--:-- [Sound of a conversation]
--:-- Sarah Cliff: Hi, I'm Sarah Cliff, and you're taking some leave from attorney leave to talk to me about your getquip.com slash explained experience today.
--:-- Sean Rameswaram: [laughs] And you brought young Max. I brought Max. Who seems to be doing well still.
--:-- Sarah Cliff: He's doing pretty well in the podcast studio. I think he's a natural for podcasting. Can't wait to interview him about something. Yeah, once he learns to talk.
--:-- Sean Rameswaram: Silicon Valley really does have it all. Free lunches, luxury shuttle buses to take you to work. They even got unicorns.
--:-- Sarah Cliff: In Silicon Valley, a unicorn is a private startup that's worth more than a billion dollars. Theranos was a unicorn. Elizabeth Holmes was its founder. A healthcare pioneer is being compared to visionaries like Bill Gates and Steve Jobs.
--:-- Sean Rameswaram: This is a revolutionary company that threatens to change healthcare the same way that Amazon changed retail. Or Intel and Microsoft changed computing. Or Apple, yes, changed the cell phone. It could be that huge.
--:-- Sarah Cliff: Elizabeth Holmes is part of the new Time 100 list just out. Her mission is to allow blood testing in every drugstore at a fraction of Medicare costs. Technology can and is transforming our world. But this unicorn had a rough ride.
--:-- Sean Rameswaram: Elizabeth Holmes went from the next Steve Jobs to facing 20 years in prison in just a few years. Investors lost a billion dollars on Theranos. And today we found out this unicorn is finally going to die.
--:-- Sarah Cliff: Blood testing firm Theranos is formally dissolving, but that is not the final chapter in this story. The founder, Elizabeth Holmes, and another former executive await a criminal trial.
--:-- Sean Rameswaram: It's the story of a Silicon Valley unicorn based on a scaffolding of lies that was exposed by a Wall Street Journal reporter. And the Wall Street Journal reporter is? John Carreyrou. And that's you.
--:-- John Carreyrou: That's me, yeah. John Carreyrou followed Theranos closely. So closely, he was the first person to really ring the alarm. He wrote a book about it called Bad Blood, and the story starts 15 years ago.
--:-- Sarah Cliff: This is 2003. Elizabeth Holmes drops out from Stanford. At that point, she's 19 years old. And she decides to found a diagnostics company called Theranos.
--:-- John Carreyrou: As a 19-year-old, how do you go about the process of convincing people that you know what you're doing and that you can pull it off? What she said she had invented was actually somewhat game-changing.
--:-- Sarah Cliff: We've made it possible to run comprehensive laboratory tests from a tiny sample or a few drops of blood that could be taken from a finger. No one had been able to run that many tests off a tiny sample of blood pricked from a finger.
--:-- John Carreyrou: It's something that people in academia and industry had been working on for 15, 20 years. It sounds genius, but what about those who say, that's not enough blood to do all the tests that need to be done, especially if someone's very sick and you're trying to figure out what it is?
--:-- Sarah Cliff: Every time you create something new, there should be questions. And to me, that's a sign that you've actually done something that is transformative.
--:-- John Carreyrou: And she proceeds to raise a lot of money over the course of 10, 12 years, telling investors and the public that she has invented this new technology that can run the full range of tests off just a drop or two of blood pricked from a finger.
--:-- Sarah Cliff: My own life's work in building Theranos is to redefine the paradigm of diagnosis. Her greatest trick, and a trick that she used throughout the 15 years of the company, was to win the backing and the support of someone older and experienced who had a great reputation and to leverage that association.
--:-- John Carreyrou: So she pivoted to George Shultz, the famous former Secretary of State under President Reagan. Elizabeth and I are going to have a conversation. We're going to sit over there. He was introduced to Elizabeth Holmes by someone at Stanford Medical School in early 2011.
--:-- Sarah Cliff: I looked at her and I said, well, I'm about to have a meeting with a friend of my granddaughter. She wowed him with her vision. As soon as she started talking, I did a double tag. And within weeks, he joined the board and then introduced Elizabeth to his buddies at the Hoover Institution, the think tank on the Stanford campus.
--:-- John Carreyrou: And that's how she came to meet Henry Kissinger, Bill Perry, who was Secretary of Defense under Bill Clinton, Sam Nunn, Bill Frist, Admiral Roughead, all these aging former statesmen or retired military commanders who had these great reputations.
--:-- Sarah Cliff: And they eventually all joined the Theranos board. She lured them in part with grants of Theranos stock. And by the way, none of those aging board members had any understanding or particular expertise in medicine or laboratory science.
