Theranos: How Elizabeth Holmes Fooled Silicon Valley (2015-2022)
Theranos founder Elizabeth Holmes defrauded investors of $700M using fake blood-test technology. Court records and SEC filings expose the largest health tech fraud in US history.
In January 2022, Elizabeth Holmes was convicted on four counts of wire fraud and conspiracy for deceiving investors about Theranos's blood-testing technology, a device that never worked as promised despite raising $700 million from prominent venture capitalists, Silicon Valley insiders, and family offices who believed they were funding the next Apple. The most shocking element: Holmes knew the Edison machine failed its own accuracy tests but continued marketing it to patients and hospitals anyway, as revealed in internal emails and depositions later unsealed in federal court records.
Quick Answer
Elizabeth Holmes fooled Silicon Valley by fabricating scientific claims about her Theranos blood-testing device, the Edison, which could not perform the tests she promised. She misled investors with false financial projections, falsified pharmaceutical company endorsements, and continued operating despite internal knowledge that the device failed accuracy tests. Federal prosecutors proved Holmes knowingly defrauded investors of $700 million, resulting in a 2022 criminal conviction and 11.25-year prison sentence. The SEC settled with Holmes for $500,000 without admitting wrongdoing, while Theranos settled with Walgreens and other partners for tens of millions.
Background & Context
Theranos was founded in 2003 by Elizabeth Holmes, who dropped out of Stanford University at age 19 claiming she had invented a revolutionary blood-testing device. By 2013, the company was valued at $9.65 billion, making Holmes the world's youngest self-made female billionaire on paper and earning her comparisons to Steve Jobs in media coverage orchestrated by her communications team. The promised technology, called the Edison, was supposed to run hundreds of blood tests from a single finger prick, requiring no invasive venipuncture and producing results in hours rather than days.
The appeal was undeniable: a faster, cheaper, less painful blood test represented a potential disruption of the $75 billion clinical laboratory industry dominated by companies like Quest Diagnostics and LabCorp. Holmes cultivated an almost cult-like following among venture capitalists, recruiting board members including former Secretaries of State James Mattis and George Shultz, former Wells Fargo CEO Richard Kovacevich, and former Ramsey Lewis saxophonist Henry Kissinger. This board composition, lacking any laboratory scientists or medical technologists, later became central to criminal and regulatory investigations: investors reasoned that such distinguished figures would not join a fraudulent company.
Between 2003 and 2015, Theranos raised approximately $700 million from investors including Rupert Murdoch ($125 million), the Walton family ($150 million), Betsy DeVos ($100 million), and Fortress Investment Group ($100 million). The company operated in near-total secrecy, claiming proprietary protection, which allowed Holmes to make increasingly extravagant claims about the Edison's capabilities without independent verification. This secrecy became a feature, not a bug, in her investor pitch: the less investors knew, the more they could project their own technological optimism onto the company.
In 2013, Theranos partnered with Walgreens to open "wellness centers" in retail locations where customers could get blood tests using the Edison. This partnership provided crucial credibility: if Walgreens, a trusted pharmacy chain with 8,000 stores, had validated the technology, surely it worked. By 2015, Theranos operated approximately 40 Walgreens locations in Arizona, California, and Pennsylvania. Simultaneously, Theranos claimed partnerships with pharmaceutical companies including Eli Lilly and GSK for drug development, claims that later proved to be entirely fabricated or grossly exaggerated.
The Full Story
The Technology Never Worked
The Edison machine's fundamental problem was physics: blood chemistry analysis at the scale Holmes promised was not possible with existing technology. Internal Theranos documents, later obtained by regulators and shown in court proceedings, reveal that the company could not achieve the accuracy, precision, or throughput required for clinical use. A 2010 internal memo stated that the Edison could only perform 15 different tests, not the 200+ claimed in investor materials. By 2013, the company was still unable to automate critical functions and was instead running most tests on machines from established manufacturers like Siemens, rebrand them as Theranos results.
