--:-- Halima Shah: Support for Today Explained comes from Adio. Adio is an AI-native customer relationship management platform that Adio says is built for the next era of companies. A powerful data structure adapts to your business model, syncs in all your contacts in minutes, and enriches your business with actionable data. Adio says it also allows you to create those email sequences, those real-time reports, those powerful automations, which they claim can help you build what matters most, your company. You can go to adio.com slash todayexplained to get 15% off your first year. That's A-T-T-I-O dot com slash todayexplained.
--:-- Halima Shah: We all have moments where we could have done better, like cutting your own hair. Oh, yikes. Or forgetting sunscreen, so now you look like a tomato. Ouch. Could have done better. Same goes for where you invest. Level up and invest smarter with Schwab. Get market insights, education, and human help when you need it. Learn more at schwab.com.
--:-- Halima Shah: It's Today Explained. I'm Halima Shah. For almost four months, a jury in a federal courtroom has listened to a case about one of the most notorious frauds in Silicon Valley. You might have heard about it. A young, charismatic woman named Elizabeth Holmes said her company's technology would revolutionize healthcare. She raised millions of dollars, but there was a problem. The technology didn't work.
--:-- Liz Lopato: Elizabeth Holmes dropped out of Stanford to found Theranos. And fundamentally, the thing that they wanted to do was to use a couple of drops of blood to do tests that ordinarily require a venous straw. People don't even know that they have a basic human right to be able to get access to information about themselves and their own bodies. If you understand that early that you're at risk, there's a lot more that you can do about it.
--:-- Liz Lopato: Its device was this thing, a box that was about the size of a printer called the Edison. A miniaturized blood analyzer that would disrupt the $60 billion lab testing industry dominated by giants LabCorp and Quest Diagnostics. They claimed it could perform hundreds of tests on only those couple drops of blood.
--:-- Liz Lopato: So anyway, with this promise, the company raised a ton of money. At its zenith, Theranos was worth nearly $10 billion. They also got a bunch of Defense Department luminaries involved. James Mattis, the former U.S. Defense Secretary. And ultimately, there was the deal in 2013 to create these testing centers and Walgreens stores, where essentially if you wanted to get a Theranos blood test, you could walk into your local Walgreens, and there it was.
--:-- Liz Lopato: There actually were Theranos, Walgreens stores that were open in Arizona, but there was an obvious problem, which was that the device didn't work very well. That was something that was known to Theranos employees at the time. And in fact, it was the lower level employees in the lab, along with the lab director, who were instrumental in exposing the fraud.
--:-- Liz Lopato: They were the people who contacted the Wall Street Journal. They go to a Wall Street Journal reporter named John Kerry Rue, and they tell him everything. And he does his own reporting, and then he publishes his expose. And 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.
--:-- Liz Lopato: And at that point, pretty much all hell breaks loose. Not every single test is being run on the Theranos device, which is something that I think Holmes very heavily implied or let people believe. And during the trial, we see emails from board members saying, wait, are we really not running everything on our own devices? Which, you know, not what you want to see from board members who are theoretically overseeing a young CEO.
--:-- Liz Lopato: And that ultimately led to the company going, there is no more Theranos. Blood testing firm Theranos is formally dissolving. Most of the company's employees worked their last day on Friday.
--:-- Liz Lopato: So in 2015, this expose about Theranos comes out. There's a lot of doubt cast on the company. And eventually we get to last September when the trial of Elizabeth Holmes begins. After almost four years of delays, the most anticipated white-collar trial in years is finally getting underway. The criminal fraud case against Theranos founder Elizabeth Holmes.
--:-- Liz Lopato: What was she being charged with? So ultimately, Holmes was facing sort of two big buckets of charges. And one was fraud against patients and the other was fraud against investors. And there were 11 total. And she was being tried separately from her co-defendant, Sunny Balwani, who is Theranos' president and also her ex-boyfriend, because... Because she claims that he abused her for a decade, monitoring her calls, texts, emails, physical violence, restricting her sleep and insisting that any success she achieved was because of him.
