
Theranos Is Subject of Criminal Probe by U.S - fmihaila
http://www.wsj.com/articles/theranos-is-subject-of-criminal-probe-by-u-s-1461019055
======
Animats
Theranos isn't even at the leading edge of blood testing. There are now hand-
held FDA-approved immediate blood testing devices.[1][2][3] Most of these
require smaller amounts of blood than a remote lab, although more than a drop.
Theranos is still in the send-it-to-the-lab-and-wait era. Even if Theranos'
technology eventually works, it may be obsolete before it ships.

[1] [https://www.abbottpointofcare.com/products-services/istat-
ha...](https://www.abbottpointofcare.com/products-services/istat-handheld) [2]
[http://www.epocal.com/system.html](http://www.epocal.com/system.html) [3]
[http://www.pixcell-medical.com/products/in-the-pipeline](http://www.pixcell-
medical.com/products/in-the-pipeline)

~~~
nextos
The healthcare industry is quite inefficient at allocating money to things
that are needed _and_ have a decent chance of working.

For example, in the field of oncology there's very little money put into cheap
accurate early screening. And an almost obsessive pour of money into trying to
understand mid-to-late stage cancers. Even James Watson has criticized this.

It's a sad situation, because we now know early pre-clinical tumours leave a
trace of circulating DNA in blood. And it seems like a darn important and
doable inference problem to distinguish cancer from control patients.

~~~
mattzito
> For example, in the field of oncology there's very little money put into
> cheap accurate early screening. And an almost obsessive pour of money into
> trying to understand mid-to-late stage cancers. Even James Watson has
> criticized this.

I'm in no way an expert, but isn't part of that related to increasing evidence
that early detection of a tumor isn't necessarily a benefit? I recall reading
many tumors stop or grow so slowly that treating them has more of a downside
than an upside. This is one of the reasons why early breast cancer screenings
aren't a benefit.

~~~
Grishnakh
It depends on the type of cancer. For instance, a surprisingly large portion
of the population likely has thyroid cancer and doesn't know it, and many have
it and it isn't treated. It's a very slow-growing cancer usually, and just not
worth bothering with until the tumor gets large enough to cause real problems
due to its size (then they usually just cut out part of your thyroid, leaving
the other part to continue working as normal, or at worst they cut out the
whole thyroid and you have to take a Synthroid pill every day).

Other cancers, like pancreatic cancer, are very aggressive so the earlier you
catch them the better.

I would think early screening would discriminate by type of cancer so you can
see if you have something that needs immediate attention.

~~~
thaumasiotes
> a surprisingly large portion of the population likely has thyroid cancer and
> doesn't know it, and many have it and it isn't treated

A larger portion of the population has prostate cancer. You probably have it
right now.

My mom likes to tell a story from one of her classes at medical school. The
teacher had a bunch of slides of prostate material; you had to identify which
prostate was cancerous. There were so many questions ("this one looks
cancerous. Is this it?") from the class that he was forced to announce "look,
there's a bit of cancer in everyone's prostate. Find the one with an obvious
problem".

It's slow, but it will get you if nothing else does first. :/

~~~
tamana
Uh, why didn't she teach the known diagnostic criteria? I don't want my
oncologist winging it based on what looks intuitively obvious on a slide.

~~~
thaumasiotes
> Uh, why didn't she teach the known diagnostic criteria?

Generally you would do this _before_ having the lab in which students are
expected to use the knowledge. It's kind of pointless the other way around. In
other words, that doesn't help with the problem. Knowing the official
diagnostic criteria is often not helpful for diagnosing a condition.

Your oncologist will be winging it based on their past experience.

As an addendum, here is a description of the process of diagnosing prostate
cancer from a biopsy, from
[http://www.cancer.org/cancer/prostatecancer/detailedguide/pr...](http://www.cancer.org/cancer/prostatecancer/detailedguide/prostate-
cancer-diagnosis) :

> Prostate cancers are graded according to the Gleason system. This system
> assigns a Gleason grade based on how much the cancer looks like normal
> prostate tissue.

