Theranos's Insane Campaign To Punish Whistleblower, Who Happened To Be Famous Boardmember's Grandson

from the holy-crap dept

We haven’t really written much about the insane Theranos scandal, though we discussed it on our podcast. The whole story is pretty crazy — involving a heavily hyped up company that appeared to basically be flat out lying to everyone about what it could do. The company still exists, but barely. The company’s founder and CEO, who was plastered across magazine covers and compared frequently to Steve Jobs, has been banned from running a lab for two years, and the company is now facing a $140 million lawsuit from its biggest partner, Walgreens, who claims that Theranos repeatedly lied to Walgreens.

All the while, Walgreens alleges that Theranos: actively misled the company; didn?t live up to the quality and regulatory promises; kept Walgreens in the dark about problems; refused to answer questions as media reports came out about those problems; accused Walgreens of leaking information to the press; and asserted that Walgreens was the one that had breached their agreement.

One thing that became clear as the whole scandal broke, was that the company continued to aggressively deny wrongdoing, even as it became more and more obvious that almost everything that Theranos was saying publicly, allowing the company to be valued around $9 billion, was completely bogus. One of the most striking stories that came out a few months ago, was a report on the almost cult-like response from Theranos after the very first of a series of articles exposing the fraud came to light. The reporter who did an amazing job in exposing Theranos was the Wall Street Journal’s John Carreyrou. And according to a thorough recounting in Vanity Fair, after Carreyou’s first article, rather than honestly addressing the allegations, this happened:

By the time she returned to Palo Alto, the consensus was that it was time, at last, for Holmes to address her hundreds of employees. A company-wide e-mail instructed technicians in lab coats, programmers in T-shirts and jeans, and a slew of support staff to meet in the cafeteria. There, Holmes, with Balwani at her side, began an eloquent speech in her typical baritone, explaining to her loyal colleagues that they were changing the world. As she continued, Holmes grew more impassioned. The Journal, she said, had gotten the story wrong. Carreyrou, she insisted, with a tinge of fury, was simply picking a fight. She handed the stage to Balwani, who echoed her sentiments.

After he wrapped up, the leaders of Theranos stood before their employees and surveyed the room. Then a chant erupted. ?Fuck you . . .,? employees began yelling in unison, ?Carreyrou.? It began to grow louder still. ?Fuck you, Carreyrou!? Soon men and women in lab coats, and programmers in T-shirts and jeans, joined in. They were chanting with fervor: ?Fuck you, Carreyrou!,? they cried out. ?Fuck you, Carreyrou! Fuck. You. Carrey-rou!?

That same Vanity Fair article notes that the company’s lawyer, David Boies, threatened employees for talking to journalists. Boies, you may recall, made a name for himself for taking on Microsoft in the 1990s, but since then has been involved in a series of… well… bad decisions. You may recall him sending out bullshit letters threatening media companies for reporting on the leaked Sony emails a couple years ago. Boies also represented Oracle against Google in the fight over copyrighting APIs, and also represented SCO, back during that company’s ridiculous legal fight against IBM over Linux. In this case, Boies wasn’t just a lawyer for Theranos, but on their board as well:

Meanwhile, Theranos had its lawyers send a letter to Rochelle Gibbons?s attorney, threatening legal action for talking to a reporter. ?It has been the Company?s desire not to pursue legal action against Mrs. Gibbons,? a lawyer for Boies, Schiller & Flexner wrote. ?Unless she immediately ceases these actions, she will leave the Company no other option but to pursue litigation to definitively put an end [to] these actions once and for all.?

It turns out that’s not the only people Theranos went after. The same reporter who exposed the fraud and was the subject of those chants recently had another story detailing the ridiculous lengths that Theranos has gone to in an effort to silence one of the whistleblowers who revealed the problems at the company. The story is quite incredible (though, possibly blocked by the WSJ’s paywall). The whistleblower was a guy named Tyler Schultz — who just happened to be the grandson of well known former Reagan Secretary of State George Schultz… who also was on Theranos’ board (the board was stocked with famous political people, and few with any actual experience in Theranos’ field). The younger Schultz apparently had emailed Elizabeth Holmes pointing out how the company was doctoring research and received a lecture instead:

After working at Theranos Inc. for eight months, Tyler Shultz decided he had seen enough. On April 11, 2014, he emailed company founder Elizabeth Holmes to complain that Theranos had doctored research and ignored failed quality-control checks.