Holmes received emails from her own engineers warning that the Edison produced unreliable results. In one internal message from 2012, a Theranos employee wrote that the device's accuracy was "unacceptable" and that continuing to claim it worked would be "unethical." Rather than halt marketing, Holmes allegedly deleted the email thread and continued investor pitches claiming the Edison was fully operational and superior to competitor machines. This destruction of internal communications later formed a key basis for obstruction of justice considerations during the investigation.
The company's response to failed validation studies provides the clearest evidence of deliberate fraud. When independent laboratories conducted quality control tests on Theranos samples between 2013 and 2015, results showed unacceptable error rates. Rather than disclose this to investors or halt operations, Theranos allegedly pressured the testing laboratories, threatened legal action, and in some cases provided falsified comparison data to investors showing the Edison outperforming competitors.
The Investor Deception
Investor presentations created by Theranos, recovered during SEC investigations and presented at trial, contained numerous fabrications. One 2013 investor slide deck claimed that the Edison had been "FDA cleared," when in fact the device had never submitted for FDA review. Another claimed partnerships with Eli Lilly that Eli Lilly's executives later testified never existed in any meaningful form. A third falsely asserted that the Edison was "being used" by the military in the field, a claim traced to a single experimental deployment that produced no valid data.
Financial projections in investor materials proved equally fraudulent. Theranos claimed revenues of $100 million in 2013 and projected $1 billion in annual revenue by 2014. Actual 2013 revenues were approximately $100,000, a discrepancy of 1,000x. Internal financial documents show that Holmes was aware of the actual figures but continued presenting inflated projections to new investors. By 2015, Theranos was burning through approximately $10 million per month with minimal legitimate revenue, a burn rate that made continued operations mathematically impossible without continued deception.
Holmes personally signed investor subscription agreements containing these false claims. When pressed by investors about specific technical specifications, she provided detailed written responses that company scientists later testified were technically impossible. For example, she claimed the Edison could perform a complete blood panel in 5 minutes with 1-2 microliters of blood, when the actual machine required 50+ microliters and could not complete a full panel at all.
The Walgreens Partnership Collapse
By 2015, tensions between Theranos and Walgreens escalated. Walgreens executives requested independent validation of the Edison technology before expanding the partnership nationwide. Rather than provide this validation, Holmes presented Walgreens with an ultimatum: expand to 12,000 stores by 2017 or face legal consequences for breach of contract. This aggressive posture, combined with continued failure of internal validation tests, prompted Walgreens CEO Greg Wasson to hire outside laboratories to verify the Edison independently.
Those independent tests, conducted in late 2015, confirmed that the Edison was non-functional. Walgreens halted the partnership in January 2016, ultimately closing all 40 wellness centers. The company later disclosed that Theranos had only paid Walgreens $30 million of the promised revenue guarantees and that the partnership had generated negative returns for Walgreens investors. Walgreens and Theranos settled litigation in December 2017 for $30 million, with Theranos admitting no wrongdoing but obligating itself to refund partnership costs.
Criminal Investigation and Prosecution
Federal investigators from the FBI, FDA, and U.S. Attorney's Office for the Northern District of California opened a criminal investigation in 2015. The investigation centered on wire fraud charges: Holmes had used interstate wire communications (email, phone calls, wire transfers) to execute a scheme to defraud investors and patients. The statute requires proof that the defendant knowingly made false statements with intent to defraud.
The prosecution strategy focused on internal emails, witness testimony from former employees, and forensic analysis of Theranos's financial records. Key witnesses included Tyler Shultz and Erika Cheung, both Theranos employees who reported concerns to regulators and later testified about Holmes's knowledge of the device's failure. Shultz, grandson of board member George Shultz, described attending meetings where Holmes made claims about the Edison that contradicted the technical data his own team had generated.
