The Theranos Story: how WSJ's John Carreyrou revealed fraud & deception in "BAD BLOOD" E828

hey everybody hey everybody welcome to another episode of this week in startups one of the great stories of the last decade in business has been the saga of varanos the famous company that was trying to revolutionize blood testing by letting you have a micro vial a pin prick of your blood to tell you what was going on in your body and replace expensive tests where you had to pull pints of blood out of your body to know and it turned out that this vision was indeed too good to be true but the world would not know that if it wasn't for my next guest who single-handedly reported on and essentially took down the biggest fraud in the history of silicon valley elizabeth holmes and varanos he chronicles it in his new book which is absolutely outstanding and you should all go buy bad blood right now secrets and lies in silicon valley in a in a silicon valley startup it's a phenomenal read and uh his name is john kerry welcome back to the program thanks for having me it's been two years since you and i spoke that's right this was in january of 2016. we're sitting here in 2018 two and a half years later back then i think you had done one or two stories about their nose but it was clear to me and many people in silicon valley that this was a complete order fraud it took two years to unravel how did you first become aware of theranos when did you first hear the name elizabeth holmes well she had rocketed to fame arguably about a year prior in uh 2000 early 2014 and then at the end of that year late 2014 i read a profile of elizabeth holmes in the new yorker magazine on my way home from work uh in in manhattan to brooklyn on the subway and uh um i read the story with interest but thought immediately thought there's something off about this and and the main thing i thought was off was this notion that this 19-year-old college dropout you know had left stanford with just a semester or two of chemical engineering under her belt and gone on to to pioneer and to develop groundbreaking new medical science um i i didn't think that was possible i know that there's a history of that happening in silicon valley in computers you know uh mark zuckerberg legend has it uh taught himself how to code on his desk and he dropped out of harvard like bill gates right and bill gates three decades before him and and they were self-taught programmers and they built uh companies that were you know in in the tradition of computer software i mean hit in in zuckerberg's case it was facebook and it was a website but it's traditional tech and medicine is different you know medicine you usually need to go to medical school and often uh scientists medical scientists get phds and do postdoctorals complex it's complex and you need not only do you need this formal training but you often need to do years if not decades of research to add value and as i say in the book there's a reason that most nobel scientists in medicine win their prizes in their 60s right takes a lifetime of work to really break through and so that made me feel skeptical from the from the get-go and then are you a skeptical guy generally is that like the training in journalism is to read stuff and say but what if i'm a pretty skeptical guy yeah where does that come from you think i i don't know i just always my mom's a new yorker and i sort of grew up in new york i grew up in in paris during the school year and the summers in new york but no i've always had a good [ __ ] detector um i feel like i've always been a good judge of character i think it's a skill that comes in handy when you're a reporter for sure and you know my whole career as a journalist had been mostly investigative journalism and hard-hitting stories raising questions and you know to be fair after that new yorker story i might not have done anything with that hunch if it hadn't been for the fact that a couple weeks later i got a tip a tip right wow and now you have a pulitzer by the way for the record right yeah i've been part of uh a couple teams at the journal who've won pulitzer's the the latest one was in 2015 for a series uh that we had done on medicare fraud and abuse and actually um during uh the reporting of that series i had encountered the tipster huh uh a uh practicing pathologist in the midwest who uh moonlighted as the writer of an obscure blog called the pathology blog which he spelled d-l-a-w-g and he had seen the new yorker story too and knowing a thing or two about blood testing um was immediately skeptical wrote a skeptical blog item about it and then was quickly contacted by this little band of theranos skeptics one of whom was a guy by the name of richard fuse who was a childhood neighbor of elizabeth holmes's family back when they lived in washington dc in the 80s and and who had uh patented uh a patent that had uh caused elizabeth to sue him so he had been involved in litigation with elizabeth holmes and and during those three years of litigation had become convinced that their nose was a scam he was a medical doctor by training right and friends with the family as you go into the book right he would buy them wine let them stay at his house right and and he was and they never contacted him about theranos he felt hurt his pride was hurt when she dropped out of stanford and created this company that was going to do a medical product because that was all his that was his whole expertise and he felt like she knew that the parents knew it and yet they didn't come to him for advice and so stung in his pride he then uh you know listened to this uh interview she'd given uh in 2005 and npr looked at her website thought that her vision had merit and figured out um a part of the vision that she hadn't patented and patented himself and it was basically uh a mechanism to alert doctors when the blood test results are abnormal and she had then found out uh several years later about his patent and developed this theory that his son who had worked at the law firm that their nose had initially employed that her allegation uh was that the the son of richard fuse had stolen her provisional patents funneled them to his father and that he had then used that information to file his own patent which after a lot of reporting and looking at the legal record i found to be completely untrue and fabricated nevertheless she had sued him he had been involved in litigation with her for three years and and had become convinced that the whole company was built on a scaffolding of fraud and it so happened that he had just made contact with a former theranos employee who had just left the company who had been in a crucial position which was that of laboratory director and who knew exactly where the bodies were buried so when the pathology blogger contacted me told me about richard fuse i talked to richard fuse and then i heard there is a primary source out there who knows things and who's alleging all manner of wrongdoing oh my ears pricked up wow and i said you know this is a story right and it could be a big one and it took me a while to finally get to the primary source uh he's a guy that i um call alambim and alan beam in the book it's a pseudonym it's not his real name um and uh i finally got him on the phone he was terrified um with good reason i mean he was being hounded by uh attorneys for boyce schiller flexner david boyz's law firm which was representing theranose um has represented some other colorful characters right and they were trying to get him to delete emails uh that he had sent uh to himself to his gmail account uh trying to get him to sign an affidavit on top of the non-disclosure agreements he'd already signed and he had hired a lawyer who unfortunately wasn't very qualified for this sort of situation and was giving him bad advice and he was really afraid and so it took me a while to get him comfortable and i granted him confidentiality promise to to keep his identity um a secret on a technical basis when you grant somebody like that and i'm sure people who are not journalists are curious as to how this works because it does seem like a superpower like hey i'm going to give this person immunity how do you know that person doesn't have an axe to grind and is duping you to try to get out of side of the story what's the protection for a journalist and then do you have to tell your editors who the source is and then does that open up more issues how does that work off the record sources yeah no these are these are good questions i mean it's it's a gamble i would say uh on the parts on the part of the reporter and the source that it stays confidential right because the source doesn't necessarily know you and doesn't know that you're necessarily that you're a man of your word and and so