> If the cancer looks a lot like normal prostate tissue, a grade of 1 is
> assigned.

> If the cancer looks very abnormal, it is given a grade of 5.

> Grades 2 through 4 have features in between these extremes.

> Most cancers are grade 3 or higher, and grades 1 and 2 are not often used.

> The Gleason score can be between 2 and 10, but most are at least a 6. The
> higher the Gleason score, the more likely it is that the cancer will grow
> and spread quickly.

> Since prostate cancers often have areas with different grades, a grade is
> assigned to the 2 areas that make up most of the cancer. These 2 grades are
> added to yield the Gleason score (also called the Gleason sum).

Note that this explicitly contemplates, at the low end of the scale, that it's
difficult to distinguish between normal prostate cells and cancerous prostate
cells.

Grades 1 and 2 are not often used because biopsies, a fairly invasive process,
tend to be taken from men who are already suspected to have higher-than-
average levels of cancer. If we took biopsies from a representative population
sample, grades 1 and 2 would feature prominently in the results. That is the
point of the med school anecdote -- even in samples artifically chosen to
highlight the difference between a normal prostate gland and one with a
serious problem, you just can't keep low-grade cancers out of the "normal"
samples.

The point of the lab exercise is to give students practice grading cancers,
and recognizing the difference between serious prostate cancer and run-of-the-
mill prostate cancer. Only experience will help with this, because the
diagnostic criteria are "prostate cancer runs the full continuum".

It is _the norm_ in medicine that a question of the form "does this patient
have this condition" has no truly objective answer. Surgery is well
understood; internal medicine is not.

------
supernova87a
I think the reason we (maybe secretly) take so much satisfaction /
schadenfreude at this story is that someone who was so hyped and the darling
of Silicon Valley got so much funding and attention. While others who toil
away on good ideas, without nearly so many connections and silver spoons,
struggle to even get 1 minute of air time with the kind of funders and backers
that she got.

That, plus seeing the cluelessness and herd mentality of the people who are
supposedly the experts at judging tech potential in this area.

~~~
Mz
Or maybe some folks feel relieved to have their mental models for actual
reality validated. Folks who thought it smelled like vaporware at best, or BS
at worst, may not be engaging in schadenfreude so much as "Ha! I knew it! I'm
not crazy!"

It is possible to have not ugly reasons for finding satisfaction in seeing how
this is turning out.

~~~
SilasX
Sufficiently advanced satisfaction at vindication of your worldmodel due to
misfortune is indistinguishable from schafenfreude.

~~~
nickpsecurity
Not at all. One is empirical where you hone the accuracy of your world model
while being able to prove it to others if necessary. It can even benefit their
own development and actions, but doesn't have to. An emotionless individual
can also possess this trait. Even early robots in A.I. that self-adjusted had
a form of this.

Whereas, schafenfreude is an emotional response tied to others success or
failures. Two different things with one being clearly superior unless one is
pursuing emotional highs and lows.

------
Fede_V
Man, the shoe fell really, really quickly. Also - huge congratulations to the
reporting team of the WSJ, that did an incredible job of unconvering this
story back when Theranos was still considered a golden goose. John Carreyrou
in particular did some exceptional reporting.

~~~
cft
Uncovering? They pissed off (justly) somebody very important, probably in the
military, and they _used_ WSJ to orchestrate this.

~~~
FireBeyond
No, the other way around. They were all set to get it in at a high level into
the military, when some pesky medical lower ranking officer said, hey, doesn't
this need FDA approval? Theranos tried to squelch that, but to no avail.

~~~
ben_jones
Is it possible both of you are right?

~~~
vonklaus
> Is it possible both of [them] are right?

Absolutely. However, they give 0 attribution to their baseless assertions. I
follow Theranos enough where neither of these statements are so obviously
common knowledge that they don't need to reference something at least in
passing.

Mostly, I am curious how this ended up happening.