--:-- John Carreyrou: In its last round of funding, Theranos attracted some very high profile people as investors. One of them was Rupert Murdoch, the owner of my newspaper, The Wall Street Journal, who unbeknownst to me invested million in Theranos in March of 2015
--:-- Sarah Cliff: Theranos also attracted our current Secretary of Education Betsy DeVos and her family invested million The heirs of Sam Walton the founder of Walmart invested million So it really was a who's who of billionaires that gave Theranos that $10 billion valuation.
--:-- John Carreyrou: In two years, the company's value grew larger than Uber or Spotify at the time. Holmes was named the youngest self-made female billionaire in the world.
--:-- Sarah Cliff: Whenever there's a quote-unquote glass ceiling, there's an iron woman right behind it. I think it's undeniable that Elizabeth's gender played a role. I think there was a great appetite in Silicon Valley and in American society at large to see a female tech founder rise and become a star.
--:-- John Carreyrou: And in Elizabeth Holmes, the Valley suddenly had it because in late 2013, early 2014, Theranos raised money at a valuation of more than $9 billion. And so she was worth upwards of $4.5 billion there for a period. The youngest billionaire in the world.
--:-- Sarah Cliff: Is that heady when you hear that? You know, it's not what matters. What matters is how well we do in trying to make people's lives better.
--:-- John Carreyrou: She had incredible charisma, has incredible charisma and charm, and is also very intelligent and manipulative. And she idolized Steve Jobs, the late Apple founder, as well as his company, Apple, and really sort of modeled herself after him.
--:-- Sarah Cliff: And she showed up to work on most days with a black turtleneck, just like Steve Jobs. The trait that she shared with Jobs is she had this reality distortion field. She was really able to cast her spell on people while in their presence with her big blue eyes and her deep voice and get them to suspend this belief.
--:-- John Carreyrou: I've always believed that we're here on this earth to try to make a difference in the world. As she became more famous later on in the 2013-2014 period. Holmes took on the trappings of power. She bragged bulletproof windows were installed in her office, and she traveled with a full-time security detail.
--:-- Sarah Cliff: She hired Jim Mattis, our current Secretary of Defense's former Army security detail. And these were guys with guns holstered to their waists and dark suits, and one of them would drive her around in a black Audi A8. That later became a black Cadillac Escalade.
--:-- John Carreyrou: And they had a sort of a code name for her, which was Eagle One. And her boyfriend, who was the number two of the company, Sonny Balwani, his code name was Eagle Two. Sonny is actually a very central character to this Theranos saga.
--:-- Sarah Cliff: For last decade, we have been working hard to build something which we think is magical and highly beneficial. He met Elizabeth when she was just 18 years old, a couple months before she started her undergraduate studies at Stanford.
--:-- John Carreyrou: They were both enrolled in Stanford's summer Mandarin program, which included several weeks of instruction in Beijing. There were some college kids on the trip who apparently bullied Elizabeth. And Sonny, who was the lone adult, came to her aid.
--:-- Sarah Cliff: And from that point on, they forged a bond. And then a few years later, after she dropped out of Stanford to found her company, they became romantically involved. He divorced his wife.
--:-- John Carreyrou: It was clear that he was Elizabeth's sort of consigliere, her advisor. And then in late 2009, the company was running out of money. And Sonny came to Elizabeth's aid, personally guaranteeing a credit line Theranos took out from a bank.
--:-- Sarah Cliff: And at that point, he joined the company, became the number two, and wasted no time asserting himself, and really took to terrorizing the employees, the scientists, and the engineers.
--:-- John Carreyrou: He took to firing people so often that it gave rise to new expression at Theranos, which was when someone didn't show up at work one day, colleagues would comment that Sonny had disappeared him.
--:-- Sarah Cliff: Early 2010, Elizabeth Holmes and her boyfriend Sonny Balwani approach Walgreens, the big drugstore chain headquartered in Chicago, and tell it falsely that they've developed a device that can run hundreds of laboratory tests off just a drop of blood pricked from a finger.
--:-- John Carreyrou: And Walgreens doesn't do much due diligence. And as a result, Theranos opens what it calls a little wellness centers inside Walgreens stores in the Palo Alto area and in the Phoenix area.
--:-- Sarah Cliff: And starting in September of 2013, Walgreens consumers go to these stores and go to the little clinics inside these stores and get their fingers pricked and have their blood tests run by Theranos. Walgreens is peak Theranos
--:-- John Carreyrou: That next on Today Explained
--:-- Sean Rameswaram: So, Sarah, you went to getquipped.com slash explained. How did it go?