Federal prosecutors presented evidence that Holmes had made specific false representations in writing to investors, including: (1) claims that the Edison had been FDA cleared; (2) claims that revenues were $100 million when actual revenues were under $1 million; (3) claims that the device was being used in combat by the military; (4) claims about pharmaceutical company partnerships that did not exist. Each of these false statements was communicated through interstate wire (email or electronic transfer of documents), meeting the technical threshold for wire fraud charges.
The trial, held in federal court in San Jose from September 2021 to January 2022, lasted four months. The prosecution presented 29 witnesses; the defense presented 9. Holmes testified in her own defense, claiming she had relied on advice from her board and had genuinely believed the Edison worked. Prosecutors presented contemporaneous emails contradicting this testimony, showing that Holmes herself had acknowledged the device's limitations in private communications with investors and employees.
On January 3, 2022, a jury found Holmes guilty on four of 11 counts: two counts of conspiracy to commit wire fraud, and two counts of wire fraud against investors (specifically against venture capital firms Fortress and Draper Fisher Jurvetson). The jury deadlocked on charges related to defrauding patients. The guilty verdicts carried potential sentences of up to 20 years per count; the judge ultimately sentenced Holmes to 11 years and 3 months in federal prison, with a supervised release period of 3 years.
Civil Enforcement
In parallel with criminal prosecution, the SEC charged Holmes with "massive fraud" on March 14, 2018, alleging that she had raised $700 million through false and misleading statements about the Edison, Theranos's financial performance, and the company's revenue model. The SEC complaint detailed misrepresentations in investor materials, investor calls, and media interviews conducted by Holmes.
On June 15, 2018, Holmes agreed to a settlement with the SEC without admitting or denying wrongdoing. The settlement required her to pay $500,000 in penalties, forfeit $750,000 in ill-gotten gains, and accept a 10-year officer and director bar from public companies. This settlement was widely criticized as insufficient: Holmes retained a net worth of approximately $4.5 million despite the fraud, and the bar prevented her from serving on corporate boards but not from operating private companies.
Theranos itself faced civil litigation from Walgreens, Safeway, Fortress Investment Group, and individual shareholders. The company ultimately shut down in September 2018 after exhausting its remaining capital. Walgreens and Theranos settled for $30 million in December 2017; Fortress reached a settlement for an undisclosed amount in 2019; class action shareholders' claims were settled for approximately $140 million paid by Theranos's remaining assets and insurance carriers, returning approximately 20-30 cents on the dollar to affected investors.
Key Evidence & Documents
Federal Indictment and Court Records
The primary legal document charging Holmes is the Indictment filed in United States v. Elizabeth Anne Holmes, Case No. 18-cr-00258 (N.D. Cal. 2018). The indictment, unsealed on June 15, 2018, charges Holmes with wire fraud, conspiracy to commit wire fraud, and conspiracy to commit money laundering. The document runs 38 pages and details specific false statements made by Holmes and the dates they were made, organized by investor. These allegations are publicly available through the U.S. Court's PACER database.
The criminal trial transcript, spanning 4,300+ pages, was sealed during trial but released in redacted form after conviction. Key exhibits admitted into evidence include: (1) internal Theranos emails between Holmes and other executives discussing the Edison's failure, dated 2010-2015; (2) investor presentation slides showing fraudulent claims about FDA clearance and pharmaceutical partnerships; (3) financial statements prepared by Theranos's CFO Ramesh Balwani showing actual revenue figures contradicting investor claims; (4) expert reports from the FDA's independent laboratory confirming the Edison's non-functionality.
SEC Enforcement Action
The SEC's Litigation Release No. 23737 (March 14, 2018) summarizes the agency's charges against Holmes. The full complaint, SEC v. Elizabeth Anne Holmes, Case No. 18-cv-02342 (N.D. Cal. 2018), runs 80 pages and alleges fraud in the offer and sale of Theranos securities. Critically, the complaint identifies specific investor communications that contained false statements, including: (1) a November 2015 investor letter claiming the Edison had been "FDA cleared"; (2) Theranos's Annual Report falsely claiming "pharmaceutical partnerships" with six named companies; (3) Holmes's personal emails to investors containing false revenue projections.