~~~
FireBeyond
Attribution: [http://www.fiercemedicaldevices.com/story/theranos-asked-
mil...](http://www.fiercemedicaldevices.com/story/theranos-asked-military-
general-help-tamping-down-misinformation-dod/2015-12-02)

"But things didn't shake out that way. A military regulatory expert contacted
the FDA with concerns about Theranos' technology without telling the company
first, stalling the project and prompting Holmes to reach out to Mattis for
help.

"I would very much appreciate your help in getting this information corrected
with the regulatory agencies," Holmes wrote in an email to Mattis, saying that
since the "misinformation came from within DOD, it would be "invaluable" to
have the information "formally corrected by the right people in the DOD."

------
blakeross
Here's a television parody I wrote about Theranos that ends right where this
story begins... [http://pricks.com](http://pricks.com)

~~~
mrdmnd
I just read a 32 page script and now I want you to write major television
shows. Is that your actual job? This is really good.

~~~
blakeross
Thank you! Currently it's a hobby; my background is in tech. This is the
second script I've written. The first was a fake premiere for S3 of Silicon
Valley ([http://bit.ly/1LOZZpT](http://bit.ly/1LOZZpT)).

~~~
ryanwaggoner
Just wanted to say that I found this so funny when I read it a few months ago
(if I remember correctly). You perfectly captured the characters and I could
see them saying those exact words.

I'm curious what it takes to break into the world of writing for existing TV
shows. Can you sell scripts written on spec for shows like this?

~~~
blakeross
I appreciate it.

You can't sell a script for a show to the show itself. In fact, the staff
isn't even allowed to read it for legal reasons (if they happen to conceive a
similar idea, they're worried you'll sue them later).

However, an agent could shop your script to other shows to demonstrate that
you're able to integrate well into a world you didn't create. It's rather
strange: If you want to write for Breaking Bad, you should write a script for
The Wire.

------
seehafer
When I first read this headline I was thinking "Uh oh, Theranos must have
_very_ badly handled its interactions with FDA". But this is apparently the
SEC investigating the company.

Does anyone know how often the SEC investigates a private company with a
product that's still essentially in beta testing?

~~~
Animats
The SEC is getting more aggressive about regulating large pseudo-public
companies that haven't had a formal IPO, but which have many "qualified"
investors.[1] Mutual funds now invest in these companies, which means ordinary
investors are at risk.

The SEC chair on "unicorns": _" It is axiomatic that all private and public
securities transactions, no matter the sophistication of the parties, must be
free from fraud. Exchange Act Section 10(b) and Rule 10b-5 apply to all
companies and we must be vigorous in ferreting out and punishing wrongdoers
wherever they operate. In the unicorn context, there is a worry that the tail
may wag the horn, so to speak, on valuation disclosures. The concern is
whether the prestige associated with reaching a sky high valuation fast drives
companies to try to appear more valuable than they actually are."_

That last sentence sounds a lot like Theranos.

[1] [https://www.sec.gov/news/speech/chair-white-silicon-
valley-i...](https://www.sec.gov/news/speech/chair-white-silicon-valley-
initiative-3-31-16.html)

~~~
trhway
"tough on Unicorns" :) The plight of Theranos has just become much worse as
they will probably be made an example of.

~~~
ben_jones
My money is still on the CEO and board of investors bailing out on golden
parachutes to whatever their next horrendous executive appointment will be.

~~~
rconti
Maybe for the board, but not the CEO -- she's not a hired gun, she was the
founder.

------
dcgudeman
_The news release issued when the Walgreens deal was announced said consumers
“will be able to access less invasive and more affordable clinician-directed
lab testing, from a blood sample as small as a few drops, or 1 /1,000 the size
of a typical blood draw.”