you have to explain to them you know like i do often that i've been doing this for a while and that i've dealt with whistleblowers and confidential sources many times during my career that i'm always true to my word um because you know in my line of work you have to play the long game if you burn one source then your career is over and in fact this second source is the one that tipped you off yes the blog the well the pathology blogger was the first uh tip but then the primary source the source who was able to give me information that was primary information from which i could start building my reporting was an ex theranos employee and so he had to trust me and and he made that gamble and trusted me and i made the gamble that he was who he said he was and that he had had the job i mean i had obviously researched today to verify someone looked them up and everything and it all added up um and i knew that uh if i didn't get him to talk to me then all i had were rumors and innuendo and you know second and third hand speculation uh you can't build a story on that and so um i made a quick decision which was to grant him anonymity and i promised to to uh uh shield his identity and then he started confiding in me and unburdening himself um and i learned at that point in our first conversation which lasted about an hour that theranos had a device named the edison that actually handled only a small fraction of the 250 blood tests on its menu and that uh 200 about 240 of the 250 tests were done with just regular commercial machines bought from third-party manufacturers with one twist which was that a lot of those other 240 tests were done on on one particular siemens machine that theranos had hacked to uphold the myth that it could test tiny samples of blood pricked from a finger even though the manufacturer said no no right though one of the ways that they hacked the machine and adapted it to small samples was to dilute the blood in a saline solution to create more volume because of course these commercial machines were used to handling regular sized blood samples right so a lot more volume and so to create more volume to make the machine work they diluted it and when you dilute the blood that creates problems there's already a dilution step in the siemens machines protocol so right today diluting dilution you're double diluting you're diluting crazy the analytes that you're trying to measure in the blood you're you're making their concentration so low by diluting the blood that it's way below even the analytical measurement range that the fda has approved so you're using the machine in a way that neither the manufacturer they hacked an old machine yeah that they should not have done against the manufacturer's warranty and they were deceptive and the deception's just beginning um and the results as a result the results from that hacking are unreliable totally unreliable people are risking their health and a bunch of blood tests have to be restated when we get back from this quick break i want to fast forward a little bit about her personally attacking you in a very deranged fashion on twitter in at the wall street journal's own conference and leading a chant reportedly fu kari roo the chant and i want to find out when you heard about this f you john kerry rude chant from elizabeth holmes and the staff at theranos when we get back hey let me take a minute to tell you about asana which i use every day and i am addicted to if you're at a startup you need to know what your teams are doing and you need them to move together in unison as one coordinated and to move quickly but when you are moving fast and you're not coordinating you don't use something like asana which is amazing you don't know what everybody's doing and you don't know when the work is due and you don't know where to find all this information that you have on all these different tasks and you don't know how to tackle all those routine tests where you do the same thing over and over again that same checklist well that's where asana comes in asana is the easiest way to manage your team's projects and tasks it is super easy and it's super effective and it makes everyone happier because they're more productive people just want to be productive and you know what in this fast-paced environment you feel like you're out of control you ever feel that way you're out of control you've got post-it notes everywhere some notes on your phone some in your email box and you don't know what's going on you can bring order to your life by using asana and you can do it for things that are repeatable like bug reports and creative requests this way everybody knows what's going on and people are more informed and they feel less out of control and in fact they are less out of control because things aren't falling through the cracks where you as the founder or the management team are freaking out did we get everything done well you can just look at a timeline a calendar or a list of all the things you have to get done or if you're one of those people who likes to use the kanban board kanban board you can do that too you can view all your tasks and all the different priorities however you like over 30 000 companies with teams in 192 countries trust asana airbnb uber thumbtack facebook you know these companies launch they all use asana and you can integrate with hundreds of apps like google docs dropbox and slack and we do integrate with those products ourselves and it's very painless and easy so go ahead and take the pain out of managing your projects processes and tasks with asana go to asana.com twist and you can use it for free and you get most of the product for free we just paid because we want to support them and there's a couple of very cool features that they do as part of the paid project like private boards and all this kind of stuff but anyway you can get started for free at asana.comtwist asana.com asana.comtwist it is an amazing product go use it and get your life and your company and these projects get control of them and don't make mistakes and go faster and sleep better with asana okay let's get back to this amazing episode hey everybody it's a very important and very special episode of this week in startups uh my pal john kareem we're not friends we just know each other through the industry but i kind of feel like we're uh we kind of feel like we're in this together because i reached out to you two years ago when i first heard about this and said you got to come on my podcast and you came on right and the reason just so you know i reached out to you is because i was you know i get little tips inside of silicon valley as an investor myself and i had heard story after story about this deranged woman named elizabeth holmes who was very socially awkward and had this startup that had become worth a billion dollars that wouldn't let investors see the technology so at that time you had just written a story or two and you came on the podcast i think some people saw the podcast uh and and got back to you too yeah right later uh in my reporting as i um started to build sources among their knows employees and ex-employees um some of them trusted me because they had seen me on your podcast um and and had liked my demeanor and and uh had found me um i guess honest and and you come across that way very honest and they were you know that made them inclined to speak with me yeah uh well that's that's good for everybody because what's different about this situation i think is that this is sort of going into like the real world it's not just software or an app crashing on your phone right so i want to get into the psychology of elizabeth holmes a little bit because you go into our childhood you go into the early formative years of this company when there were a bunch of apple employees we're gonna get into all of it but as an individual this person seems to be deranged to me like this has to be a sickness you've spent a couple of years now covering the story but you don't know elizabeth holmes personally but you know everybody around her based on her behavior and the behavior you talk about in the book it's just incredible she was spying on her own employees at one point you say in the book that she had her i.t director find out that one of her lieutenants had looked at porn on their laptop and then used that as an excuse to farm and essentially blackmail them out of their stock options right that happened i mean he had actually tried to call her on the fact that they were doing bogus demos and after eight months at the company he was chief financial officer he was aghast because he thought the demos were real and he'd been bringing around these investors you know and they were certainly under the impression too that the demos were real and so