sketchy. She started telling employees of Theranos to falsify testing if they were by chance showing anything to an investor to give the illusion that the Edison machine was functioning properly even though it was not functioning at all. Because of the immense level of secrecy, Holmes wouldn’t let anyone see any actual test run. As a matter of fact, people who worked in different departments never had access to each other. Each department had their own key cards to limit access so nobody really knew what anyone else was doing.

During this façade, Holmes lies started becoming bigger and bigger and the investors were becoming more and more disillusioned. While still bringing in money, there were claims made by Holmes that the Edison machine had been used in Afghanistan and that they had been given the okay by the United States Food and Drug Administration. Both of these claims were not just fabrications but outright lies. Even after these fantastic admissions, the lies continued. She went on to say that she had also collaborated with the prestigious Johns Hopkins University and concluded that you can see pancreatic cancer several years before it is detected in a tumor through the blood. Yet again, after Holmes had made these different claims, they were proven to be false.

As Theranos began to crumble little by little, Holmes began to look for a way to fix the issues that her company was beginning to have. She knew that she needed to be able to pass the Food and Drug Administration test she came to one conclusion. Holmes needed her employees to start falsifying test and if test did not come out the way that they needed them to, those tests needed to disappear. Even going to individual bosses was of no help because the higher ups were applying so much pressure to everyone that nothing could be done.

If anybody ever tried to complain about any issues to Holmes, they were unlikely to be able to speak with her. Any big issues that there were would be handled by Sunny Balwani. If there was a complaint of any kind or test results came back that were not to the liking of Theranos, Balwani would scold them right then and there no matter who was around. To go even a step further, he would even firs someone on the spot if he felt the need. He had so much power and he ultimately only and to one person and she happened to be his lover.

Doug Matje had been a loyal employee for Theranos and he did his best but the lack of corporate governance and accountability that was being shown had begun to wear on him. If anything ever went wrong, Balwani was there to make sure everyone knew about it. With all of the fraudulent behavior that had started to occur throughout the company, Matje decided it was time to part ways with Theranos and he quit.

Tyler Shultz was a family friend of Elizabeth Holmes but he knew that there were serious issues in the form of lying to the investor, the shareholders and the public in general. The inside of the company had become just as bad. With the rise of Theranos, Holmes had become borderline paranoid with the secrecy of the company. They were watched very closely at all times, they were forced to sign non-disclosure agreements and they were threatened by a team of lawyers that were employed by Theranos. It was starting to appear to be more like a prison than a workplace.

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Tyler had enough and knew it was time to take a big risk. With all the fraud happening around him, he had to take a chance and he got in touch with the New York State Department of Health. He told them some of the practices that had been going on throughout his laboratory and there was shock in the air. Tyler attempted to speak with Holmes one more time but, per usual, Sunny Balwani was the person that he was put in touch with. The common scolding happened during that conversation and in April of 2014, Tyler Shultz resigned from his position at Theranos.

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The Complete Demise of Theranos And the Fraud That Occurred. (2024, January 31). GradesFixer. Retrieved July 15, 2024, from
“The Complete Demise of Theranos And the Fraud That Occurred.” GradesFixer, 31 Jan. 2024,
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