John Carreyrou On Chronicling The Rise And Fall Of Silicon Valley’s Greatest Grifter, Elizabeth Holmes, In ‘Bad Blood’

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For many who have witnessed Silicon Valley’s tech boom up close, the story of Elizabeth Holmes and Theranos crystallized a lot of the reservations people have about Silicon Valley in general (and by extension, modern American capitalism as a whole). Theranos’s founder, Holmes, a former college dropout who was indicted this week for criminal fraud, was initially touted as the world’s youngest self-made female billionaire, with a net worth of $4.5 billion. That was before her company and its key technology were exposed as not working in the way that they’d promised or never having worked at all (the fraud indictment was for trying to cover that up). That someone could found a company at 19 and become a multi-billionaire without having developed much of anything beyond a good line of bullshit came to exemplify just how much a good sales pitch had come to matter more than having an actual product.

Elizabeth Holmes’ is more than just an epic grifter story. It felt like the apotheosis of several curious Silicon Valley phenomena. Like the phenomenon of massive startups with fabulously wealthy founder CEOs whose companies have never actually turn a profit (Uber, to name just one, has never turned a profit; Amazon claims it deliberately avoids them). Or the phenomenon of cult-like working environments, where employees are expected to work absurdly long hours and show absolute loyalty to the company, who in turn offer them zero job security and claim the right to fire them on the spot for any transgression, up to and including having a negative attitude. Elizabeth Holmes, for instance, once told employees “The miniLab is the most important thing humanity has ever produced. If you don’t believe this is the case, you should leave now.”

Which brings us to a few other Silicon Valley phenomena, like the idea that becoming a billionaire can be good for humanity, and that billionaire CEOs are some of our greatest humanitarians. She is the ultimate case study in why you should never trust anyone who constantly tells you not to be so cynical. Elizabeth Holmes both drank the Kool-Aid and served it, telling family from an early age that she wanted to become a billionaire, and eventually modeling herself after Steve Jobs — with the turtlenecks and fruitarian diet — and later fostered a work environment where inspirational quotes about serving humanity were plastered all over the walls at a company that had to thwart government regulations and lie to patients just to exist.

John Carreyrou, a Pulitzer Prize-winning journalist at the Wall Street Journal, helped bring Theranos down (though even now, there are still those who refuse to admit Theranos did anything wrong) with a series of investigative pieces starting in 2015. Now, he chronicles Theranos’ rise and fall in his new book, Bad Blood: Secrets and Lies in a Silicon Valley Startup. It’s a fascinating read, and not just for all the inside dirt on Theranos and Holmes and Holmes’ ex-boyfriend and co-conspirator, Sunny Balwani, a mercurial, Russ Hanneman-esque megalomaniac who drove around in Lamborghinis and a Porche with vanity plates mocking Marx (“DAZKPTL“).

Because Bad Blood isn’t just the story of Elizabeth Holmes and Theranos and Sunny, it’s the story of how John Carreyrou got the story of Elizabeth Holmes and Theranos, which is arguably just as interesting. You hear a lot about “fake news” and journalism’s supposed liberal bias, but rarely do you hear it driven home so vividly as in Bad Blood how hard (and much less lucrative than the alternative) it is to do critical journalism. And especially critical journalism about wealthy people. Holmes and Balwani throw up obstacle after obstacle, spewing out lawsuits with the help of their lawyer, David Boies, which constantly threaten to bankrupt or forever discredit Carreyrou, his publication, and his sources, potentially leaving them broke and unemployable, for the sin of trying to tell the truth. Balwani even allegedly led Theranos employees in a chant of “FUCK YOU, CARREYROU!” during company pow-wows.

To this day, one of Carreyrou’s sources, Tyler Schultz, grandson of Reagan secretary of state George Schultz, an early Theranos investor (other aging military “luminaries” were also early Theranos investors, like Henry Kissinger), estimates that his family is more than $400,000 in debt from legal fees as a result of Theranos’ attempts to discredit him. When it comes to adversarial journalism like Bad Blood, which we so desperately need, the obstacles are many and the incentives are few.