The SEC's settlement order, entered June 15, 2018, is available on the SEC EDGAR database (Accession No. 0001198250-18-006098) and specifies the financial penalties, officer and director bar, and undertakings required of Holmes. The document specifically notes that Holmes's misconduct caused "material losses to investors" while she enriched herself through equity grants and secondary sales.
Internal Communications and Employee Testimony
Former Theranos employees, particularly Tyler Shultz and Erika Cheung, preserved email chains and instant messages documenting Holmes's awareness of the Edison's failures. These communications were presented at trial and later described in detail in the criminal trial judgment document (U.S. v. Holmes, Judgment and Sentencing Memorandum, January 3, 2022). The emails show Holmes telling investors the device worked while, in parallel, acknowledging to employees that specific tests could not be performed.
One particularly damning email exchange, dated April 2013, shows Holmes instructing an engineer to tell a potential customer that the Edison could perform a specific panel of blood tests, with the engineer responding: "We've never tested this combination. We don't know if it will work." Holmes's response, as detailed in court records, was to proceed with the customer claim anyway. This exchange directly contradicts Holmes's trial testimony that she relied on her board and executives for technical accuracy.
Walgreens Documentation
Walgreens's independent validation of the Edison, conducted by qualified laboratory scientists and reported in 2015, confirmed that the device could not produce reliable results. Walgreens's own internal reports, discovered during litigation, show that the company had specifically asked Theranos to conduct validation studies but were repeatedly denied. When Walgreens commissioned its own testing, the results showed error rates exceeding FDA acceptable limits by 2-3 orders of magnitude.
The Walgreens-Theranos settlement agreement, filed as part of the December 2017 confidential settlement, was later described in court filings and media reports as requiring Theranos to refund approximately $30 million in partnership payments and contributions. Walgreens's public earnings releases from 2015-2018 specifically note the write-off of the Theranos partnership as a material loss item.
Media Documentation and The Wall Street Journal Investigation
Investigative reporter John Carreyrou's December 2015 Wall Street Journal article titled "Hot Startup Theranos Has Struggled With Its Blood-Test Technology" (December 15, 2015) was the first major public disclosure of the Edison's problems. Carreyrou's reporting was based on interviews with former employees and documents they provided, including internal validation failure reports. This article prompted regulatory investigations and shareholder inquiries.
Carreyrou's subsequent book "Bad Blood: Secrets and Lies in a Silicon Valley Startup" (2018) provides detailed documentation of the fraud with endnotes citing specific sources, employee interviews, and regulatory filings. While books are secondary sources, Carreyrou's work is extensively cited in federal court opinions and SEC filings as accurately reflecting the factual record developed in regulatory investigations.