As part of the deal, Walgreens has invested at least $50 million into
Theranos, according to people familiar with the matter._

It really blows my mind that Theranos was able to get this far with what
sounds like technology that simply didn't work. Did any investors simply try
the test(s) before investing vast sums of money?

~~~
throwaway_xx9
The Walgreen's angle is much bigger. From what I've read online, they invested
$50 million and built out all those in-store clinics based on Theranos. Add in
the retail space and construction costs, and you're looking at real money.

------
caminante
non-paywall link:

[http://on.wsj.com/1VyFPIt](http://on.wsj.com/1VyFPIt)

~~~
sparky_
Much appreciated

~~~
chockZ
WSJ also allows for visitors from organic search to read the articles without
the paywall. Simply Google search the exact WSJ article title with
"quotations" around the title and click on the WSJ link from Google.

------
shas3
For all the EPA fights that plague larger older companies (and many new ones,
too), industrial safety and adherence to regulations is very deeply ingrained
in their cultures. Heads roll pretty quickly for violations at lower levels.
Even higher level executives are often quite responsible about staying within
the bounds of laws and regulations (though they are less so in doing layoffs
and such). This obviously leads to slower innovation and more red-tape, but I
have come to believe that slower innovation is an acceptable price to pay for
the rest of the stuff being legit.

If you are challenging the old order in old industries, and have to move fast
and break (the right) things, do it like Tesla and Space X, not Theranos.

------
forgetsusername
Always fun to go back in time and look at what people were saying about
Elizabeth Holmes and Theranos, like 2 years ago:

[https://news.ycombinator.com/item?id=7951019](https://news.ycombinator.com/item?id=7951019)

or

[https://news.ycombinator.com/item?id=8181339](https://news.ycombinator.com/item?id=8181339)

I find it insightful to see who was "right" and who was "wrong". There were a
surprising number of people from the medical field expressing doubts about the
technology.

~~~
trhway
i remember that one
[https://news.ycombinator.com/item?id=8182026](https://news.ycombinator.com/item?id=8182026)

That day I just basically learned about Theranos existence from the posted
article, and that comments post explained to me what it is about :)

------
aceperry
The Theranos story is unfortunate due to the likelihood of fraud because the
healthcare industry is in desperate need of disruption. Even if just from the
periphery, which is how I would characterize Theranos' role, I think that
could enable a change in how health care is done and delivered in the US.

------
dcgudeman
_Investigators are also examining whether Theranos misled government
officials, which can be a crime under federal law, some of the people said.

Such subpoenas don’t necessarily mean prosecutors are actively seeking an
indictment. People familiar with the matter said the investigation is at an
early stage.

In addition to the criminal probe, the Securities and Exchange Commission is
examining whether Theranos made deceptive statements to investors when it
solicited funding, according to people familiar with the matter. Theranos was
valued at $9 billion in a funding round in 2014 and the majority stake of
Elizabeth Holmes, the startup’s founder and chief executive, at more than half
that._

