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.