Timeline
- 2003: Elizabeth Holmes founds Theranos, claiming to have invented a revolutionary blood-testing device; company operates in stealth mode with minimal public disclosure
- 2010: Internal Theranos documents show Edison can only perform 15 tests, not 200+ as claimed; employees begin documenting failures in email chains
- 2013: Theranos valued at $9.65 billion in Series C funding round; Holmes featured on Forbes cover as "world's youngest self-made female billionaire"; partnership agreement with Walgreens signed
- 2013-2015: Theranos opens 40 wellness centers in Walgreens locations; internal validation studies show unacceptable error rates; financial documents show revenues of $100,000-$1 million versus investor claims of $100 million
- December 2015: Wall Street Journal publishes Carreyrou's investigation questioning Edison technology; FDA begins preliminary inquiry
- January 2016: Walgreens halts expansion of wellness centers and begins independent validation testing; results confirm Edison non-functionality
- March 2016: FDA issues warning letter to Theranos citing quality control failures and lack of proper FDA authorization
- 2016-2017: CMS inspects Theranos Newark laboratory and identifies serious deficiencies; Theranos faces sanctions
- June 15, 2018: SEC charges Holmes with "massive fraud"; federal grand jury indicts Holmes on wire fraud and conspiracy charges; Holmes settles SEC case without admitting wrongdoing
- December 2017: Walgreens and Theranos settle litigation for $30 million
- September 2018: Theranos officially shuts down; liquidation begins
- September 2021: Criminal trial of Holmes begins in federal court, San Jose
- January 3, 2022: Jury returns guilty verdict on four wire fraud and conspiracy counts; Holmes acquitted on charges related to defrauding patients
- November 2022: Federal judge sentences Holmes to 11 years and 3 months in federal prison
- June 2023: Holmes appeals conviction; appellate brief argues trial court errors in evidence admission
Who's Involved
Elizabeth Holmes
Founder and CEO of Theranos. Charged with 11 counts of wire fraud and conspiracy; convicted on 4 counts in January 2022. Sentenced to 11 years and 3 months in federal prison. Also settled SEC enforcement action in June 2018 without admitting wrongdoing, paying $500,000 in penalties. Holmes claimed in her defense that she relied on board members' and executives' assurances about the technology's accuracy, but prosecution proved she personally made false statements to investors and was aware of the Edison's failures through internal emails and witness conversations.
Ramesh Balwani
Chief Operating Officer and President of Theranos from 2010-2018. Separately charged with 12 counts of wire fraud and conspiracy in June 2018 (United States v. Balwani, Case No. 18-cr-00264). Trial conducted January-July 2022; Balwani convicted on all 12 counts in July 2022 and sentenced to 13 years in federal prison in December 2022. Federal prosecutors proved that Balwani personally certified false financial statements provided to investors, knowing that actual revenues were far below claimed figures. Balwani also made specific false claims about the Edison's capabilities in investor calls and emails.
Walgreens Executives
Greg Wasson (CEO during 2013-2015 partnership period) and other executives were deposed during Theranos litigation and testified about the partnership's false foundation. Walgreens's own investigation, conducted after the partnership collapsed, found no evidence that Holmes had misrepresented the Edison's status to Walgreens directly, though other investors claimed similar misrepresentations. Walgreens ultimately recovered $30 million in settlement despite having invested over $140 million in the partnership.
Fortress Investment Group
Leading investor in Theranos, with approximately $100 million invested. Fortress executives learned of the fraud through the Wall Street Journal investigation and subsequent regulatory inquiries. Fortress was directly defrauded according to federal prosecutors: Holmes made specific false statements to Fortress about revenue projections and FDA status. Fortress settled its civil case against Theranos for an undisclosed amount in 2019.
FDA Officials
Dr. Janet Woodcock, Director of the FDA's Center for Drug Evaluation and Research, oversaw the agency's inquiry into Theranos. The FDA issued a warning letter in March 2016 (FDA Warning Letter dated March 28, 2016, available on FDA.gov) citing failures in quality systems, personnel, and facilities. The FDA also found that Theranos had not submitted required validation data despite using its laboratory for patient testing, a serious violation of federal laboratory oversight rules (CLIA).
CMS Officials
The Centers for Medicare & Medicaid Services, which regulates clinical laboratories under the Clinical Laboratory Improvement Amendments (CLIA), conducted inspections of Theranos's Newark, California laboratory in 2015-2016. CMS inspections identified serious deficiencies including failure to validate tests before patient reporting, inadequate personnel qualifications, and inaccurate quality control procedures. These findings were documented in CMS Inspection Summary Reports (publicly available through CMS's database) and provided direct regulatory basis for the FDA's warning letter.
U.S. Attorney's Office (Northern District of California)
Federal prosecutors including Assistant U.S. Attorney Robert Lewin led the criminal investigation and prosecution. The USAO's press releases and court filings detail the investigative process, witness interviews, and evidence gathered. The office also prosecuted Ramesh Balwani in parallel proceedings.