Thus, Bad Blood is about 15 cautionary tales in one. I spoke to Carreyrou by phone about it this week, and needless to say, there was a lot to talk about.

Penguin Random House

Congratulations on the book, first of all. It feels like a lot of people are talking about it and I enjoyed it a lot.

Thanks very much. Glad to hear.

So what do you think, what does the Theranos story say about the larger economy? Is the market working correctly when someone can become a billionaire without actually inventing anything?

I mean it’s clearly a sign of a flaw. In Silicon Valley especially, the way I see it is, that there have been two gigantic bubbles in the valley over the past 20, 25 years. The first one was checking off the 90s, it finally burst in 2000 and the stock market essentially crashed. That was a different one because a lot of the internet companies became public and so their stocks were publicly traded. This one has been different because many of the companies have remained private. In a way, that has made the environment more fertile to fraud and misbehavior because you don’t have the discipline that being publicly traded imposes on a company. Both in terms of pursuing profitably and in terms of transparency, having to come out with financial results every quarter and annual reports once a year and answering analysts questions.

You know, you have this unicorn boom out there in Silicon Valley with a bunch of companies, I think now it’s more than a hundred companies with valuations of more than a billion and really very little visibility into their financial numbers and to the way they operate. It’s all shrouded in secrecy. So, it’s like this large sub-economy that’s sprouted up. I think it was inevitable that amid the gold rush and all these companies getting created and funded that one of them, if not more, would turn out to be a fraud.

And does the fact that they’re all private companies, it seems like the angel investor has gained this sort of out-sized influence over the economy. Do you think that is different with privately held companies, or is that just a separate thing?

Undoubtedly, Silicon Valley’s become a big part of the U.S. economy, important part of it. You know, some of these companies from the previous generation of start-ups are now some of the biggest companies in the country. They’re Google and Facebook and Amazon, to the extent that that’s considered a Silicon Valley company.

This new breed of start-ups are already making a lot of noise. I’m thinking of Uber, Airbnb, and Snap. The thing with Theranos, though, is that most of those unicorns that I’ve cited are funded by traditional Silicon Valley venture capitalist firms. That wasn’t really true of Theranos. There were some traditional VC firms in the very early rounds of Theranos, back when the company had just been founded and was starting out.

In the late rounds, which is when the company raised most of its funding, it raised more than 700 million dollars after the Fall of 2013. Most of those investors were not sophisticated Silicon Valley VC firms. They were the family offices of billionaires, billionaire families for the most part.

I guess you can only fault the VC echo system up to a point in the Theranos saga. In fact, I’ve gotten reports, both when I was writing the book and afterwards, of traditional VC firms with experiences in the life sciences and net tech knocking on the door of Theranos and being turned away because they either did ask too many questions and clearly did know what to ask or it looked to Theranos like they were going to ask too many questions, so they were turned away. Because the environment was so frothy she was able to turn to the less sophisticated investors, really the opposite of the smart ones and that’s in large part how she got away with it.

Can you tell me about Elizabeth Holmes’ childhood neighbor (Richard Fuisz) who ended up suing her? Do you think that relationship and the way that played out says anything about the environment in which she was raised?

Yes. I mean, it speaks to her personality. One aspect of her personality is really ruthless. Just to be clear, you know that guy, I hope he doesn’t come across as a super sympathetic character because he did sort of mess with her and he did act out of pure pride. You know his pride was stung that she and her parents hadn’t come to him because they were longtime friends and ex-neighbors. The medical arena and medical inventing was what he did and in his mind that meant that they should have come and sought his advice.

Is that a good justification for them going and trying to patent a part of her technology that she hadn’t thought of patenting? Most people would say no. He and his son definitely didn’t do what she alleged in her lawsuit, which was to steal any of her traditional patents. She might’ve believed it in her mind, in her paranoia, but there’s just zero evidence to support it. The way she went about steamrolling him with David Boies and Boies Schiller, I think is emblematic of her personality. She’s really a ruthless woman and to what extent is that nature versus nurture, that’s the eternal debate in terms of analyzing people’s personalities.