--:-- Liz Lopato: And so those trials were separated and his will begin in February. And what exactly was her defense strategy here? From the jump, I think the defense tried to make her sympathetic. They emphasized how young she was. They talked about, you know, how lots of founders make mistakes. And then they moved on to basically blaming everybody around her.
--:-- Liz Lopato: So of course they blamed Sunny Balwani. They said that she trusted him and he, you know, and that was a bad decision, but anything that was wrong, that was him. And that she had trusted her lab directors who had the medical expertise to handle patient tests and so she just trusted them to get things right And that you know her heart was good that she you know had the right intentions basically
--:-- Liz Lopato: And then there was the sort of like controversial part of it where Holmes on the stand said that Balani was controlling and abusive. And for me, at least personally, I didn't think that was necessarily relevant to the actual charges because we saw a lot of their texts and a lot of their emails. And I certainly saw texts and emails where she was giving him commands.
--:-- Liz Lopato: And at least in the context of their work relationship, her authority seemed to be real. I suspect given the way that the jury found that they agreed with me that whatever happened in their private lives happened in their private lives and what happened at work happened at work.
--:-- Halima Shah: What was it like being in the courtroom when these questions were being asked? Did Holmes look scared or like she had been found out or was she really adamant that she didn't do anything wrong?
--:-- Liz Lopato: It was interesting. It sort of varied from day to day. Like her first, the first day on the stand was I think her most confident day on the stand. And then as the direct questioning by her own lawyers went on, I had the uncomfortable feeling that I was watching someone who was just now realizing the gravity of the situation she was in as the questioning continued.
--:-- Liz Lopato: Because she's really great. She's a really good speaker when she's had a chance to prepare and rehearse. And I imagine that she probably did a lot of preparing and rehearsing as CEO. But if somebody asks you something on the fly, she's not nearly as convincing and she easily becomes confused and a little less believable, certainly less confident.
--:-- Liz Lopato: And then towards the end of her cross-examination, when the government was asking her questions, she started laughing. Like, there were times where it seemed like she was either confused or angry or both, and the response was this laughter.
--:-- Halima Shah: So we now have a verdict. Holmes is guilty of four out of 11 of the counts against her. But interestingly, all the guilty counts had to do with Holmes' behavior towards her investors, not patients.
--:-- Liz Lopato: Well, for a fraud charge to stick, you need to have intent, right? The jurors had to believe that Holmes intended to defraud patients, not just like give them bad results or like accidentally do something wrong.
--:-- Liz Lopato: And I think that the fraud against patients was harder to prove because there are so many sort of individual people between the patients and Holmes. And so we didn't hear a lot from the patients. We heard from, I think, three. They testified for about an hour, maybe a little more. And there wasn't a lot of direct evidence linking her to them.
--:-- Liz Lopato: On the other hand, we heard a lot from investors, many of whom she was actually in the room with, some of whom had recordings. And, you know, we also had documentation that they had exchanged and emails and all of this other stuff. And so that felt like where the prosecution was really focused, was more on the fraud against investors than the fraud against patients.
--:-- Liz Lopato: So the verdict in that sense is not entirely a surprise because that's where the prosecution really focused was on the investor fraud. And what evidence did the prosecution have that she intended to defraud investors?
--:-- Liz Lopato: I think that a lot of it really weirdly rested on the patients. There was a lot of stuff that we saw that suggested she was aware that the results were inaccurate, that her lab directors were worried, that people are quitting in protest. She knew all of that, and she went to investors and told them that the tech was working and made these promises about what the tech could do, but also said things like, oh, yes, it's on medevac helicopters in Afghanistan, which was not true.
--:-- Liz Lopato: And that they had projected a certain amount of income from pharmaceutical partners when they knew perfectly well the income from pharmaceutical partners that year was going to be zero. So there were sort of more things that you could point at and say, like, this seems like an obvious lie told for a specific reason.