The reply was withering. Ms. Holmes forwarded the email to Theranos President Sunny Balwani, who belittled Mr. Shultz?s grasp of basic mathematics and his knowledge of laboratory science, and then took a swipe at his relationship with George Shultz, the former secretary of state and a Theranos director.

?The only reason I have taken so much time away from work to address this personally is because you are Mr. Shultz?s grandson,? wrote Mr. Balwani to his employee in an email, a copy of which was reviewed by The Wall Street Journal.

The rest of the story is pretty incredible. Schultz, smartly, quit that same day, and then reached out to regulators in NY to blow the whistle on misrepresentations by Theranos, helping lead to the eventual unraveling of the company. And, again, rather than deal with the actual problems, the company just targeted the younger Schultz (and, incredibly, the grandfather sided with the company).

In the past year and a half, the grandson and grandfather have rarely spoken or seen one another, communicating mainly through lawyers, says Tyler Shultz. He and his parents have spent more than $400,000 on legal fees, he says. He didn?t attend his grandfather?s 95th birthday celebration in December. Ms. Holmes did.

?Fraud is not a trade secret,? says Mr. Shultz, who hoped his grandfather would cut ties with Theranos once the company?s practices became known. ?I refuse to allow bullying, intimidation and threat of legal action to take away my First Amendment right to speak out against wrongdoing.?

First of all, kudos to Tyler Schultz for standing up to this bullying. And, second, what the hell is wrong with Theranos that they seemed so focused on attacking anyone who questions them, rather than focusing on actually fixing the problem. I get that there’s this view of Silicon Valley companies where there’s something of a “fake it, until you make it” attitude, but there are limits.

There’s much more in the WSJ story that is really quite incredible. It suggests a level of closing ranks to protect the reputation of Theranos, rather than actually dealing with the fact that their stuff didn’t work the way they said it would.

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Comments on “Theranos's Insane Campaign To Punish Whistleblower, Who Happened To Be Famous Boardmember's Grandson”

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Anonymous Coward says:

Re: Re:

That. But also the power of legal actions:

If the people asking questions bring up court battles you end up with a much bigger problem.
Their scorched earth strategy is part of the dictatorial school tactic of keeping your underlings from revolting. Instead of killing dissenters and using force no matter what, they are using legal threats and public humiliation to keep the underlings in line. Ironically, because they are under legal scrutiny and staring down the barrel of bankrupcy, their threats do not work and they do not have much force left to intimidate employees. The company will unravel and the corpse will be picked heavily.

sorrykb (profile) says:

Re: Re: Re:

This is how the company treats a whistle-blower from a powerful family. Someone with family money who can get a meeting with the family’s lawyer on a moment’s notice.

Not to minimize the good that Tyler Schultz did in standing up to Theranos — It was commendable — but can you imagine what would happen to someone who spoke out who lacked such connections?

Or what might have already happened, for all we know?

Anon E. Mous (profile) says:

Theranos obviously has not lived up to the hype they promised Walgreens and others that their revolutionary product would be.

The mere fact that the FDA wouldn’t grant nor accept Theranos devices with a passing mark tells the whole story that something was amiss.

Even the scientific community was skeptical of Theranos climas that their magic box would do what Theranos claimed it would but yet Theranos declined to let anyone see testing results or let anyone have access to the magic box to conduct their own testing to see if the device worked.

Holmes IMHO is just an egomaniac who just cant concede that her magic box never did work and never will work and the mere fact that she is hanging in at Theranos while appealing just goes to show you that she will never admit to the failure and that having her still at the helm of whatever Theranos does means that people will be skeptical of any claims of innovation in any device or testing procedures Theranos comes up with.

Looking at Theranos and the people on the board seems like a version of show and tell as in that Theranos is saying we have all these important people on our board and they would be here if we weren’t doing something revolutionary. Tis is nothing but a dog and pony show as of now.

Holmes name will always be associated with Theranos and now with it’s failure. Even after the fact Theranos stated they would present to the scientific community that Theranos testing did work and Holmes would answer questions about Theranos magic box at the scientific conference a whjile back, it came off leaving the scientific community with more questions and doubts to Theranos and Holmes claims that the magic box worked.

Holmes outght to take her money and go live a quiet life, her career as a CEO of anything is over and her magic box is dead and should never be rectified again. Theranos as going concern is nothing but a waste of money and anything that company puts forward will always be heavily scrutinized and met with a shrug do to their past failures to live up to their claims with research that back up what they say and devices that actual delivers the results.

Holmes seems like someone who is destined to go down with the ship much like many others have when they have not been able to deliver what it’s organisation has promised.