I think she did grow up in an environment where her father reminded her often of the fabulous success of the older generation, the Fleischmanns, you know these two Hungarian immigrants who come to the U.S. in the 1880s and founded this company, the Fleischmanns yeast company, that became incredibly successful for its time. By the turn of the 20th century, the Fleishmanns and the Holmeses were some of the richest people in America. So, I think part of her psyche early on was trying to reclaim the glory of the past and [her father] also made sure to tell her about the failings of the younger generations, his grandfather and father, which squandered the family wealth and lived lives that weren’t purposeful. So, I think that whole trope was there, very much present, in her childhood.

He definitely came off like patent troll but it seemed like it said something that his first instinct upon being wronged was to try to sort of cut her off at the knees and it seemed like she kind of went and did the same thing. Almost like [business war] was the standard operating procedure in their environment or something.

I’ll add also that if she hadn’t basically decided to counterattack in full force and steamroll him, then I probably would never have revealed the whole scandal because that was what got me there. The chain of events was that he saw the skeptical blog on him by the pathology blogger and then contacted him and it just so happened he’d just made contact with the ex-laboratory director. Fuisz was the link in the chain that got me interested in the story and without Fuisz I might never have and probably would never have exposed this whole thing. I guess what I’m saying is the decision to steamroll her old neighbor, in the end, boomeranged back in a really bad way for her.

Right. So, she had said that she wanted to be a millionaire, she was telling relatives that…


Sorry, billionaire. She was telling relatives that she wanted to be a billionaire from a very young age and to make a lot of profit. And her first instinct was to go into medicine. How does the Silicon Valley idea of a billionaire differ from the old industrialists and how do you think it got this way?

Biotech was her idea, she both was ambitious, in terms of wanting to make a lot of money but she also grew up with this righteous value system instilled by her father, which is you also want to do good in the world. He, for most of his career, was a public servant, worked at a bunch of government agencies including the state department and USAID. So, I think she, in her mind, I think she thought if I go into biotechnology, not only can I achieve great wealth but I can also do good.

Then, of course, there’s what you hear people often say these days about Silicon Valley, that they’re gonna disrupt industries and change the world. You hear that catchphrase and I think a lot of people believe it. They don’t say it cynically. The result was Theranos, unfortunately.

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It seems like she’s partly a product of the idea that there are good billionaires.

Yeah, exactly. You could argue that people like Bill Gates have definitely returned a lot to society. I mean, it’s the Bill and Melinda Gates Foundation that most people would agree is a force for the good and spends a lot of money on philanthropy. So, it’s not to completely shut down that notion, but I think she was mostly in the vein of my invention and the products that my company is going to produce is going to do good; whereas with Gates there was never any pretense that he wasn’t selling computer software. That’s what he made his fortune on and then with that fortune he’s gone on to good things. But she more literally wanted to create this product that was going to revolutionize medicine for testing. It’s an admirable quest but medical research is hard and you can’t cut corners, otherwise you gamble with patients’ lives. She did cut corners and she was incredibly cavalier about the impact that her cheating would have on patients.

You talk about these Theranos company chants and things that sounded like indoctrination sessions. At what point do you think the startup started to become so culty? Is that part of how this happened? In a way it seemed like they sort of weaponized the idea that all cynicism is bad.

Totally. It’s a very apt way of describing the way the culture of Theranos evolved and what it became. There’s a guy in the book, I was told that, by one of the scientists who was working on the blood tests for the mini labs, it got to a point where they were told at one meeting, they kept going to Sunny and Elizabeth and saying, you know, they still couldn’t roll out the mini-lab because nothing was working and they kept on having these failures with the prototype. They were told, we don’t want to hear the verb “fail” anymore. We just don’t want to hear it. It becomes Orwellian, when you’re in a work environment like that where you’re not even allowed to say the truth anymore.