he confronted her in in her office in november 2006. so this is just a couple years into the life of the company and and said to her elizabeth we can't do this anymore you know it's it's crossing a line uh it's going too far and uh and she turned ice cold and said to him you know you're not a team player and i think you should leave right now and it was very clear from her demeanor and her tone of voice that she meant not just leave her office but leave the company and he had been fired and what then happened is a couple days later the the it guy the head of i.t um had uh was going through his his laptop and and uh because they were so paranoid about information leaking out they would take you know laptops back and phones back and then they would upload everything to the servers and the process of doing that it came across the fact that the the now fired uh cfo had browsed porn on his laptop which you know is probably not something you should do but uh the it guy didn't think it was you know something worthy of capital punishment either um and he unfortunately told elizabeth about it and she then used it to to claim that that's why he was fired and to deny him stock options and this is a 22 22 year old woman at this point uh so at a very young age she has learned to be incredibly ruthless and manipulative and she seemed to get people to buy into her being the next steve jobs and she had some sort of obsession with steve jobs that you sort of outlined in the book she hired a bunch of apple employees early on right she would wear the turtleneck and how much now that because you're an outsider you're from brooklyn like me you're not like part of this thing out here how much of this is that she pattern matched or that she checked checked boxes that made people want to believe that this was the female steve jobs i mean there was uh a lot of that going on and it was encouraged it was actually actively encouraged by these older men who were in her entourage you know channing robertson uh was her engineering professor at stanford and um supported her when she dropped out and joined her board and accompanied her on pitches to vc companies and he was quoted in some early stories in the tech press one was in inc another one was in red herring and one of them and this is going back in early 2006 he already is comparing her to steve jobs into bill gates wow um don lucas uh whom she famous venture capitalist right who who groomed larry ellison helped him take oracle public in the mid 80s um he became chairman of theronus's board for a while and and uh invested money and convinced larry ellison to an extent chief enabler yeah i mean certainly i think he was the record pretty much shows that he was manipulated too yeah to some extent uh but uh he helped her uh with his network of contacts and helped her gain uh credibility and um so yeah you had these these older men uh around her that she that she manipulated and a lot of these came from her childhood her father worked in the state department or something and he knew all of these famous former generals and how did that because that was the thing that we would laugh about like we'd look at her board i'm talking about the investment community whatever like okay who's on the board is it bill gurley is it right michael moritz is it doug leone is it like whatever famous you know john door and it was like no it's henry kissinger and these other generals and it's like a general is on your board or some senile old diplomat is on your board it makes no sense so the family connections uh came in were a factor in several ways one is that uh for a couple years in the late 80s and early 90s the holmes family lived in woodside california near the stanford campus and were neighbors with the drapers tim draper and so elizabeth and jesse draper became friends tim draper's daughter tim draper's daughter jesse draper and elizabeth were good friends and remained friends uh and then when elizabeth dropped out of stanford at 19 in late 2003 the the first person who cut her a check a million dollar check was tim draper so that was a family connection another uh family connection was that uh her father who indeed had uh been in government had spent most of his uh career in public service worked for the state department usaid had gone the wesleyan and one of his best friends at wesleyan was a high-ranking official at the world bank and uh that guy knew don lucas and introduced elizabeth to don lucas and don lucas met with her and was impressed by her lineage namely the fact that she was a descendant of the fleischmann yeast dynasty fleischmann yeast company is a company that was created in the late 1800s by two hungarian immigrants and um 20 years later by the turn of the 20th century uh the fleischmanns and and the holmes became uh one of the richest families in america and uh all that money was spent though after generations right elizabeth didn't benefit from that no because elizabeth was actually uh made very aware that uh a of the the success of these older uh generations of the family but also of the failures of the younger ones namely uh her father's grandfather and his father had really squandered what was left of the family fortune and so i think she was uh very influenced by these stories she wanted to reclaim that place in society and that wealth um i think that was one of the things that was going on but in any case there was this favorite this really great quote that you had where somebody asked her in her youth like do you want to marry the president or something and she said yeah someone asked a relative at a family gathering when she's 9 or 10 asks her you know what do you want to do when you grow up pretty much the question everyone is asked when they're a kid at some point or another and she says i want to be a billionaire and she's she's not kidding around you know she's looking really intent these aren't the idol words of a child yeah and the relative says well don't you want to be president and she says no because i'll have a billion dollars and so the president won't want to marry me yeah completely logical for a ten-year-old to think this and she she really wanted you know to be a successful entrepreneur from a young age she wanted to be wealthy she wanted to reclaim the glory you know of the the fleischmann uh dynasty so it was like this personal thing and then she grew up around all this royalty with some tech royalty and she had some amount of entitlement i would think i mean i think i think she also had good motivations in that her father uh as a public servant at the state department had helped uh with humanitarian efforts and so there were pictures around the house of him you know in war-torn countries and um you know he he always emphasized to her that she should live a life of purpose um and i think uh this became in her mind how how do i become not just rich but do good as i get rich and uh biotechnology was an answer to both get rich in biotechnology and create a product that will change medicine that will make people's lives better and and that will be good for the good of humanity at its peak the company was worth 10 billion 10 billion 10 billion evaluation and so from my insider perspective there was a moment in time when the term unicorn happened out here right and everybody wanted to be involved in the next unicorn right she benefited heavily from this she had been around for like eight years meandering with this company 10 years 10 years and then the unicorn thing happened and she was able to jump on that bandwagon pretty much i mean uh the the company was founded in late 2003 and that coin that term was coined by a venture capitalist in november 2013 um and within a couple months uh she was able to raise money and evaluation that that valued theranos at more than nine billion dollars for a couple months in early 2014 um theranos was actually the most valuable private company in silicon valley it was more valuable than uber what it was killing me john it was more valuable than airbnb than crazy than spotify you're talking about companies that actually have products that people use every day all right when we get back from this quick break i want to get into the really interesting moment i think for you as a journalist and i want to weave your story into this a little bit rupert murdoch had invested 100 million dollars into their 125 125 and elizabeth holmes's team legal team and considerable network lobbied heavily to have rupert murdoch kill the story because he owned the wall street journal when we get back on his break i want to find out what happened when they came to kill your story at the wall street journal on this weekend startups let's take a moment to thank our friends at weebly for supporting this week in