Theranos whistleblower takes the stand
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Theranos whistleblower takes the stand

On Behalf of | Sep 27, 2021 | Employer Fraud

Fallen tech icon Elizabeth Holmes dropped out of Stanford at age 19 to start Theranos. She grew the medical device company to a $9 billion valuation and made herself the world’s youngest self-made female billionaire. Favorably compared to innovators like Apple, Facebook and Tesla, the company’s board included Henry Kissinger and Rupert Murdoch. In 2018 she and her business and former romantic partner Ramesh Balwani were indicted on 12 counts of wire fraud and conspiracy to commit wire fraud. The charges stem from misrepresenting the ability of Theranos’s Edison blood-testing machines. Now 37, she faces 20 years in prison with Mr. Balwani’s trial to follow.

While reporting troubles regarding Theranos’s technology’s validity goes back six years, the Holmes trial began in early September with main whistleblower Erika Cheung testifying. During her employment that lasted less than one year, Cheung claimed that the Edison machines often failed quality control tests.

“You’d have about the same luck flipping a coin as to whether your results were right or wrong,” Cheung said in court. “It was concerning to see this degree of failure, this was not typical for a normal lab.”

Cheung was a lab associate who worked under lab managers who were supposed to approve the test findings. However, rather than noting that the machine failed the test, managers and executives would use an outlier deletion system to eliminate the failures and cherry-pick the best results to pass.

When Cheung raised her concerns about test results to Balwani, the company’s second-highest executive, he responded by saying she was a recent UC Berkeley grad who knew nothing about working in a lab. He added that she “had no visibility in this company.”

Faking it till you make it?

Theranos’s approach was relatively common at Silicon Valley start-ups. Positive research results bring in millions of dollars (or, in Theranos’s case, billions) in funding before a product ever went to market, making founders and executives extremely wealthy. This, of course, tempts them to fake results as staff continues to work the problem it believes they will eventually fix.

The subject of an investigative book, a podcast and glaring media attention, the story of Holmes and Theranos is now the dark symbol of tech’s willingness to fake it until you make it. With the trial set to continue for weeks, it remains to be seen whether Holmes was under the sway of Balwani or letting him do the dirty work for her. Both pled not guilty, but Cheung’s testimony makes it clear that something was definitely wrong at Theranos.