That’s what Theranos had become, the culture there was so unhealthy and rotten that you couldn’t be straight about something not working with them. They didn’t want to hear it and if you kept on insisting and voicing what was on your mind then you got pushed aside and you got fired.

You brought up Sunny Balwani — could you talk a little more about him? Is there like a Silicon Valley archetype that you think he represents?

He was a guy who had made somewhere between 40 and 80 million, I don’t know the exact sum, really by stroke of luck. He had joined a tiny startup in Santa Clara called, a couple months before it was acquired by another company in the space, which back then was red hot because it was 1999. So, this tiny startup, a couple months after he joined got bought for 250 mil and he walked away with more than 40. I think that gave him this false conviction that he was a talented businessman and a talented entrepreneur.

When in fact if you look at it, the timing was just lucky. Then when Elizabeth met him, and she was just 18, she wanted to become a successful Silicon Valley entrepreneur and she met this guy who had multiple tens of millions and she didn’t have the context of an older person who’d gone through the boom and bust of that first boom and I think she sort of took him at face value, that he was this gifted entrepreneur and he would teach her how to do business in Silicon Valley.

I think in the crazy world of Silicon Valley in the past 10 years, I think even though Sunny had made a lot of money by most people’s standards he still craved more. He was still a nobody, relatively speaking in Silicon Valley, and he wanted to join the pantheon of the billionaires. So did she, by the way; she was, in fact, more the face the of the company but he wanted to play on that level. I think that was definitely a motivation driving both of them.

Talk about some of the things that Theranos did to thwart your reporting. Do you think people understand how hard it is to report on people who have a lot of money and power?

Perhaps that’s one of the reasons the book is doing well and people are enjoying it so much is that many people may not realize how hard it is to do investigative reporting and what you’re up against. I figured when I wrote the book that that might be one of the dimensions of the book that would appeal to people and that would also be instructive to people. I think it’s turned out to be the case.

Right. It seemed like the coverup was worse than the crime in a lot of ways. Do you see anyone facing any consequences for trying to smear and ruin people who, it turned out, were just trying to tell the truth?

Well, as you know, the SEC charged her and Balwani and the company with fraud. She reached a settlement with the agency and a lot of people feel like that settlement was a slap on the wrist. She only had to pay a half million dollar fine and relinquish most of her stock and of her control over the company and agree to an officer director being in the public company for ten years but there’s also a criminal investigation going on (the US Attorney indicted Holmes and Balwani on criminal charges soon after this conversation), it’s been going on for two and half years. I think that the odds are good that that investigation is going to yield criminal indictments. It’s pretty likely that she and Sunny will face criminal charges and have to go to trial and potentially face prison time. So, that’s one consequence and that would be a big one.

In terms of some other actors that don’t come off looking too good, David Boies and his law firm are one. One thing that I found especially galling when they were threatening us and pressuring us and then when I learned the ins and out of what they did to Tyler [Schultz], was the fact that they were not only at the time Theranos’ legal representative, they also had a very strong financial interest in covering this up, in the form of stock, Theranos stock that they had been paid with as compensation for the work they had done in the Hughes litigation. At the time that that stock was given to Boies Schiller it was valued at about five million dollars and I think Boies Schiller had hopes that the stock would only grow in value. To me, it felt like a very clear unhealthy conflict of interest there, but I haven’t seen the bar do anything about it. The FCC hasn’t done anything about it. I don’t know it’s part of the scope of the criminal investigation or not but so far Boies Schiller seems to have escaped a reckoning.

Right. It seems like they did a lot of punitive suing, too. How much did Tyler end up having to spend just on legal fees to defend himself against lawsuits and does he have any hope of getting some of that back?

Just to clarify, they never did sue him but they threatened it repeatedly and said things to him like, we’re gonna bankrupt your entire family if you don’t sign the documents we want you to sign (non-disclosure agreements and the like). Which I basically consider thuggish behavior, and he did have to hire lawyers and it did cost his family almost a half a million dollars. It’s really what he had to go through, it’s really beyond the pale.

And you don’t think there’s hope of them being on the hook for any of that?