startups and if you've ever thought about quitting your job and doing your own thing you're not crazy in fact you're like 82 million other americans who said they'd start their own business if they could well weebly wants to see more of these people take that leap they want to see you take that leap and turn your ideas into a successful online business so weebly has made it so easy to get started first by making it dead simple to create a great looking website but second and more importantly by providing tools that help you turn that website into a successful business let's say you're an artist and you want to sell your stuff online well with weebly you can build an online store that makes your products and your brand look incredible and you could easily manage your inventory collect payments run promotions and even chat with your visitors live on your site so when you're ready to grow weebly can help you get discovered on search engines and create marketing campaigns and get your return customers all that important high level marketing stuff that's your next step after you figure out commerce which is the step after you figure out how to build a great website so here is your call to action whether you're looking to create a side hustle or your dream job weebly can help you grow and they can help you get your idea out of there so visit weebly.com twist with two e's w-e-e-b-l-y dot com slash twist for 15 off your first purchase weebly more than just a beautiful website okay let's get back to this amazing episode all right everybody go before we do anything else go to your audible go to your amazon go to your local bookstore and buy bad blood secrets and lies and still in a silicon valley startup by john kerry rue of the wall street journal it is an amazing story as we're learning here today they came and tried to stop you you became the target which is weird as a journalist i would think it's weird to be targeted like this well i mean i'd had experience uh doing hard-hitting stories where the subject of the story had pushed back but nothing like what i encountered in the theranos saga so the initial response once i started confronting the company with my reportings several months into my reporting i'd gained a critical mass of information and i went to theranos and at first they uh put me off they hired an external pr guy to just sort of give me the run around and after about two months of that i i told them you know this strategy is not gonna work i'm not gonna go away meanwhile elizabeth holmes was making the rounds of tech conferences healthcare conferences giving an interview to just about every other journalist in america on the cover of like 20 publications right she was on charlie rose one evening which is when i really lost my patience yeah and the next day i said to this so she will return to you your call but she's on charlie rose and every other event right right not a red flag at all at this point i'd been asking to meet with her and and you know uh putting to them uh questions that i had for two months and so from there from that point on uh when it became clear to them that i would not go away the the strategy shifted from ignoring him to uh waging a an aggressive counter-attack and and the first step in that counter-attack was uh to send david boyce and several of his uh law firm associates as well as heather king a former hillary clinton aide who had been a partner at boys schiller flexner and who was now uh their nurse's general counsel to our offices uh at the journal in midtown manhattan wow dramatic right for a sid yep and i and i figured you know there were going to be fireworks so i i came with my editor mike sakanolfi and and jay conte who was our lawyer who advised the newsroom on sensitive journalistic matters and we kind of have had a showdown for five hours in this conference room five hours right what happens you walk in and what they're bagels are there bagels and yogurt what is it what's the setup the first thing they do is uh they put little tape recorders two of them at each end of the conference room table wow and intimidation press record and uh it's very clear uh with uh that doing that that that they are uh taking that they're considering that this meeting is a deposition in a future legal proceeding right i mean it was a shot across the bow yeah that's an intimidation tactic and the two that's the move so two out are these tape ones are these digital so that they can make sure to capture everything everything but are they digital they take i think they were digital and so then i pull out my iphone and i press record as well you have it yeah and um here we go and then they get you know very aggressive in their demeanor um their their stance it it quickly becomes clear is that i through my reporting have misappropriated their nose trade secrets then i need to uh destroy them or return them immediately um i have these i have a list of 80 questions that i had sent them two weeks prior that they'd had plenty of time to prepare for try to start going through them and you know at the heart of these questions uh is uh you know how many of the blood tests on the menu how many of the 250 tests are done with actual thera-nose technology and how many are done with commercial machines that you've hacked yeah and uh the answer is we can't talk about that it's a trade secret um and we sort of go around in circles over this question and it and david boyce gets angry um and uh threatening in his tone um and what does he say like don't you know who i am i could bury you guys he tells us that uh well he tells us at one point that he's going to send us a letter after um the meeting that's going to make clear theranos's legal stance which we did get three days later and you know and the letter and and other letters um you know pretty much threatened to sue us if we didn't abandon our reporting um but he also um said that uh the only way that we were gonna get responses to our questions was if we signed ndas because the theranose proprietary technology these trade secrets were so valuable uh that quest and labcorp the two dominant players in the lab industry we're trying to find out answers to these questions by any means possible it's interesting you mentioned that because when that came up and i heard that that was part of the excuse that they were that this was some grand conspiracy i just told myself well that sounds like a hogwash to me like supposedly quest and lab court were conducting industrial espionage to try to find out the answers to these very questions that through a pulitzer prize winning team member of the wall street journal seems like a great route to go yeah no that became the line later that i was in league with quest and lab corp at that at the point of that meeting it wasn't so much that i was in league with them it was that you know we need to sign ndas because that the the information is so valuable did you ever find out if david boyce actually knew how absolutely insane the actual state of the company was at that time or do you think he just went out there and blindly defended her i think it's more of the latter i i don't think he realized right the shenanigans that were going on in the lab i don't think he realized that fewer than 12 of the tests were being done with their nose so he was in a way a victim is a well-paid one right i mean his the the behavior of his law firm as you know and we can get into that yeah after that five-hour meeting uh there were more twists and turns and i i i find the their behavior reprehensible really and beyond the pale but um as uh as far as his knowledge they would use any means necessary to try to get the story killed that they're that kind of law firm within days of that five hour meeting you know i came to the conclusion that uh one of my sources a young woman by the name of erica chung who's a character in the book was being surveilled because a a man shows up in an suv late one night at the parking lot of her new employer in sunnyvale california and she comes out and the man walks out of the suv makes a beeline toward her with an envelope inside the envelope is a letter from david boyes uh telling her she must meet with him and his associates by a certain day and at a certain time otherwise she's going to be sued and the address on the envelope is the address of a friend of her a colleague of hers and friend who lives in east palo alto and erica has been staying at this colleague's place for less than two weeks at that point wow no one other than the colleague even knows that this is where erica is living wow not even her mother so they're severely there is no other way to know that she's living there than to have followed her and so she calls me um and at that point it's kind of a funny