Up for discussion in the Guardian tech newsletter: ‘Silicon Valley’s biggest fraud’ … Impersonating a YouTube exec … and how refugees are driving AI at big tech firms
Don’t get TechScape delivered to your inbox? Sign up here
Last modified on Wed 29 Sep 2021 15.32 BST
We’re one month in to the blockbuster trial of Elizabeth Holmes, founder of blood testing startup Theranos, and it shows no sign of releasing its grip on the public imagination. Dozens of members of the media, myself included, have lined up each week since 31 August outside a crowded courthouse in San Jose, California, to bear witness to the justice process surrounding the company and its downfall – which has been called “Silicon Valley’s biggest fraud”.
And despite extensive media coverage of the rise and collapse of the blood testing firm starting as early as 2015, much of what we are learning at the trial is new, as prosecutors seek to answer a question central to the case: what did Holmes know, and when did she know it?
Here is what we have heard in court so far about Theranos and Holmes, who faces 12 counts of wire fraud and conspiracy to commit wire fraud, from the testimony of witnesses. Holmes has pleaded not guilty and faces up to 20 years in prison.
How high-profile investors were allegedly fooled by Theranos
Theranos gained fame (and eventually notoriety) for the large number of high-profile and high-net-worth individuals the company attracted as investors, including the media mogul Rupert Murdoch and former US secretary of state George Shultz. The trial heard testimony from its first such investor this week when the former US defense secretary Jim Mattis testified on the stand.
Mattis told how he was taken with Holmes – whom he called “young Elizabeth” in emails – and revealed that he personally invested $85,000 in the company in January 2014. He said he was inspired by potential use of the blood testing technology for the military and on the battlefield.
However, Mattis ultimately lost faith in Holmes and Theranos after negative press about the company began to emerge. “There just came a point where I didn’t know what to believe about Theranos anymore,” he said.
Lab workers say Theranos cherry-picked data
A number of lab workers at Theranos have testified thus far, including former lab associate Erika Cheung. She spoke about the large rate of inaccuracy in Edison devices, the flagship technology touted by Theranos, saying they regularly failed quality control analyses. Executives would then encourage scientists to “cherry-pick” and manipulate data to make the results seem more accurate than they were, she said.
“You’d have about the same luck flipping a coin as to whether your results were right or wrong,” Cheung said. “It was concerning to see this degree of failure, this was not typical for a normal lab.”
A star witness for the prosecution, Cheung became a whistleblower when she acted as a primary source for the Wall Street Journal story that first cast doubt on the company’s capabilities in 2015. She has since been vocal about her experiences at Theranos, giving a Ted Talk on the topic and founding Ethics in Entrepreneurship, a watchdog nonprofit focusing on startups.
“It was starting to get very uncomfortable and very stressful for me to work at the company,” Cheung said. “I was attempting to tell as many people as I could but it was just not getting through to people.”
Cheung told the court that she raised concerns to “Sunny” Balwani, Theranos co-president and former romantic partner of Holmes, who pressured her to quit if she could not continue her role without speaking up about these issues. She also testified that she told Shultz, a former US secretary of state and Theranos board member, about her doubts.
In addition to Cheung, jurors heard testimony from former Theranos scientist Surekha Gangakhedkar, who said she quit the company over concerns it was rushing to launch a partnership with Walgreens without proof the machines actually worked. “I was not comfortable with the plan they had in place, so I made a decision to resign and not continue working there,” she told jurors.
Later, former lab director Adam Rosendorff also testified he quit the company in late 2014 because he felt pressured to vouch for tests he did not think were accurate, causing him “a lot of emotional discomfort”.
Former employees started preserving emails ahead of investigations
Rosendorff told the court that when he plotted his escape from Theranos he defied his non-disclosure agreement with the company to forward himself emails and documents. He said he anticipated a government investigation of the firm and wanted to protect himself against potential prosecution.
He was not alone. Gangakhedkar, another former scientist who testified at the trial, claimed she did the same after Holmes ignored her concerns about launching machines when they were still showing inaccurate results. “I was scared things would not go well,” said Gangakhedkar.
In addition to Mattis and the scientists, we saw the first testimony from a customer of Theranos in recent days – a woman who the court heard was falsely told she was miscarrying due to an inaccurate Theranos blood test.
We are likely to see far more such witnesses as the trial goes on, as fewer than 10 of the 182 total potential witnesses listed by the government ahead of the trial have spoken so far.
About those texts …
Perhaps the most salacious details to emerge this week were a number of text messages between Holmes and Balwani read in court. In some, Holmes appears to wax poetic to Balwani – with whom she was romantically involved – to which Balwani responds uninterestedly.
Holmes: “You are the breeze in desert for me.
“Meant to be only together tiger.”
The text messages are just a selection from a large trove that have been submitted as evidence so far. In another, Holmes tells Balwani, “Madly in love with you and your strength.”
Romantic poems aside, the messages heard in court so far seem to paint a picture of partners who were both involved in the running of Theranos. Holmes is anticipated to lean on a defence that the fraud operations were largely driven by Balwani.
According to the messages heard in court, Balwani in April 2015 repeatedly stressed to Holmes that he was worried she was over-promising Theranos results “without solid substance which is lacking right now”.
“It is most maddening there is no focus in any chem teams and no product coming out,” he said days later, to which Holmes responded: “I know.”
With the bulk of Holmes defence still to come, there’s plenty more to play out in front of an eager audience. The proceedings are anticipated to last through December 2021.
If you want to read the complete version of this newsletter please subscribe to receive TechScape in your inbox every Wednesday.