--:-- Sarah Cliff: So I had heard my colleague Johnny Harris on this very show talking about the nice chrome one. So I decided to—
--:-- Sean Rameswaram: And we should mention neither of you are, you know, being sponsored, endorsed.
--:-- Sarah Cliff: No, no. Someone on Twitter asked me if I was paid to do this, and I 100% was not. Just out of your own toothbrush and curiosity.
--:-- Sean Rameswaram: I decided to treat myself and go with the shiny chrome toothbrush. A very popular choice. I've heard on this very podcast.
--:-- Sarah Cliff: I probably didn't read things super closely because I wasn't aware it came with a bunch of toothpaste, which was a nice surprise when it showed up. But I just thought I was just getting a toothbrush.
--:-- Sean Rameswaram: People like to say that the packaging is interesting. Oh, yeah. Space age, I've heard. It's very sleek.
--:-- Sarah Cliff: Yeah. It's in like a cool little pouch thing. Yeah. And then like there's this tube that the toothbrush was in. The pod. The toothbrush pod. Yep. Yeah. Great. Cool. Cool.
--:-- Sean Rameswaram: So how does all this come crashing down?
--:-- Sarah Cliff: So it comes crashing down when I start digging into the company in February 2015. And the fruit of that effort is published in October of 2015.
--:-- Sean Rameswaram: Just this morning, the Wall Street Journal ran a pretty scathing article about the company, alleging that the company's proprietary testing devices may be inaccurate, and basically accusing Theranos of deceptive practices.
--:-- Sarah Cliff: And at that point, Theranos and Elizabeth Holmes go into spin mode and essentially deny my reporting and say that I've gotten my facts wrong.
--:-- Sean Rameswaram: This is what happens when you work to change things. And first they think you're crazy, then they fight you, and then all of a sudden you change the world.
--:-- Sarah Cliff: And I have to say I personally was shocked to see that the journal would publish something like this when we had sent them over a thousand pages of documentation demonstrating that the statements in their piece were false.
--:-- Sean Rameswaram: What made you take on this story to begin with, John? What made you interested in Theranos and Elizabeth Holmes?
--:-- John Carreyrou: I wasn't aware of her until she was profiled in the New Yorker magazine in December of 2014. And there were a couple of things that seemed off to me immediately.
--:-- Sean Rameswaram: One of them was this notion that a 19-year-old college dropout with just two semesters of chemical engineering courses under her belt pioneered groundbreaking new medical science.
--:-- John Carreyrou: That's something that happens in Silicon Valley with computers. But that's coding. Medicine is different. Medicine is a field in which you need to have proper training and schooling. And then once you have that training, you need to do years and decades of research to add value.
--:-- Sean Rameswaram: And so I thought that was weird, but I probably wouldn't have done anything with it, to be fair, if I hadn't been approached by a tipster about three weeks or four weeks later.
--:-- John Carreyrou: And that person was a practicing pathologist in Columbia, Missouri, who'd also read the New Yorker story. And obviously knowing a thing or two about blood testing, he was immediately dubious that Theranos could actually do everything that Holmes claimed she could do in that story.
--:-- Sean Rameswaram: And eventually everything that I had reported in my stories up to that point becomes vindicated. The Securities and Exchange Commission opens an investigation into the company. The U.S. Attorney's Office in San Francisco opens a criminal investigation into the company.
--:-- John Carreyrou: Theranos founder Elizabeth Holmes has now officially been indicted on federal wire fraud charges. The U.S. Attorney's Office accusing her of engaging in a multi-million dollar scheme to defraud investors, doctors and patients.
--:-- Sean Rameswaram: Theranos announced Holmes has stepped down as CEO. And the SEC charged Elizabeth Holmes with a massive fraud, to use their own words, and Theranos and Elizabeth settled those charges without admitting or denying wrongdoing.
--:-- John Carreyrou: Did you ever get to interview Elizabeth Holmes for the piece that you were writing for The Wall Street Journal?
--:-- Sarah Cliff: She has steadfastly for now three and a half years refused to talk to me or meet with me.
--:-- Sean Rameswaram: And during that time, was she in communication with the owner of your newspaper, Rupert Murdoch? Because he was like a huge investor in Theranos, right?
--:-- John Carreyrou: She actually tried to get him to quash the story. He visited Theranos in Palo Alto in July of 2015, a couple months before my first story was published.
--:-- Sarah Cliff: And she hoped that he would offer to kill the story, and he didn't. And she went to see him again in late September of 2015, this time in New York in the News Corp building in midtown Manhattan.
--:-- John Carreyrou: Again brought up the story and again hoped that he would quash it. And he demurred and said he would let editors at the Wall Street Journal handle it and was sure that they would handle it fairly.