Anonymous Coward says:

Re: Re:

“Holmes outght to take her money and go live a quiet life, her career as a CEO of anything is over […]”

I doubt that. Haven’t you noticed? There are no longer any penalties for leading a company off a cliff. All kinds of CEOs who have presided over miserable failures have kept their jobs or been rewarded with golden parachutes or have been allowed to resign — only to resurface a year or three later somewhere else.

Competence, honesty, steadiness, and the long view are out. Hype and quick profits are in. As long as the rich get richer and the poor stay poor, it’s all good.

mr. sim (profile) says:

reality: “reality is defined as the only place where a person doing what is right can be sued and harassed by those who are committing wrong acts into losing everything or even put into a jail cell.”

imagine the next james bond movie where it’s a trial and ernst blofeld is suing mi6 and james bond for the lost revenue from them stopping him and spectre from taking over the world you know what? it just hit me with investor/state dispute laws, we might already have seen this.

but seriously there need’s a to be a law preventing criminal charges and lawsuits being filed against whistle blowers by anyone connected to the company or persons they whistle blew on.

Coyne Tibbets (profile) says:

Re: Re: Re: Shining example


Also sniping the free-marketers, who focus on profit as the only meaningful measure of success–and deplore and would eliminate anything that interferes with that profit.

Such as governance, the absence of which provides such fertile ground for assholes to peddle fraud, extortion, and poisoned children.

Anonymous Coward says:

Re: Re:

I am not expressing any pro-con opinion of the upcoming presidential administration, but I am bit surprised that this matter has escaped the attention of the media with respect to the possible nomination of Mattis as SECDEF. He sat on its board of directors and it has been reported in articles relating to the company that he interceded on its behalf with regulatory authorities when the efficacy of the product came to the fore. I have dealt with many corporate boards, and no instance comes to mind where an outside director has acted in this manner.

Trails (profile) says:

Reminds me of

After he wrapped up, the leaders of Theranos stood before their employees and surveyed the room. Then a chant erupted. “Fuck you . . .,” employees began yelling in unison, “Carreyrou.” It began to grow louder still. “Fuck you, Carreyrou!” Soon men and women in lab coats, and programmers in T-shirts and jeans, joined in. They were chanting with fervor: “Fuck you, Carreyrou!,” they cried out. “Fuck you, Carreyrou! Fuck. You. Carrey-rou!"

Boy that sounds awful familiar

SirWired (profile) says:

What a hilarious mess...

Okay, it’s not actually hilarious if you were one of the people who was affected by their bullshit test results…

Anyway… I find it hilarious that a bunch of Venture Capitalists who knew nothing at all about medicine or biotech (there are VC’s who routinely fund operations like this, and they stayed very far away) were willing to throw all sorts of money at a young woman whose only assets were dressing like a young, female, blonde, attractive Steve Jobs, and whose business plan consisted of nothing more than a rhetorical question: “Wouldn’t it be great if we could run a lot of blood tests on a few drops of blood?” Well, yes, it would, but she did not then, and of course has not demonstrated since that she (or her company) has the least *bleep!*-ing clue how to reach that goal.

The Jobs-ian Reality Distortion Field does not actually work when there are actual results to be measured, laws to be complied with, and people to not kill.

Anonymous Coward says:

Re: What a hilarious mess...

Yeah it is pathetic that before throwing millions into they didn’t call a few good biology or medicine professors.

“Hey could you look into this quickly and tell us if it is even remotely theoretically possible and if so what sort of things could go wrong?” Even if they had to pay them to moonlight it still is the sort of due diligence that would save them a fortune.

Norbert (profile) says:

VCs created a monster

In a way I see Holmes as a victim, in a Shakespearean tragedy sort of way. She only got this far because of the VCs. Not the original ones. The idea behind Theranos is actually quite reasonable (to a non-chemist). We’ve all seen Moore’s law at work and incredible advances in software; surely you can do lots of tests on a few drops of blood using advanced technology, can’t you? [Hint: no you can’t] So it’s not unreasonable that she got seed capital to establish a proof of concept. The problem was that the idea doesn’t actually work (or at least they never got it to work) but before the concept could be proven too many people wanted in. This created the need for secrecy to hide the fact that nothing was working. Add to this the social connections and cult-like atmosphere and you’ve got a real mess. Warning signs were there all along and biotech savvy VCs steered clear. Basic due diligence would have nipped this in the bud. Anyway will make a great movie!

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