moment because i'm in my car in brooklyn i live in brooklyn and you're a brooklyn knight too right yeah you have to move your your car for sure alternate side of the street parking here we all know and so i i'm sitting in my car double parked in in my neighborhood in brooklyn waiting for the street cleaner to go by listening to the radio and my phone rings i answer turn the radio down and it's erica and she is petrified of course she uh has spent the weekend uh at her friend's house not uh gone outside with the blinds you know closed she doesn't know what to do she's become convinced that she's being followed she explains to me the the incident in the parking lot the previous friday were now monday morning and i agree with her that uh you know there's only one uh possible conclusion which is that they they've had private investigators following her but i tell her i'm pretty sure this is only recent that the surveillance only recent and that they don't have proof that you're a confidential source of mine and so i managed to convince her not to go to the meeting with the boy schiller attorneys and to just go about her business she no longer works for theranos she has no obligation to even acknowledge any uh attempts to make contact with her and i tell her just go about your business yeah but then the the scorched earth campaign of intimidation of my source picks up and uh one of the other sources uh that that i had gotten in contact with to corroborate what my first source had told me was a young man by the name of tyler schultz whose grandfather is george schultz the the famous former secretary of state under reagan who essentially you know won the cold war this is as famous an individual in american politics as exists right and even now in his 90s uh remains revered in in republican circles and this is his grandson or nephew this is his grandson and uh what many people may not know about george schultz is he lives right off the stanford campus and palo alto is passionate about science he's always been passionate about science elizabeth had met him in early 2011 through someone at stanford medical school and she had wowed him with uh the claims of what her technology could do and uh he had uh shortly thereafter joined her board and then introduced her to all his buddies at the hoover institution the the think tank on the stanford campus and so that's how she came to meet henry kissinger and bill frist sam nunn um uh bill perry who was secretary of defense under clinton and and uh before long had this sterling board um tyler had been introduced to elizabeth at his grandfather's house um and had gone to to work there for summer as an intern and then upon graduating the next year in in the fall of 2013 had gone to work there full time and had spent eight months at the company and become convinced um that the company was built on a series of lies and was essentially a fraud and had tried to alert his grandfather george to this to protect him to protect him uh and also because he was concerned about uh unreliable test results people's lives people's violence and had been unable to convince his grand his grandfather that he was telling the truth even though he had brought on his last day or the day he had quit that evening he had brought erica who had been a friend of his that he had met at their nose with him to george's house two people explaining right so it wasn't just tyler and the point was look i have a colleague to corroborate what i'm telling you and and george had refused to believe them and continued to believe elizabeth and so tyler and erica had both left the company and and had had to pretty much you know keep it bottled up and i had made contact with both of them they had become my sources and so i i went in may of 2015 i went and met with both of them i met erica one night and the next day i met with tyler in mountain view and then um suddenly you know a month later uh tyler goes dark i can't reach him anymore oh um they got him and i figured they're putting the screws to him yeah um you know he had been calling me from a burner phone because he was paranoid that the company would would figure out he was talking to me and and he was using this uh made-up uh name for an email address and that's also how we're communicating and that's how he had sent me uh emails and other documents he'd kept from his stint at their nose and suddenly he went dark i had even called his mom reached her left a message no word back and so i figured you know they were they were putting the screws to him too it i didn't learn what was actually going on with tyler until much later a year later when i uh was able to resume contact with him and i learned that in late may of uh 2015 so a couple weeks before that five hour showdown with boys at our offices they ambushed him at his grandfather's house boy schiller attorneys ambushed him and uh you know this one attorney in particular mike brill was like an attack dog and and uh insisted that uh he knew that tyler had talked to a wall street journal reporter and that he needed to admit it and that he needed to sign these documents and name the journals other sources eventually george came to tyler's defense ushered these lawyers out they came back the next morning on elizabeth holmes's orders that gave rise to another surreal scene tyler decided he needed his own legal representation ended up lawyering up and then um withstood an intense pressure campaign uh intense lit you know threats of litigation for months um and amazingly uh never signed anything never signed any document the company uh put to him uh his parents had to spend close to a half million dollars uh on his legal fees crazy and um and and he never caved and and in large part thanks to that uh and thanks to his integrity and his courage i was able to go to press in in october of 2015 with my story right um i let her later um revealed uh tyler's role in a front page story in in wall street journal i remember reading it yeah in late 2016 and and a much more detailed account of his ordeal is in the book um but this this gives you an idea of the lengths to wit to which elizabeth holmes and theranos went to try to to suppress my reporting hey everybody let me tell you about a very cool new service called veterie it's v-e-t-t-e-r-y and it's a hiring marketplace that connects top tech talent with growing companies all these candidates are vetted before they appear on the platform think about that for a second they pre-vet all the candidates so you know they're high quality and a new batch of candidates appears every monday how interesting is that they just queue them up and you get all these pre-vetted great tech talent ready to go now this is great for startups or anyone looking to expand their tech team and i know you're all having great success if you're listening to this week in startup so they've released a comprehensive tech salary report for 2018 which will let you know exactly how much software engineers are getting paid you can use this to make the right offers and build the best team seller the salary report is available to twist listeners and it's available for the price of zero dollars that's right amazing you can get this tremendous salary report tremendous huge salary product with these astronomical salaries no there's some good salaries in there so here's what i want you to do here's your call to action go to veterie.com twist v-e-t-t-e-r-y dot com slash twist twist one more time that url is battery.com twist and i'm gonna give it a third time vettery.com twist okay let's get back to this amazing episode is this technology even remotely possible because one of the things you must have done when you heard these claims and you heard that they were watering it down you must have contacted the people who make those machines you must have contacted other industry experts and there was this brewing like theranoses it's not possible that their nose can do what they do will it ever be possible to prick your finger is that like something that their the other competitors are working on or close to or is this so fantastical about it you're laughed out of the room even there have been a lot of researchers for the past 20 years in academia and industry who have been trying to crack that nut uh namely running a bunch of tests on just a tiny sample of blood um and the benefit of doing that versus pulling blood is what well i mean it is uh easier there a lot of people i mean if you listen to elizabeth holmes certainly uh she had a phobia of needles that she inherited from her mother and and if you heard her at the height of her fame in her various interviews she likened um you know getting a blood draw with the the hypodermic needle to a medieval torture mechanism which is ridiculous i i