--:-- Liz Lopato: And the specific reason is that there were certain points where Theranos was close to running out of money. So what's the penalty for defrauding your investors?
--:-- Liz Lopato: So for each one of the counts, she faces a maximum of 20 years, which is not, I don't think, the sentence she's going to get. We haven't had sentencing yet. That's, I think, probably coming next week.
--:-- Halima Shah: It's worth keeping in mind that a lot of what I heard, the judge also heard. So when it comes to the sentencing, if the judge is feeling sympathetic towards her, it may not be a super long sentence.
--:-- Halima Shah: It seems like Silicon Valley is taking great pains to say that Elizabeth Holmes doesn't represent us and this wasn't a typical case. But she was still a tech celebrity who could spend decades in prison now.
--:-- Liz Lopato: Do you think that this is going to make the broader tech startup world change how it does things?
--:-- Liz Lopato: Absolutely not. So I do understand in a way why Silicon Valley wants to be like, look, that's not us. In the same way that I understand why people on Wall Street look at Bernie Madoff and are like, look, that's not us. Right. Like you can say she's a creature of Silicon Valley in the same way that you can say Bernie Madoff is a creature of Wall Street without saying that they're representative of either of those things at large.
--:-- Liz Lopato: All right. I just want to be clear. Like that's I think what people are confused about. But she definitely was part of that world. You know, Theranos investors included Silicon Valley celebrities like Larry Ellison, Tim Draper, Don Lucas and Marc Andreessen, who is a venture capitalist at Andreessen Horowitz. He was a vocal cheerleader for Holmes, even calling her the next Steve Jobs, even though his firm didn't invest.
--:-- Liz Lopato: So, you know, there's this sort of I understand wanting to shy away from the parts of Holmes that are very closely tied to Silicon Valley. But I think ultimately for everybody outside the Valley, that seems very silly. She was very clearly emulating tech culture.
--:-- Halima Shah: After the break we find out what the Theranos decision means for other blood testing technology
--:-- Support for Today Explained comes from Chime. Nobody likes fees and complicated banking, says Chime. And Chime gets that, says Chime. Chime is a financial technology company that says they understand that every dollar counts. So when you set up direct deposit through Chime, they say you get access to fee-free features, such as free overdraft coverage, getting paid up to two days early with direct deposit, so much more.
--:-- Support for Today Explained comes from Chime. Chime says with qualifying direct deposits, you can be eligible for free overdraft up to $200 on debit card purchases and cash withdrawals. Plus, they say you don't need to worry about monthly fees or maintenance fees. You can work on your financial goals through Chime today. You can open an account in two minutes at Chime.com slash explained. That's Chime.com slash explained.
--:-- Halima Shah: Chime feels like progress. Chime is a financial technology company, not a bank. Banking services and debit card provided by the Bancor Bank N.A. or Stride Bank N.A. Members FDIC. Spot me eligibility requirements and overdraft limits apply. Timing depends on submission of payment file. These apply at out-of-network ATMs, bank ranking, and number of ATMs according to U.S. News and World Report 2023. Chime checking account required.
--:-- Halima Shah: Let's be honest. Are you happy with your job? Like, really happy? The unfortunate fact is that a huge number of people can't say yes to that. Far too many of us are stuck in a job we've outgrown, or one we never wanted in the first place. But still, we stick it out. And we give reasons like, what if the next move is even worse? I've already put years into this place. And maybe the most common one, isn't everyone kind of miserable at work?
--:-- Halima Shah: But there's a difference between reasons for staying and excuses for not leaving. It's time to get unstuck. It's time for Strawberry.me. They match you with a certified career coach who helps you go from where you are to where you actually want to be. Your coach helps you get clear on your goals, create a plan, build your confidence, and keeps you accountable along the way.
