Equal-opportunity scamming: Theranos stole from the rich


It's not easy, I'd guess, to get the rich to hand you their money. Elizabeth Holmes had the right elements -- charisma, self-assurance ... and a product that seemed great, even though it didn't work. Now she's the subject of two current documentaries, plus a book and an upcoming movie. Here's the story I sent to papers:

By Mike Hughes

We used to think
scams were just for rubes and suckers. Slick grifters cheated the
unsuspecting.

That was before
Bernie Madoff bilked the wealthy. It was before Elizabeth Holmes.

Her company,
Theranos, drew prominent backers. “Rupert Murdoch, I think,
invested $125 million,” said Alex Gibney, whose HBO documentary is
Monday ... three days after one on ABC.

Murdoch, the Fox
owner, was in prominent surroundings. Betsy DeVos and others were
multi-million-dollar investors. Two former secretaries of state,
Henry Kissinger and George Shultz, were supporters. Some Democrats
were involved, including former Sen. Sam Nunn; Holmes was a Hillary
Clinton supporter and was considered Chelsea Clinton's friend.

Then it crashed.
“Theranos went fom $9 billion to bankruptcy, almost overnight,”
said HBO's Nancy Abraham. That ended “a tale of hubris, deception
and the dangers of wishful thinking,” as Holmes told of a
revolutionary blood-test machine. And it was the Shultz connection
that helped spur the collapse.

Shultz was on the
board of Theranos, which hired his grandson, Tyler. When Tyler began
having doubts that the product really worked, he told his
grandfather.

“I looked up to
him a lot,” he said. “We would go over to his house all the time
.... It was extremely frustrating when he didn't believe me. He was
definitely on Elizabeth's side for a very, very long time.”

Erika Cheung said
she felt the same frustration, when quality-control tests kept
showing failure. She talked to COO Ramesh Balwani and others, getting
“their insistence (that) 'it works; there's something you're doing
wrong.' And they essentially took out data points and generated,
essentially, a fake result.”

Both became
whistleblowers. After Wall Street Journal reports (by John Carreyrou)
and government probes, Theranos collapsed in 2016.

But how did it get
so far that it had a $9-billion valuation? “None of those investors
ever looked at an audited financial statement,” Gibney said. “That
was jaw-dropping to me.”

He was told that
techno-investing is like that, trying long shots.“There is a whiff
of the casino about some of the investing in Silicon Valley .... So
long as you feel the heat and the vision, you invest.”

And Elizabeth Holmes
– with cherubic face and confident manner -- offered it. In person,
Tyler Shultz said, “she was extremely engaging. She would make you
feel like you were the most important person to her right now (and)
you were critical to achieving this incredible vision that she had
sold you on.”

She had the same
effect on groups, Cheung said. “She was a very charismatic
speaker.”

Holmes spun a story
of innovation and progress. “That's what Edison was good at,”
Gibney said. “That's what Steve Jobs was good at. (But) unlike Jobs
and Thomas Edison, her product didn't work.”

Holmes had seemed
perfect for the times, Gibney said – a young “female entrepreneur
who, by dint of her own tenacity and intelligence, comes up with an
incredible idea .... We all wanted to believe.”

She may have
originally believed it herself, but as the tests kept failing, she
started attacking her critics. Tyler Shultz said his family spent
$400,000 to $500,000 for his legal fees.

Eventually, his view
prevailed. Theranos went bankrupt; Holmes, 35, has been indicted for
fraud.

And George Shultz,
now 98? Tyler told of a large family gathering last year: “He kind
of stopped all conversation and said that he was proud of me.”

Theranos blitz

-- “20/20: The
Dropout,” 9-11 p.m. Friday (March 15), ABC.

-- “Inventor: Out
for Blood in Silicon Valley,” 9-11 p.m. Monday (March 18), HBO;
reruns at 2:30 a.m.

-- HBO also runs its
film at 11:35 p.m., March 20; 5:30 p.m., March 22; 2:30 p.m., March
23; 11 a.m., March 26. Also, HBO2 has it at 10:10 p.m. March 19 and
11:45 a.m. March 24.

-- More: “Bad
Blood” (2008, Alfred A. Knopf), by John Carreyrou, is being adapted
into a movie; Adam McKay (“Vice,” “The Big Short”) plans to
direct, with Jennifer Lawrence as Holmes.