don't know that everyone feels that way but i thought that was one of the most when i heard the reason for this test right i was like well that's cool that you can do with the prick of blood but right and i guess you could do it more frequently which would also be cool right you could but if i've got cancer or potentially or i'm sick like not a big imposition to take a couple of vials of blood well actually um is it i don't know just rang to me like there are certain parts of segments of the population for whom it would be really useful uh newborns okay to be able to take a tiny little drop from them okay that's legit i've seen my newborn get blood drawn it's pretty brutal to watch cancer patients um one of the weak yeah one of the characters in the book it was a safeway executive and safeway uh and along with walgreens was one of those two retail partners uh they were lucky that the the part their partnership with theranos uh fell apart before uh theranos ever went live with its tests and safeway stores but in the course of reporting the book i spoke to this um uh woman who who was a uh high-ranking executive at safeway and who who came to have uh suspicions about um uh the the accuracy of the theranos technology and but she had initially been uh really uh taken with the potential of this technology because uh when she had first met elizabeth holmes her f her husband had cancer and he was getting stuck with needles uh repeatedly uh in order to to analyze his blood so that they knew how to change his drug regimen and um and she thought that the finger stick technology would have been a godsend but with this edison technology so it's it people have been working on it for decades they've come up with nothing basically right and so maybe in another 20 30 years might be possible well that's what i've always wondered about elizabeth is she so deranged that she never saw that this was impossible or is she so deranged that she just thought she could do it i know we're getting inside of our own brain but you haven't i spoke to a lot of laboratory experts um who explained to me that even though there's been the advent in the past 20 years of this field called microfluidics which refers to the repurposing of the the microfabrication techniques that were pioneered by the computer chip industry and those those techniques have been repurposed to move tiny fluids through tiny channels even with microfluidics people have not been able to figure out how to run hundreds of tests right or even 50 tests right different tests on a tiny blood sample and there are several reasons for that and one of them is that there are several big classes of blood tests about a half dozen of them and usually when you've got your tiny sample and you use it to run several tests from one class of blood tests such as say immunoassays you have no blood left for the other classes of tests which require completely different laboratory techniques and instruments you just don't have enough sample left which makes total sense the other problem is that capillary blood which refers to the blood that comes from the tip of the finger is polluted with tissue um and and cells and is just not a pure draw as pure draw that you get from the vein and and one test in particular no one has been able to to solve this test and get it right for for blood prick from the finger it's potassium and sure enough uh theranose encountered problems with the potassium test and uh my my source the former lab director explained to me as early as our first phone call that uh theranose would get uh potassium test results for patients that were so high that they only made sense if the patients had been dead except the patients were alive and you talk about in the book the edison machines they were not working they were taking blood samples from potential investors and partners running them into the back to put them on other machines or just coming up with fabricated results right this is sociopathic behavior it's even a little bit more complicated than that so the edison refers to the second generation of the technology which was just an immunoassay machine so it could only do one class of blood tests and it didn't do them reliably and the third uh generation of the technology was called the mini lab and that was supposed to be a box that did it was a bigger box and it was supposed to do more than just one class of blood tests when they went live with the blood tests in walgreens stores in the fall of 2013 the mini lab was a prototype that didn't work at all so what they did was they dusted off the edison and they used that for a few immunoassays and then they hacked the siemens machines to run all the other tests and then to convince investors that they really did have groundbreaking new technology they would stage these demos with not just investors but board members even media members where they would have the mini lab prototype they would prick the visiting vip's finger they would put the blood in the cartridge slot slot the cartridge into the mini lab turn it on you know it start whirring and then they would say oh um it's going to take a little while why don't you come and either visit the lab or go look at what's over here go meet with elizabeth in her office and so the vip would leave the room and then a theranos employee would stop the machine uh take the blood out and bring it to the lab and and that little blood sample would either get tested at the bench by one of their laboratory uh technicians or on one of the siemens machines employees knew they were doing something fraudulent very few of them knew about this uh the the demos were um her inside surface crowded in secrecy it was a very small circle of people who knew about the bogus demos um and it was a very small circle of people who knew that the siemens machines had been hacked and in fact um uh in in the uh later versions of the theranos laboratory you couldn't get in to the laboratory uh where the siemens machines were that had been hacked unless you were an authorized member of the lab whose fingerprint uh was you know basically they had fingerprint scanners on the screen so she created this level of secrecy and security that mimicked steve jobs is right but instead of doing that because he didn't want to see all the failed designs that he and johnny i have worked on for the iphone she was literally doctoring the blood tests and it's been confirmed by multiple people now yeah i mean she and and her boyfriend sonny balwani who was the number two the company this president he was like a svengali kind of figure well i pushed back against the notion that he was controlling her and that he was like the puppet master that that's not the case it was a a partnership of equals they were running this fraud together and ultimately she always had the last say if there was something she didn't agree with she had the veto power so he was just a sycophant partnering crime right i mean and to some extent he was using her and she was using them but uh he was not manipulating her right i i addressed that in in the epilogue and i pushed back very strongly against right so she's not the victim here she created this whole fraud she controlled 99 of the voting rights of the company the board couldn't even reach a quorum without her right and you tell early on in the book the board tried to fire her the early board and she talked her way she talked her way out of it so she had some amazing personality what's the story with her blue eyes and this like never blinking thing the journal did a a little video vignette of this that was exceptional but when she would talk she would open her eyes and she would look at you and would not blink and she obviously has these like really bright blue eyes they were un they're unique let's just say that yes she has big blue eyes and she has an ability to uh blink i i would say infrequently um most people i'm trying not to blink while i stare at stereo it's so uncomfortable right most people blink quite a bit um and if you look closely and and she doesn't blink all that much or she has at least the ability to suspend so she did that she would do that i don't know if it was intentional or nice but the voice was intentionally the deep voice like an employee in the book had a meeting with her shortly after joining the company in 2011. it was at the end of a long day uh they're wrapping up the meeting she's getting up from her chair expresses her excitement that he's on board and forgets to put on the baritone and lapses back into a normal sounding young woman's voice and at that point he realizes she's been faking this deep voice and and he thinks to himself you know what it makes sense silicon valley is overwhelmingly a man's world when she joined this world she