Has there been any other examples of such high profile entrepreneurs ending up
at the wrong end of a criminal investigation?

~~~
adventured
Sure. Adelphia Cable was a large company - the fifth largest cable company in
the US - founded by John Rigas, and he was indicted when it imploded:

"Federal prosecutors proved that the Rigases used complicated cash-management
systems to spread money around to various family-owned entities and as a cover
for stealing $100 million for themselves."

[https://en.wikipedia.org/wiki/Adelphia_Communications_Corpor...](https://en.wikipedia.org/wiki/Adelphia_Communications_Corporation)

A few other examples from that time are not as clean when it comes to the
direct "entrepreneur" part. Kenneth Lay is sometimes considered the founder of
Enron, but he didn't build or found most of the pieces of it. Bernie Ebbers of
Worldcom was a bit closer to being a traditional entrepreneur story:

"Ebbers began his business career operating a chain of motels in Mississippi.
He joined with several other people in 1983 as investors in the newly formed
Long Distance Discount Services, Inc. (LDDS). Two years later he was named
chief executive of the corporation. The company acquired over 60 other
independent telecommunications firms, changing its name to WorldCom in 1995."

[https://en.wikipedia.org/wiki/Bernard_Ebbers](https://en.wikipedia.org/wiki/Bernard_Ebbers)

Crazy Eddie is a famous story, but quite a lot smaller than Theranos (well, in
regards to b.s. market valuation):

"At its maximum, Crazy Eddie had 43 stores in the chain, and earned more than
$300 million in sales" [that $300m in sales would adjust quite a lot higher in
today's dollar]

[https://en.wikipedia.org/wiki/Crazy_Eddie](https://en.wikipedia.org/wiki/Crazy_Eddie)

Bernie Madoff is maybe the most famous example (he ran his own firm for 48
years!):

"Madoff founded the Wall Street firm Bernard L. Madoff Investment Securities
LLC in 1960, and was its chairman until his arrest on December 11, 2008"

[https://en.wikipedia.org/wiki/Bernard_Madoff](https://en.wikipedia.org/wiki/Bernard_Madoff)

Allen Stanford was sort of out of the same mold:

[https://en.wikipedia.org/wiki/Allen_Stanford](https://en.wikipedia.org/wiki/Allen_Stanford)

------
dcgudeman
_The news release issued when the Walgreens deal was announced said consumers
“will be able to access less invasive and more affordable clinician-directed
lab testing, from a blood sample as small as a few drops, or 1 /1,000 the size
of a typical blood draw.”

As part of the deal, Walgreens has invested at least $50 million into
Theranos, according to people familiar with the matter._

It really blows my mind that Theranos was able to get this far with what
sounds like technology that simply didn't work. Did any investors simply try
the test(s) before investing vast sums of money?

~~~
lawnchair_larry
Have you ever seen how directors and executives make deals? Meanwhile, I'm
sure dozens of engineers were shouting that this doesn't work, but couldn't
get the message through the thick layer of middle management. It is not the
least bit surprising to me.

------
PakG1
Funny, just saw this in the paper yesterday. I wonder how it differs from
Theranos.
[http://szdaily.sznews.com/html/2016-04/18/content_3505489.ht...](http://szdaily.sznews.com/html/2016-04/18/content_3505489.htm)

~~~
iam-TJ
If verified, the LinkedIn history [0] at least shows some expertise and
progressive advancement in medical device design and manufacturer, which I
don't think Theranos' CEO has.

[0] [https://www.linkedin.com/in/wendian-
shi-21757833](https://www.linkedin.com/in/wendian-shi-21757833)

------
cant_kant
"The Journal‘s reporting suggests that Theranos had been falsifying lab
records to make it look like its own proprietary gear was as reliable as the
industry standard.

Documents from health care inspectors also seem to show that this kind of
stuff was happening.

If the DOJ concludes that Theranos was charging money for a test it knew was
not accurate, that would violate health care laws, and could earn people
prison time." [http://www.wired.com/2016/04/theranos-investigated-fraud-
wei...](http://www.wired.com/2016/04/theranos-investigated-fraud-weird-
private-company/)

------
anigbrowl
Never trust anyone whose schtick is that they're too busy to have a private
life.

~~~
hackaflocka
Agreed. Did Holmes say that?

~~~
return0
There is a number of things from her past interviews
([https://www.youtube.com/watch?v=iwKs-
eoPM-Y](https://www.youtube.com/watch?v=iwKs-eoPM-Y)) that leave a lot of
questions. For example she says that she sleeps for 4 hours , and that she 's
a big fan of the 10000 hours rule, and a bunch of stuff for how she really is
committed to what she does, but very little on why she believes she can pull
it through. For comparison, another female health entrepreneur, Woljisky of
23andme usually gives much more down-to-earth and concrete motives for her
company.

And there is the turtleneck thing that, in retrospect, looks ridiculous.

