Bad Blood

One could say that the central thing that fueled this fraud was money. But a large motivating factor for Walgreens was FoMO (fear of missing out). They were deathly afraid that if they didn't get in early with Theranos that their main competitor, CVS, would. This was also true to some extent for Safeway. (Walgreens would have the drugstore exclusive to this new blood test technology and Safeway would have the exclusive for grocery stores.)

And certainly the idea that a silicon valley startup company might revolutionize some aspect of the health care industry was a credible overall idea. But what certainly fueled the credulity was everyone's desire to see a female CEO major success (basically the first) of a silicon valley startup.

And no one was less fawning than George Shultz:



Shultz's grandson went to work for Theranos. Not being a complete idiot, he soon discovered that they didn't even have a working prototype. They were using competitor's devices (Seamons, for example) to do much of their analysis. When the used their own devices, the results were wildly unreliable. His grandson fairly quickly quit, but not before giving the full scoop to his doddering grandfather: There was not even a halfway viable product yet and most of the claims the company were making were exaggerated or false. The idiot grandfather basically patted his grandson on the head and said, "You just run along now and find a career elsewhere. I trust Elizabeth."

And who wouldn't? The board of directors she had assembled was astonishingly solid (with a Stanford and The Hoover Institute connection for most of these). It included. George Shultz, Jim Mattis (who Mr. Flu labeled "Clearly a scumbag" in another discussion...I don't disagree), Henry Kissinger, Sam Nunn, among others. And they had as council one of the most renowned lawyers in the country, David Boies, who was associated with a number of high-profile cases. He had grilled Bill Gates for 24 hours as a hire for the Justice Department in their investigation of Microsoft. He helped overturn California's Prop 9 that outlawed gay marriage, and he represent Algore before the Supreme Court in the 2000 presidential election.

So by all appearances, Theranos was quite obviously a serious company, backed by all these well-known (supposedly) conservative types who vouched for Elizabeth Holmes. But the board was smitten with her rather than having any real grasp of the state of Theranos' technology or potential. (And the scumbag lawyer accepted stock instead of cash for payment, so he had a vested interest.) In fact, it was said that if you had a basic college background in chemistry, you would understand that what Theranos was trying to do was difficult, if not impossible. Theranos claimed they could do dozens of tests from just one little drop of blood. But there are problems with this. Many of the various types of blood test simply require more blood. And with any sample (particularly a small one), some blood is lost just in the taking-and-transferring procedure.

Not that some breakthrough technology wasn't at least theoretically possible. But other, more mature (and better funded), companies had struggled with this for decades. There were some inherent barriers to miniaturization.

But Elizabeth pretended to be a female Steve Jobs, had (apparently...I don't see it) a magnetic personality, and people wanted to see a woman succeed. It is Obama all over again. Although he was in no way qualified to be president, people wanted to see a black president just because he was black. The same with "climate change." People don't care if there is real evidence for it or not. They just like the idea and like being associated with the idea.

And I wouldn't say the writer of this book has pulled too many punches or been too politically correct. But this one paragraph made me laugh out loud. It's a subtle point at first. See if you spot it. He is writing about one of the employees of Chiat/Day, Kate Wolff, who was handling the Theranos account (the same ad agency that did the famous Apple ads, and Elizabeth was aping about everything that Steve Jobs did, include leasing a car every six months so that she could drive around, like Steve did, without a license plate...not sure how that works):



Whu..whu..what? Strong moral compass of a small-town upbringing? I read that paragraph three times to see if I was reading it right. Yes, I was. Later it mentions that Kate's "wife" is a chick named Tracy who was chief resident at Los Angeles County General. At least some of this stuff is good for a chuckle.

Yes. Yes. A thousand times, Yes. That's what I was thinking when reading this. Dumb-asses. I was never impressed with George Shultz. Note that this asshole writer forwarded the idea that Shultz won the cold war. I believe Reagan and John Lehman had something to do with that. Shultz was a bland functionary who probably couldn't tie his shoes without a directive. But supposedly he was loyal and competent in his own way.

And he certainly didn't want to contradict what the "elites" believed.

It will be interesting to see if Shultz pulls out in time to avoid the scandal sticking too much to him. Don't ruin it for me if you know.

And from reading about Elizabeth and Sunny, these two should have a bullet in the head. This wasn't just some investor scheme to defraud Grandma out of a little money, as egregious as that is. When Theranos went "live" with a dozen or so health centers in Tuscon, they were quite literally playing with people's lives. They knew there product didn't work.

At just about after the midpoint of the book, a Wall Street Journal investigative reporter is tipped at the situation at Theranos by an ex-employee. He realizes that Theranos doesn't actually have a working machine that can take just one drop of blood and do dozens of tests on it. In fact, in-store, most of the procedures (via the Theranos brand) still requires drawing blood with a big needle, although they would use the pin-prick process for some things.

This blood is then sent back to the Theranos labs to be analyzed. For certain things, they used off-the-shelf blood analyzers (such as from Seamons), some that have been modified to take the smaller pin-prick samples. Whether they used these modified off-the-shelf analyzers or their own "Edison" invention, the results were quite unreliable.