I don’t see how. I mean, I think the only foreseeable consequence that Boies Schiller could face is if they get embroiled in the criminal investigation but other than that there’s nothing that says that they have to reimburse Tyler and his family for those lawyer fees they had to pay.

Theranos’ board members and their backers, people like Henry Kissinger and James Mattis and Schultz — it seems weirdly common for these military figures to sit on the boards of these companies whose work has nothing to do with their background. What do you think is behind that phenomenon? It feels like there’s some sort of credibility laundering thing going on. I’ve seen it in other stories.

Absolutely. That was her game all along, and that’s a good expression and I’m going to use it. Credibility laundering was her game from the beginning. What she did when she was 19 with Kenny Robertson, her Stanford engineering school professor, she leveraged his credibility by associating herself with him and playing his backing. She then did it with Don Lucas, the VC who had groomed Larry Ellison and help them take Oracle public in the mid-80s. She then did it with Schultz and Kissinger and all those other board members who are either ex-cabinet members or congressmen or retired military commanders. That was always her game, was to leverage and drape herself in the credibility of others.

One thing I would say is I don’t think it’s that common in Silicon Valley for startups to get these famous political types on their boards. Most startups will get some people with some modicum of expertise in the field that they’re trying to build a company in. In hindsight, that was one of the big red flags with Theranos, that there was no one on the board who knew the slightest thing about blood testing.

There was a couple years back was the reverse merger thing that was happening. Wesley Clark got in trouble for putting his name on some of these investment banks that were doing reverse mergers. I don’t know, it seems like there’s a weird pattern of these investors being swayed by generals and I don’t know where the connection comes from, I guess.

I’m less familiar with that case and I’m sure the laundering of credibility is not something Elizabeth Holmes invented and it’s probably a common feature to a lot of swindles going back decades and centuries. But it was definitely dynamic as play in this case.

When do you think the pitch became so much more important than the product? That feels like a very central facet of the way Silicon Valley works right now.

You could argue that the disconnect between what she was promising the investors she had achieved and what she had really achieved was quite stark from early on. The scene in the prologue is that CFO learning that the demos on the first iteration of the miniLab, Theranos 1.0, that the demos are bogus. He confronts her and she fires him on the spot. There’s already a disconnect there. Then that gap keeps getting bigger and bigger to the point that when she launches the finger-stick tests and while they’re in stores in September 2013, only a hand full of which are done with an actual Theranos devices, most of which are done with commercial analyzers, that the gap between what she’s promised and the reality has become so big that at that point it’s a massive fault.

You talk about her firing someone on the spot — it feels like the more that job security has gone down, the more this expectation of absolute loyalty to the company has gone up. Do you think they’re related?

The culture promulgated by these two people is no dissent, no debate, follow us blindly. If you don’t we’ll fire you and then we’ll also threaten you to prevent you from speaking up or leaking to the media or to regulators and at the same time this incredible hubris and arrogance about what they had and were going to achieve. At certain points she says to the assembled employees that the miniLab is the most important thing humanity has ever worked on. She says it, I think, believing what she is saying or at least half-believing what she is saying. It sounds ridiculous to us in hindsight, but I think when she’s saying those words she mostly believes them.

It feels almost like she was raised by inspirational quotes. Do you think she’s, in some way, a product of this self-actualization prosperity doctrine kind of stuff?

In part, I think, Silicon Valley’s a crazy environment where some people have made unbelievable fortunes. If you look at the top ten billionaires in this country, I think you’d find at least half of them or more than half are Silicon Valley people or tech people. Bezos, Gates, Larry Ellison and on and on. You know, Sergey Brin, Larry Page, Mark Zuckerberg and I think that distorts the value system of our society. Suddenly success is equated with becoming a billionaire tech founder and it’s no longer having a great career as a scientist and then winning a Nobel Prize. It’s no longer becoming president or excelling in whatever field. It’s becoming a Silicon Valley tech billionaire. I think, yeah, she drank that kool-aid for sure and became a member of this weird world.

Vince Mancini is on Twitter.