Holmes, Uncle Clunk, and and Epic Con Job: How American Business Apparently Sometimes Works

Guest Post by Fred Reed

OK, book report time. I have just finished reading Bad Blood, by  John Carreyrou of the Wall Street Journal. Good read, fascinating story. It is the saga of Elizabeth Holmes, founder of Theranos, the miraculous blood-testing company of Silicon Valley. Holmes, formerly said to be worth 4.5 billion, ended up under criminal indictment for fraud as of 2015. I suppose many have heard vaguely of Theranos, as I  had, but the actual story is astonishing.

Holmes, 19, drops out of Stanford to start a medical-instrumentation company. She is very smart, very driven, very self-confident, very glib, very cold-blooded, very manipulative, very willing to take risks, very pretty, and very ruthless. Everything about her is very. If the foregoing resembles the clinical description of a psychopath, there is a reason.

She also knows almost nothing of the sciences, and nothing at all of electronic or mechanical engineering, or of medical instrumentation. That is, she has no qualifications in the field. She is just very–that word again–smart and pretty and talks a swell show. And yet…ye gods and little catfishes, what she managed to do.

Her goal was to invent a medical blood-analyzer that could do a large number of tests on a single drop of blood from a pricked finger. It was a bright idea. If it had worked, it would have been a (very) big deal. This of course is also true of anti-gravity space shps and perpetual motion machines. Making it work required nothing beyond difficult mechanical engineering, electronic engineering, programming, microfluidics, and a few things that were impossible. She knew none of these fields.

But holy smack-and-kerpow, Batman,  could she talk. Soon she had investment money pouring in. On her board she got–yes–Henry everlovin’ Kissinger and James Mattis (uh-huh, that one,) and former Secretaries of State and Defense and just about every heavy hitter except Pope Francis. More money rained down. I mean with people like that vouching for her, Hank the Kiss and Mad Dog Mattis, it had to be legit–right? She even managed to cozy up to the Clintons and Obama.

Meanwhile the wretched blood gizmo wouldn’t, didn’t, and couldn’t as it turned out, work. It was a metal box with inside it a glue-gun robot arm out of Jersey–I am not inventing this–that made grinding noises and could do only a few tests with wildly unreliable results. You might think of it as Uncle Clunk. Just the thing you want your life to depend on. And lives do depend on good lab results.(“OK, lady, Uncle Clunk sats you got brain cancer. We have to remove your brain.”) Heh. Oops.

So Holmes, who could talk the bark off a tree, faked it. To be fair, she probably thought it would work or hoped it might and turned to chicanery only when it didn’t. Anyway, many of her deceptions were clearly fraudulent–well, clearly if you knew about them. For example, most of her results were obtained using commercial analyzers from outfits like Siemens instead of Uncle Clunk. Financial projections were wildly dishonest. Many employees quit over ethical concerns–but they were bound by sharp-fanged nondisclosure agreements they had to sign to be hired. It was nonsense. Nothing worked. But nobody knew.

Thing was, across America there was a terrific will to believe. Her story was just too good to pass up. People wanted a female Steve Jobs, a girl to join the boys in a startup world of wunderkind guys like Gates and Jobs and Wozniak and Zuckerberg and all. There just weren’t any girls. Sure, a few, sort of, a little bit, like Marissa Mayer at Google, but Page and Bryn were the real starters-up. Holmes was beautiful, smart, so very appealing and just a dynamite entrepreneur. She had this astonishingly successful company.

Which didn’t have a product.

Note that most of the dazzling university dropouts who became billionaires are in software, not biological sciences. The few in hardware brilliantly put together readily comprehended pieces, like CPUs and memory chips. There is a reason for this. Programming takes a lot of brains and little knowledge. Medicine takes reasonable intelligence and lots of knowledge. Molecular biology takes a lot of brains and a lot of knowledge. A (very) bright kid can learn Python or C-pus-ñlus  in a couple of months in mommy’s basement and actually be a programmer. It doesn’t work with complicated multidisciplinary computerized micro-fluidized gadgets involving robotic glue-arms. At least, it didn’t work.

I wonder why nobody thought of this. When asked for evidence, she ducked, dodged, lied, said the check was in the mail, and any day now.

The  non-disclosure agreements saved her, for a while. All employees had to sign them. Her  lawyer, who was also on her board, was the scary super lawyer David Boies. If you were a midlevel lab worker, and knew that reagents were out of date, that bad results were being hidden, that Uncle Clunk didn’t work–and said so, a savage law firm with unlimited funds and, as events proved, not a lot of ethics, would litigate you into sleeping in alleys. Consequently much was known, but little was said.

Meanwhile–this is crazier than Aunt Sadie, that we kept in the attic–she got freaking Safeway and Walgreens to bite on putting Theranos booths in their stores so customers could get quick fighter-prick analyses for very little money. Both companies bought into this, and actually built the booths at considerable expense, without insisting on seeing proof of her claims. I wonder what she was thinking. The scam obviously was going to collapse at some point. And did.

A better question might be what her board members and the chain-store executives were thinking. The latter were bosses of huge corporations and presumably astute. How did she get away with it? I will guess. Most of those gulled were old men, or nearly so. Note that old men, powerful men, rich men, and famous men, are nevertheless…men. Holmes was a honey, slender, very pretty, well-groomed, appealing, smart, and maybe  the daughter or girlfriend or mistress that her prey would have liked.

Andrea Dworkin. Finally, a cure for self-abuse. Would the old guys on Elizabeth’s board have been as smitten by Andrea?

As the Wall Street Journal closed in, and Theranos got wind of it, things became ethically interesting. Holmes of course knew that Theranos ws endangering lives, and had already established a lack of morality. Some of the board came to suspect and quietly bailed. The employees were intimidated, though several talked to the Journal anonymously.

But superlawyer David Boies and his associate Heather King among others at the firm knew. They tried every legal means, or maybe I mean lawyerly means, to block publication of the story. When federal regulatory agencies issued a long, detailed investigative report making it absolutely clear that Theranos did not even come close to legality, and was therefore endangering live–Boies and King tried to suppress that too. Their success was not great as the Journal put the whole gorgeous taco online, but they tried. It is a curious fact, but a fact, that lawyers are often accessories to crime.

Anyway, great fun, great read.