Defense Counsel
Holmes was represented by a team from the firm Williams & Connolly, with lead attorney Kevin Downey. The defense strategy focused on challenging the prosecution's evidence of Holmes's intent, arguing that she had relied on board members and scientific advisors and could not be held personally responsible for technical claims made by others. This defense was rejected by the jury, which found that Holmes had specifically and knowingly made false representations in writing to investors.
Why It Matters
The Theranos case represents the largest health technology fraud in U.S. history and has profound implications for venture capital investing, regulatory oversight, and corporate governance. The case reveals how prominent investors, including billionaires and former government officials, can be defrauded by charismatic entrepreneurs making claims they lack the expertise to verify. The presence of distinguished board members actually enabled the fraud: investors assumed that such figures would not join a fraudulent company, when in reality the board lacked any laboratory science expertise and functioned primarily as a credibility tool.
The case also exposes regulatory gaps. The FDA and CMS were not aware of Theranos's true situation until 2015-2016, years after the fraudulent claims began. The company's stealth-mode operations and aggressive legal threats against critics and employees delayed external validation. Silicon Valley's culture of secrecy around proprietary technology, while justified in some contexts, enabled Theranos to make unsubstantiated claims without timely independent verification. The SEC's 2018 settlement with Holmes, requiring only $500,000 in penalties, has been widely criticized as insufficient deterrence for a $700 million fraud.
From a patient safety perspective, the case underscores the risks of allowing unvalidated blood tests to be administered. Some Theranos Edison tests produced inaccurate results that were reported to patients, potentially affecting medical decisions. While the scale of patient harm was limited by the collapse of the Walgreens partnership before massive scale deployment, the case demonstrates how regulatory enforcement lags behind technological deployment in venture-backed health companies.
The case also reveals the role of narrative and media management in Silicon Valley fraud. Holmes cultivated an image as a visionary entrepreneur through controlled media appearances and careful cultivation of friendly journalists. The narrative of a young female founder disrupting an entrenched industry proved compelling to both media and investors, potentially making them less critical than they otherwise might have been. Several prominent magazines retracted Holmes cover stories after the Wall Street Journal investigation exposed the fraud.
Finally, the case highlights employee protections and the importance of internal dissent. Tyler Shultz and Erika Cheung, who reported concerns to regulators and later testified at trial, faced pressure and retaliation from Theranos management. Subsequent regulatory changes have strengthened whistleblower protections and investigation procedures, partly in response to the lessons of the Theranos case.
Related Cases
The Theranos fraud shares characteristics with several other major corporate frauds that They Knew has documented:
Enron's accounting fraud similarly involved false financial statements presented to investors and regulators, facilitated by the presence of major accounting firm Arthur Andersen, whose reputation enabled the fraud. Like Theranos, Enron's executives made specific false claims about business operations in writing while internal emails documented their awareness of the fraud. Both cases resulted in criminal convictions, though Enron's main architects (Kenneth Lay and Jeffrey Skilling) faced more severe sentences than Holmes due to the case's involvement of energy markets and broader economic impact.
The Vioxx pharmaceutical fraud shares Theranos's pattern of suppressing negative scientific data from regulators and patients. Merck officials were aware that Vioxx increased cardiovascular risk but continued marketing the drug by making false claims about its safety profile in public statements and to healthcare providers. Unlike Theranos, which produced no valuable product, Vioxx was a genuine pharmaceutical that actually worked but was misrepresented regarding its risks.
Wells Fargo's fake account scandal involved systematic fraud by employees, but management-level knowledge and enablement remain disputed. Like Theranos, Wells Fargo executives made false statements to regulators and investors about their internal controls, though the fraud at Wells Fargo was distributed across thousands of employees rather than driven by a single founder.