--:-- Halima Shah: So don't leave your career to chance. Take action and own your future with a professional coach in your corner. Go to strawberry.me slash unstuck to claim a special offer. That's strawberry.me slash unstuck.
--:-- Nicole Wetzman: Theranos' technology was a fraud, but it's very easy to see why it was so enticing. I personally hate getting my blood drawn for tests. I was supposed to do it weeks ago, and I've been putting it off.
--:-- Nicole Wetzman: How impactful could this technology have been if it worked? Creating a more streamlined and less logistically intensive way of doing blood tests would have been really great for kind of the whole medical field, simplifying some of that process and allowing folks to have a easier time getting their blood drawn and not having to have like full needles and vials or go to centralized labs, be able to do it at your doctor's office more often.
--:-- Nicole Wetzman: could have really been a huge step forward in blood testing if it was, you know, real. So what about Theranos' technology was so far-fetched, according to experts in this field?
--:-- Nicole Wetzman: Yeah, so it was sort of the idea that you could combine all of these innovations and have them done on a really short time frame. So we kind of have three things that Theranos said they could do. I am counting. One. They said they could do testing on a very small volume of blood. Two. That they could do lots of tests at once. Three. And that they could do all of those tests on a very small device.
--:-- Nicole Wetzman: And what are the challenges facing each of these three areas that you just mentioned?
--:-- Nicole Wetzman: You kind of have a constellation of scientific and physical challenges here. Shrinking tests down onto smaller devices is something that people are working really hard to do. And there's definitely innovation in that area. But getting something down onto a small chip to run an equally accurate test requires a lot of validation and a lot of advancements in that technology.
--:-- Nicole Wetzman: Running multiple tests at the same time, you know, again, there are devices that can run lots of tests at once. Often they're, you know, pretty big. But again, that's sort of a technological challenge of putting everything that you need to run lots of different types of tests into one device.
--:-- Nicole Wetzman: And then the volume issue, you know, it's kind of the limitations of the physical size of what you're working with. There's only so much product in a drop of blood. There's only so many kind of cells and proteins and things like that. So if you're trying to manipulate a volume of blood to run a test, you know, there's only so much you can do with that one tiny sample before you kind of aren't really left with much and you're subdividing and subdividing.
--:-- Nicole Wetzman: and in a small drop of blood you might also have the issue where there just isn't a high enough concentration of some factors that you're trying to look for in that small volume in order to kind of get a clear read on kind of what you're dealing with in someone's entire body and there is sort of the issue of is the concentration of a bunch of factors in one drop of blood going to be the same concentration in like the next drop of blood because when you're working with small volumes out of your whole body, you could be like capturing different things with different drops of blood.
--:-- Nicole Wetzman: Do we see any other scientists trying to pick up where Theranos failed?
--:-- Nicole Wetzman: I wouldn't necessarily call it picking up where Theranos failed, but I think that there have been and research teams and realistic scientists pursuing kind of these different various category of innovation around blood testing you know smaller volumes smaller device size lots of tests at once
--:-- Nicole Wetzman: Sight is a blood diagnostic company behind Olo a complete blood count analyzer that takes just two drops of blood to provide accurate CBC results in minutes And that's been going on in the background even since Theranos' first launch.
--:-- Nicole Wetzman: But the pace and the trajectory of a lot of those projects is more in line with what you'd expect from medical innovation. So that's sort of likely why you don't hear as much about them, because it's science that's slow and the incremental progress is not, you know, necessarily flashy.
--:-- Nicole Wetzman: You know, even though COVID testing works very differently from Theranos' tests, it seems like a very bad time to lose faith in medical technology.
--:-- Nicole Wetzman: What kind of impact will the rise and fall of Theranos have on this area of medical research?
--:-- Nicole Wetzman: Yeah, so folks that I've spoken with who are researchers who study blood testing and who work on development in that area kind of noticed a little bit of a chilling effect at the beginning when Theranos first announced in terms of their ability to access funding for their projects because funders would say, oh, well, you know, doesn't Theranos already do that? They've already solved that problem. Why should we give you money?