was a very young girl she must have been on this show she felt it was necessary to put on this deeper voice to gain credibility and to be taken seriously and deranged and he was not my only source on the voice i had a family member uh who told me that the voice was put on and and her best friend from college uh said that um you know at the end of her year and a half at college her voice sounded nothing like that there's also an npr interview a biotech nation interview from may 2005 in which she sounds nothing like the elizabeth holmes of today so this whole giant fraud now has resulted in her being banned from running a lab that was like the first shoe to drop right then banned from holding an officer position at a public company for a decade or something the sec came down the sec uh charged her with fraud and charged their nose with fraud and and sonny balwani her ex-boyfriend and and the ex number two in mid-march um elizabeth and the company settled uh the uh fraud charges she agreed to pay a half million dollar penalty she gave back most of her shares as well as her voting control of the company and agreed to a 10-year officer director ban in a public company sure she got off easy a lot of people feel like that was a slap on the wrist like the the punishment was not commensurate with the the magnitude of the wrongdoing with a 10 billion dollar fraud no no and and more than where's bernie madoff a lot of people aren't gonna feel sorry for the investors who got defrauded because it's you know billionaires like rupert murdoch and the family of betsy devos our current uh education secretary and um uh the walton ayers heirs to walmart founders sound people watch people so yeah i mean there's a shirt in fraud and those those all those families that they lost 100 million dollars each those you know even though it's a ton of money to me and to most people it's a rounding error for them i think the fraud where it's much more egregious is the cavalier um attitude toward patience and yes you know putting patients in harm's way and gambling with people's lives they had to restate all of those blood tests so they voided or corrected almost a million blood test results and my sources tell me that the last director uh the last lab director they had at the company who just left the company a few weeks ago was um advocating avoiding or correcting all the blood test results theranos ever returned to patients and doctors because the quality control in the lab was so terrible that he felt no result that the company had ever put out was trustworthy if he had prevailed upon elizabeth to do that that would have been eight million uh voided or corrected blood tests all right lightning round and by the way you have to buy the book because this we're scratching five percent of the service i mean and the audiobook is tremendously compelling so go buy the book right now bad blood um we didn't answer the question about rupert murdoch having your back or throwing you under the bus what happened when they demanded they pull the story so i had no idea i had no idea at the time that rupert murdoch was an investor in theranos i started to hear rumor a couple days before we published the first story that he might be an investor wasn't able to confirm it put it out of mind then over the course of the next year sporadically i would hear this rumor again i was only able to confirm this rumor a full year after my first theranos story was published in october of 2016. at that point i learned that not only was he an investor he was the single largest investor in the company he had invested 125 million dollars and he sold the shares back for a dollar to get later he later uh several months after i found this at out he sold the shares back to the company for a dollar to claim a big tax write-off now what i also learned after learning that he was an investor and that he'd put in all that money is that she had met with him several times in the lead-up to my first story and uh one of those meetings had been in july of 2015 so a couple months before we published uh she had brought up uh the story i was working on had told him that um i had um amassed inaccurate information and and that if i uh went forward with with this story that it would do great uh damage unwarranted damage to theranos and his investment and to his investment she hoped he would intervene he didn't at that point she went to see him again in the news corporation building in his office on the eighth floor of the news corp building in midtown manhattan yeah two weeks i've been in that office i know two weeks before we went to press with the story and he held the line and again uh brought it up and clearly hoped that he would volunteer to kill the story and again he did not saying that he trusted the journalist journal's editors to handle the matter fairly and i had no idea she was in the building i was i was three floors below at my desk in the newsroom and i didn't know elizabeth holmes was three floors above trying to uh convince the owner of my newspaper to kill my story um as we wrap up here they were really brutal to you chanting fu karirou at a corporate meeting allegedly that's what that's what happened uh uh the day so my first story was published on a thursday in october 2015 she initially tried to rebut it on jim cramer's show mad money on cnbc uh she was in boston at that point because she was attending a meeting of the harvard medical school board of fellows to which she had been named she flew back cross country and the following uh late afternoon uh california time she and sunny um called a an all-employee meeting in the cafeteria of the theranos headquarters on page mill road in palo alto and she gave a very defiant speech about how my reporting was inaccurate and was seated uh by disgruntled uh former employees and by competitors who were in league with me to bring the company down and then her boyfriend sonny spoke and uh toward the end of his defiant speech senior engineer asked whether he would lead them in a chant and everyone knew immediately what chant he was referring what the employee was referring to because three months prior when their nose had gotten the only approval it's ever gotten from the fda for a fingerstick text to test herpes uh sonny balwani had led the whole staff in the cafeteria in an fu chant right and that chant had been at the time directed at quest and labcorp so fast forward three months later everyone knows what this channel is and so uh sunny is happy to indulge the request and he leads everyone in another fu chant and this time it it's with my name and it rhymes appended and it rhymes f you carry f you carry i know it's uh you and i were out drinking the other night the whole bar just spontaneously broke into if you no we didn't i'm joking uh hey you got it you got to get going soon but um let me ask you this who's most at fault here is it the journalism uh tech journalists who put her on the cover and never asked the hard questions you're part of a different breed the 0.1 percent of journalists who have the budget and time to do investigative reporting did your journalist brothers and sisters at arms fail the journalist industry by putting her on the cover and not asking the hard questions you did i don't like to blame my uh journalist colleagues too much because she lied to them and they didn't necessarily have any reason to suspect they were dealing with but in their job to be skeptical isn't their job to find out the truth and check sources like you did right um i mean it was also a different environment back then 2015 you know people were still treating these tech founders as icons and heroes and uh the climate has changed a bit there have since been a bunch of scandals theranos was the first but then there have been scandals involving uber and litany and of other companies there's a backlash against big tech right now because so you're saying the journalists didn't do their job because things were hyped up and they got caught up in it i think in part uh and the journalists who who really uh put her on the map were not journalists who had any uh experience with medical journalism uh you know the first what does it say about the state of journalism though if journalists don't have the resources to actually track down a blatant fraud that you figure it out what does it say about journalism day are they just so under resourced that they can't check basic facts or look for employees to talk to anymore i think it's hard when you're really being lied to and and the wool is being pulled over your eyes i mean let's not forget that it wasn't just journalists she fooled you know of course i'm going to get to the next group which is silicon valley royalty she fooled her entire board she fooled um you