So this investigative reporter gets clued in on all this and decides to check with doctors whose patients had used the "Wellness" centers in Walgreens and got results back from Theranos. He found multiple cases where real expense and mischief was caused by these inaccurate results. Only (at this stage of the book) careful double-checking by doctors (using the more traditional companies and processes for analyzing blood) saved real harm.

Many patients came back with Theranos blood-tests that signaled that they were deathly ill. One doctor would have used these results to increase the dosage his patient was taking which could have had dire effects on her unborn baby. Luckily he got a second blood test and found that his patient was fine.

The author cites several samples like this. There is also the problem not just of false positives but of false negatives whereby a blood test comes back and say's you're fine when the fact is you really do have something.

So a bullet in the head of both Elizabeth and Sunny would have been too good for them. If you read this book, you'll have zero sympathy for them. They are truly rotten people. Truly rotten.

Another aspect are the employees. Many simply did the smart thing and quit. Many more seemed to stress themselves out. That one Ian guy (he was 67) even committed suicide.

The author is either not honest or simply has a blind spot. But I would speculate that a lot of brains were melting down from trying to assimilate two contrary ideas: "Elizabeth is Evil" and "Elizabeth is a Wunderkind."

A lot of these people could have gotten jobs anywhere. In fact, often they came from (as it turned out for many) better jobs. So by no means was quitting Theranos a career-killer. It would just be one more Silicon Valley dude or dude-ette changing jobs.

That dichotomy (the reality of some of these progressive Wonderkind vs. the actual) seems to me to be at the heart of what a lot of these employees were struggling with. But, as I said, some didn't struggle at all and got the hell out while insisting that their names be scrubbed from any patent, license, or anything to do with the company.

This aspect of liberal dream-shattering, as I said, is totally overlooked by the author.

I agree that at 95 Schultz might have been a senile old fool, but he wasn't 95 when he started investing. I think this shows one the inherent lack of character in the man. Something was wrong with him. Did he see questioning Holmes as questioning himself? Could he not admit making a mistake? Who knows, but I can tell you that if I had been the boy's parents, I would not have attended the 95th birthday party if invited. 

That said, I seem to recall that there was a reconciliation between Schultz and the grandson, before the old man died.  

I totally agree and that's what it seemed like from reading the book. If he was simply smitten with her, I could forgive that. What old fart doesn't like to be fussed over by some young chick? But there's no evidence in the book that they had any kind of relationship like that. But nor does is say that there was not. It's a bit of a black-box regarding this.

Even so, you don't throw your grandchildren under the bus because you've become infatuated by some younger broad. If they reconciled, that's good. I see no indication in this book that the grandson was running off half-cocked. He was (appropriately) aghast at what he saw going on in the company. And, of course, he saw correctly because it all came out.

The way I analyze this is that George Shultz wasn't a moral man, per se. He was a power-broker. Or parsed things in terms of power rather than right-and-wrong. The wrong the Elizabeth was doing was so bloody obvious evening a doddering old man of 95 could see it. But it didn't fit into Shultz's world view. And I think it had less to do with infatuation with her or a Grand Idea and more to do with how he just wanted to be around power.

Schultz's first wife died and he remarried. This observation from Wikepedia about Schultz's wedding reception tends to confirm, in my mind, your observation.

What type of 77-year-old nut spends $4 million, or anything near that amount, for a wedding reception? He clearly did alright as a government employee. 

I had a similar feeling about Rush spending $1,000,000 to have Elton John play at this wedding. What? He couldn't find a nice all-veteran band or something?

This is not a stratospheric level of ego that I can relate to.



This is where most books and authors fall short. Central to the story was How could anyone take her seriously? And the author does delve into this somewhat: They wanted a girl CEO to succeed. They liked the idea of the technology as proposed.

That's all fine and dandy. But nowhere does the author explain why, for instance, Rupert Murdoch gave this cunt $150,000,000 of his money. And this, from all accounts, is a man who tends to be a little careful with his money.

The book says she had the same kind of "reality distortion field" that Steve Jobs had. That's fine. One can run into people who can be, at least momentarily, extremely persuasive. But so much so that you're are writing checks with 8 or more digits on them without asking some reasonable questions?

Left unexplained is why investors didn't even do the most bare bones due-diligence on this company. Certainly it is the nature of venture capitalists to take some risks, even based on hunches (as Murdoch did with Uber). Even so, I would assume they do at least a little research.

Part of the problem (although not an excuse for not doing one's homework) is that somehow this chick got a couple very prominent venture capitalists to sing her praises. And then it just cascaded from there. She had major players on her board of directors. She had the outer forms of legitimacy. But no one (or very few) asked pertinent questions about the technology that she was pursuing.

I think the Theranos story gives an indication as to how the KFF fraud could happen. A couple of "authoritative" voices started the fraud rolling and the rest assumed that everything had to be fine. This is not uncommon in life. 

This Wiki bio of Holmes gives a good idea of how this might happen. I believe her advisor at Stanford is the original dupe, or conman, who enabled the enormous fraud.