--:-- Nicole Wetzman: And then when the scandal broke, it was sort of the opposite problem of, well, why should we give you money because this isn't real? But, you know, actually with the pandemic and with the increased importance of easy testing, there seems to be kind of a resurgence in interest in kind of that area. People are sort of saying, oh, like we actually need better tests.
--:-- Nicole Wetzman: So obviously COVID testing is, you know, nasal or saliva samples, which is different from blood testing. But the general kind of interest in testing generally might see a pickup as a result of the pandemic.
--:-- Nicole Wetzman: And could the Theranos saga have an impact on how regulatory bodies like the FDA go about approving medical tests?
--:-- Nicole Wetzman: Yeah, so that hasn't happened so far. So Theranos and its tests did not have to get FDA clearance in order to be marketed and sold because they fell under this category called lab-developed tests.
--:-- Nicole Wetzman: So if there's a lab that has a certain level of certification and that lab develops tests in-house, they are able to run those tests without sign-off from the FDA. So that is the sort of tests that Theranos ran. Some people call it a loophole in kind of the medical testing oversight world.
--:-- Nicole Wetzman: And this lab-developed test kind of category is very broad and encompasses a lot of things. It's not kind of, oh, we should eliminate this entirely and then everything will be better. Like, I think it's more complicated than that.
--:-- Nicole Wetzman: Part of the reason that COVID testing actually was really slow to take off early on in the pandemic, March, April 2020, was because of the public health emergency labs had to go through the FDA process, which did slow things down a little bit. So it's not kind of a black and white, this is bad, this is good.
--:-- Nicole Wetzman: But Theranos sort of took advantage of that in sort of the worst case scenario way where they were using the lab developed test process and therefore skirted a lot of oversight and were able to bring products and testing to the market and market them commercially without having kind of an additional layer of scrutiny that you would have from an FDA approval process.
--:-- Nicole Wetzman: Do you think after a scandal like this, Silicon Valley will continue investing in health tech so heavily?
--:-- Nicole Wetzman: Yeah, I mean, we've seen a huge kind of surge of interest from technology companies in health care generally, you know, from big tech giants getting into health care to kind of smaller startup companies trying to address medical challenges. That's a trend that we'd seen prior to 2020 and something that only accelerated during the pandemic.
--:-- Nicole Wetzman: I think that there's a lot of tension there in terms of the Silicon Valley startup approach to issues typically and the way that the healthcare industry typically approaches issues, which is like much more incremental, much less flashy. And I think there are lessons to kind of be learned from the tech approach for health care.
--:-- Nicole Wetzman: But you have to be really careful because kind of the burden of care is much higher when you're dealing with someone's health versus like an app. So this is not something that's going away, but I think it's something that we're going to have to kind of be careful with and watch closely to kind of ensure that the products that are being pushed out kind of on the tech side of things are actually meeting the standards that we'd want to see in health care.
--:-- Halima Shah: Nicole Wetzman is a reporter at The Verge and Liz Lopato is a deputy editor there You can follow their work on the Theranos saga at theverge.com
--:-- Halima Shah: Today's show was produced by Will Reed with help from Miles Bryan It was edited by Matt Collette Fact-checked by Laura Bullard and engineered by Afim Shapiro I'm Halima Shah, it's Today Explained
--:-- Halima Shah: Support for this show comes from Macy's. Fall is right around the corner, and that means layering season is too. Macy's Fall Fashion Guide can help you get a pulse on all the latest trends and must-haves. Try a romantic look with a sheer top from INC. Or mix it up with some fun textures, like a faux fur bomber jacket from Karl Lagerfeld Paris. No matter your vibe, you can explore the Macy's Fall Fashion Guide and find the perfect look for you. Shop in-store or online at nacy's.com.