know many employees didn't know about the shenanigans at the company when my first story came out were convinced that i was a hater um she fooled so many people uh that you know yes she she fooled some some reporters who who feel you know one of whom i've become very friendly with and and he feels terrible about it but i don't i don't like to blame uh these reporters too much i think you know if you want to ask me who's responsible who's the who has the who bears the most responsibility the most elizabeth holmes and sonny balwani yeah these are the criminals these are the ones who got off easy they created the fraud if journalists got duped if a bunch of old government officials from the reagan era got duped and a bunch of savvy venture capitalists who blinded themselves to this got fooled it's all regulators got duped too and fda got duped right cms got duped um the cms inspector came and they didn't show him or her rather the downstairs part of the lab which they called normandy because the conceit was that it contained the edisons and the edisons you see were going to take the lab industry by storm like american and british troops during world war ii okay no i mean you know everyone was deceived and the deceivers were elizabeth holmes and sonny balwani where are these two individuals now they're not together they're broken up they've broken up um are they just hanging out in palo alto or did they run for the hills sonny balwani is hanging out i'm told in in palo alto and and is actually showing up at the depositions of ex theranos employee because there's still various strands of private litigation going on and so he showed up at tyler schultz's deposition and and one of the strands of these are litigations against the employees by their knowledge or again no investors against there's a um one strand of litigation is a securities fraud lawsuit led by one of the investors named robert coleman a former silicon valley investment banker and then there's also a consumer fraud lawsuit that's going on in arizona in federal court in arizona where consumers are alleging consumer fraud and medical battery um so tyler did an eight and a half hour uh deposition in one of these for one of these lawsuits and sonny bauwani showed up and glared at him for uh almost nine hours so this deranged individual actually is blaming the whistleblowers he's trying to he was trying to intimidate tyler um and that was unsuccessful because tyler uh didn't let it uh you know perturb him and and testified truthfully but so that's what he's doing he's also fighting the sec's charges um and then elizabeth holmes is is in the process of turning off the lights at their nose uh she laid off another 100 employees about two months ago and the letter that so they're down their head count is about 20 now um she in a letter to shareholders that day she uh basically explained that the company would likely be liquidated by the end of july wow but the the interesting thing is that she is telling uh people that she is going to start a new company oh my god that is so deranged this is a deranged individual do you think this person's mentally ill i mean you heard from everybody around her it seems to me this is a mentally ill person to pull off this kind of drain is it narcissistic personality disorder you're not a psychologist but i i'm trying to figure out what 19 20 21 year old drops out of college and then decides to carry on a decade fraud do you think she thought she was just deranged and then it became a fraud and she had tried to cover it up what's your what's your time story psychology she was analysis she wasn't made off in the sense that she didn't drop out of college to with the this premeditated idea that she was going to do a long con right and pull off a long con over 15 years i don't think that's what happened i think she truly did want to be an entrepreneur and a successful one and unfortunately like most entrepreneurs she encountered setbacks but she refused to admit those setbacks or to adjust for them and she continued to make um you know deceiving claims to investors to raise money and the the lies between what she promised she had achieved and what the reality was got so enormous that it became this gap of fraud yeah the gap i call that in between reality and what and represent the gap got enormous and uh the other thing i would say is that along the way over the course of 12 years she told lies so often and it started out with little eyes and it became bigger and the frequency of the lying was such that i think she lost track of the line between reality and the lies that that line became blurred in her mind and and you know is that the behavior are those the symptoms of a sociopath what i say in the book is i'm i let the psychologist decide yeah i'm interested in hearing from psychologists the book is bad blood secrets and lies in the silicon valley startup it is the most deranged insane fiction could not write this story and it will be a movie which is mind-blowing to you i would assume to know jennifer lawrence is going to play elizabeth holmes i'm going to say it right now she's getting definitely going to get an oscar nom for best actor guaranteed best actor nom and i would lay you know 2-1 3-1 or i take three to one that she's gonna win it i think this is gonna be her her career defining role you couldn't write this role and you know who's gonna direct yeah it's um adam mckay who directed the big short incredible and the screenplay writer uh is going to be uh vanessa taylor and she uh co-wrote the shape of water with uh guillermo de la torre i love gamma when is that going to come out you think this movie 2020 um 2019. it's possible they could start shooting next year i mean if the the stars align i wish it would be an hbo mini series too hey um and the biggest tragedy of all this this incredible story you didn't get a pulitzer it didn't it didn't happen this time you know i i'm very happy with uh your other politicians the the book deal i got and i'm very happy that my publisher gave me an advance and they enabled me to go on book leave for almost a year to to write this story because yeah you got a million two million dollar advance for this book it's a big not that not even close no i wish not even close really yeah i thought you would get a brownstone for this no not this is a brownstone level book you better get you're talking about browns you're you're talking about brown stuff because you're from brooklyn and you know that i live there and and it's true that a brownstone in brooklyn two or three you know it'll set you back two million in bed stey or crown heights park slope is more like three or four million now no i i was very happy to get in advance to write this book i thought this story deserved to be told at book length and i'm of course thrilled that there's going to be a movie and i'm going to do my best to help them make it a great movie i i just want to say you know thank you because as somebody who's here in silicon valley i see my share of [ __ ] and i do think they're you know the value of journalism when it's done correctly is that it creates this these guard rails for society where people cannot just run amok and rely on the legal system which is not designed to investigate it's not designed to turn over rocks but you did this you gave up a couple of years of your life to uncover the greatest fraud in silicon valley you know what this does it keeps other fraudsters from pursuing these other frauds and as i tell every founder never exaggerate anything own the ugliness the warts if elizabeth had just owned where she was at people would have rallied behind her in this town she just got caught up in her own ego her own narcissism her own sociopathy whatever it is to think that she had to be steve jobs you don't need to be steve jobs just go to work every day do a good job be honest if it works out it works out you don't have to lie that wasn't enough for her it wasn't it's a deranged individual okay when we get back on hour two john will go through all right congratulations and whatever's going on in pulitzer land i want a retroactive pulitzer for this work this is incredible it's the story of the century for silicon valley literally there has been no bigger story in my history in silicon valley i've been here for 25 years where i've been doing this tech for 25 there's no story that even matches this it's incredible go buy the book everybody congratulations john thank you thanks for having me we'll see you now i'll see you in two more years with your next bullet sir your next big book all right congratulations cheers [Music]

Channel: This Week in Startups

Views: 423,432

Keywords: startups

Id: dWQYKVasMoY

Length: 72min 37sec (4357 seconds)

Published: Tue Jun 12 2018