--:-- Sean Rameswaram: And so that day about two weeks before my story was published she was uh meeting with him in his office on the eighth floor of the news court building and the wall street journal uh newsroom is in the same building and so my desk is on the fifth floor so she was three floors up from me and i had no idea she was there
--:-- John Carreyrou: So what does that tell us Does he just love a good story more than he loves a good million investment
--:-- Sean Rameswaram: At that point, I had no idea Murdoch was an investor. I suddenly was able to confirm that Rupert was not only an investor in Theranos, but he was actually the single largest investor, having put $125 million into the company.
--:-- John Carreyrou: And so I was stunned to learn that I had cost the owner of my employer $125 million.
--:-- Sean Rameswaram: Has she kind of gotten off easy for the same reasons that she was a star to begin with? Because she was a good talker and a compelling pitch person and a female in this industry that's mostly men?
--:-- John Carreyrou: A lot of people certainly feel that she got off easy with the SEC because under the settlement, she only had to pay a half million dollar penalty.
--:-- Sean Rameswaram: It does seem pretty small, especially when you consider that we just saw Martin Shkreli, another fraudster, get convicted seven years in prison for a loss that amounted to $10 million.
--:-- John Carreyrou: Has she owned any of this in a sort of mea culpa, apologetic way?
--:-- Sarah Cliff: The closest she came to admitting problems was an interview with The Today Show on NBC in the spring of 2016. I feel devastated that we did not catch and fix these issues faster.
--:-- Sean Rameswaram: But it was never clear what she meant by that, whether she was devastated that Theranos had not lived up to where it had promised and put patients in harm's way or that it was devastated that I had come along and uncovered this fraud.
--:-- John Carreyrou: And I never sensed any real remorse, any real empathy or really even that it ever really sunk in with her that not only had the company committed securities fraud, but it had literally gambled with people's lives.
--:-- Sean Rameswaram: Was the media as sort of generally wide-eyed and excited about this female entrepreneur as the tech world was?
--:-- John Carreyrou: You could make the argument that the press wasn't skeptical enough. But really, in the end, I don't fault some of these reporters too much because they were lied to, bald-faced lied to by Elizabeth Holmes about what the company could do.
--:-- Sean Rameswaram: And, you know, it must be said that they weren't the only ones. This isn't just a story about, you know, a failure, failures of the media. So many people came under this woman's spell and believed that she truly, you know, was achieving what she claimed to have achieved.
--:-- John Carreyrou: What happened is a lesson in what happens when you leave people who are so young. You give them so much money and you give them so much power. It's not to say that every startup in Silicon Valley is going to behave like Elizabeth Holmes did and be another Theranos, but certainly it is a cautionary tale.
--:-- Sean Rameswaram: John Carreyrou is an investigative reporter at the Wall Street Journal and the author of Bad Blood, Secrets and Lies in a Silicon Valley Startup.
--:-- Sarah Cliff: I'm Sean Ramos from This is Today Explained.
--:-- Sean Rameswaram: Sarah, the toothbrush comes with refills. Do the refills come immediately or do they come later?
--:-- Sarah Cliff: I think they come later because I've just had mine about a week and I have not received a refill.
--:-- Sean Rameswaram: You haven't gotten them yet. No.
--:-- Sarah Cliff: So your getquip.com slash explained experience isn't yet over. Oh, no.
--:-- Sean Rameswaram: And I think it's in three months that they sent me the new one. Okay. So mark our calendars for like December.
--:-- Sarah Cliff: And by that point, you won't be on maternity leave anymore. No, I'll be here.
--:-- Sean Rameswaram: So I'll just come tell you about my free refills. And poor Max will be like, whatever happened that one time at the podcast studio? That was fun. Right, Max?
--:-- Sarah Cliff: Maybe you could come back. Babies don't always respond, I guess. No, they rarely respond. I'm sorry.
--:-- Sean Rameswaram: Kara Swisher, host of the Recode Decode podcast. You are here in the Today Explained studio with me. We're talking about your show.
--:-- Kara Swisher: I'm here to talk about a new show that I just did, which I think you people in Washington will like. It's with Matt Rivets. He's the founder of Sleeping Giants.
--:-- Sean Rameswaram: OK. What's Sleeping Giants?
--:-- Kara Swisher: So it was a Twitter handle that he started right after the election. And he just started it himself. And this guy has managed through this Twitter handle to get all these encouraged advertisers to take their ads off Breitbart.
--:-- Sean Rameswaram: Damn. OK. And people can find that episode right now? Yes, right now. When they go and find Recode Decode wherever they look for their podcasts.