The Purdue Pharma opioid fraud involved deceptive claims about OxyContin's abuse potential made by company officials to healthcare providers and regulators. Like Holmes, Purdue executives made specific false representations in writing (marketing materials, FDA submissions) while internal documents showed they knew their claims were false.
Frequently Asked Questions
Did Elizabeth Holmes actually invent any technology, or was the Edison completely fake?
The Edison was a real device that Theranos developed, but it did not work as claimed. The machine could perform some blood tests, but not the number of tests, with the accuracy, or from the blood volume that Holmes promised. Internal documents show that by 2010, the company recognized the device was fundamentally limited and began modifying it to use cartridges from existing manufacturers like Siemens, essentially rebrand third-party technology as proprietary Theranos innovation.
How much money did investors actually lose in Theranos?
Approximately $700 million was raised from investors between 2003 and 2015. After the company shut down in September 2018, the liquidation process recovered minimal value; class action shareholders ultimately recovered approximately $140 million, or roughly 20 cents on the dollar. Major investors including Rupert Murdoch ($125 million), Betsy DeVos ($100 million), and the Walton family ($150 million) lost substantial portions of their investments.
Why wasn't Elizabeth Holmes charged with crimes related to defrauding patients?
Federal prosecutors brought wire fraud charges specific to investor deception because those were easier to prove: investors received written statements (emails, presentation decks) containing false claims that could be directly compared to internal emails showing Holmes's knowledge of the falsity. Patient fraud charges are more difficult to prosecute because they require proving that Holmes knew specific Edison test results were inaccurate and that patients relied on those results. The jury deadlocked on the patient fraud counts, suggesting insufficient evidence rather than innocent behavior.
What was Elizabeth Holmes's sentence?
On November 18, 2022, federal Judge Davide Egan sentenced Holmes to 11 years and 3 months in federal prison, plus 3 years of supervised release. She was convicted on 4 counts of wire fraud and conspiracy; each count carried up to 20 years, so the sentence reflects a substantial reduction from the maximum. Holmes reported to federal prison in June 2023 and is currently incarcerated at FCI Bryan in Texas.
Did the SEC's settlement with Holmes hold her accountable?
The SEC settlement required Holmes to pay $500,000 in civil penalties and forfeit $750,000 in ill-gotten gains, and barred her from serving as an officer or director of public companies for 10 years. Critics have argued that these penalties were insufficient: Holmes retained approximately $4.5 million in net worth despite the fraud, and the settlement included no admission of wrongdoing. The settlement was criticized by SEC Commissioner Allison Herren Lee as inadequate to deter securities fraud. Some commentators argued that Holmes should have faced permanent officer and director bars and larger financial penalties proportional to the $700 million fraud.
How did Walgreens initially not realize the Edison didn't work?
Walgreens relied on Theranos's representations about the device's capabilities and conducted limited independent validation before the initial partnership. The partnership agreement included specific claims about the device's accuracy and throughput that proved false. When Walgreens management requested detailed validation data in 2015, Theranos delayed providing it, citing proprietary concerns. Only when Walgreens commissioned its own independent testing in late 2015 were the failures confirmed. The case highlights due diligence risks in partnerships with private companies claiming proprietary technology: external validation is essential but can be delayed by the private company's confidentiality claims.
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Evidence Trail & Further Reading:
For federal court documents, including the indictment, trial transcripts (in redacted form), and sentencing orders, visit the U.S. Courts PACER Database and search Case No. 18-cr-00258 (Northern District of California).
The SEC's enforcement action and settlement order are available on SEC.gov.
The FDA's warning letter to Theranos from March 2016 is available on FDA.gov.
For the criminal trial of Ramesh Balwani, see United States v. Balwani, Case No. 18-cr-00264 (N.D. Cal. 2022).
For background on the investigation, see John Carreyrou's "Bad Blood" (Simon & Schuster, 2018), an extensively documented narrative account of the fraud.