~~~
anigbrowl
Hey now I like turtlenecks, even if she was going for a 'Steve Jobs, only
pretty' image.

------
cft
I think the working assumption of the investors was that she would be
sacrificed, but Theranos would continue. But because of this, it may not
happen.

------
smitherfield
Theranos' tragic flaw was not even so much that they were hyped to the moon
and back, but that they _believed their own hype._

------
madaxe_again
The punchline will be kissinger dying weeks before the law _finally_ catches
up with the p'tach.

------
minimaxir
Why is the SEC involved in a failure-to-quality-control issue? Were investors
materially misled?

~~~
chollida1
Yes, word on the street is that they are being investigated by the SEC for
misleading their investors.

This very sparse report leads with the same text and twitter is full of news
sources "reporting" the same thing.

I have a feeling that it's going to be a bad time for Theranos employee's and
investors over the next few months. It's going to be much worse for a few of
their executives.

------
smaili
This eerily reminds me of Enron.

~~~
jonknee
Enron was much more of a real company. It collapsed due to poor investments
and cooking the books, but Enron really did own a lot of assets. It would be
more akin to Enron if Theranos' tech actually worked, but they were reporting
much more profit than they were really getting.

------
return0
What happens if the investors were not mislead? Is this probe a move by the
big investors to cover their ass in the case that Theranos is found to have
defrauded customers?

------
ben_jones
How long until hacker news champions the next Theranos?

------
TheRealPomax
note that this article requires a subscription to wsj.

------
thrownaway2424
One thing I'd love to know, and that might come out in court eventually, is
which early investors exited in the huge dumb-money round in 2014. What did
they know and when did they know it, and all that.

~~~
alva
Out of interest, does any one know what liabilities such investors might have?
If the outside investors had knowledge of the problems we are now seeing and
sold off without disclosing the issues, are they somewhat accountable?

~~~
adventured
That almost entirely binds to what responsibility they had in regards to the
company. If they weren't legally insiders, then even if they had more
knowledge than the broader public does (which in this case may be irrelevant
depending on a few things), they won't be carrying liability.

To be clear, selling doesn't make them liable for fraud committed by Theranos,
if they had no role in managing the company. Even if a lawsuit were brought,
you're going to have one helluva hurdle in getting any liability to stick to
said investor/s without proving direct involvement.

Doing anything about insider trading in a private corporation, has
historically been a challenging area for the SEC. They have often previously
been more hands off, but they've gotten more aggressive about it lately:

"On December 12, 2011, the SEC announced an enforcement proceeding that serves
as a useful reminder that the federal laws against insider trading and
misrepresentation apply as forcefully to private companies purchasing stock
from employees and other shareholders as they do in the public company
setting."

[http://www.lexology.com/library/detail.aspx?g=e24dc4ab-2a77-...](http://www.lexology.com/library/detail.aspx?g=e24dc4ab-2a77-43d9-8a78-9ea46eca1aca)

------
hackaflocka
Is there any evidence of Elizabeth Holmes' scientific research abilities?
Besides the 100 or so patents that she's on (none of which she's on alone)?

E.g., is there anything in her high-school yearbook about her winning science
contests, etc.?

------
jackcn
Like I've mentioned before, Theranos needs to shut down. The technology
doesn't work (and likely it never will since blood constituents are not evenly
distributed at small volumes) and its investors and executives are complicit
in fraud. While half-completed/non-working solutions are fine in software
world and with consumer electronics, a misreading or missed reading of blood
parts can easily cost the health or life of a person. I'll be glad to see the
SEC/FDA put an end to this.

~~~
wrong_variable
healthcare is a very hard problem.

While we in the tech community may find it morbidly entertaining to watch
Theranos burn to the ground. Someone out there needs to attack healthcare. The
not dying motivation is fairly important.

~~~
toomuchtodo
> Someone out there needs to attack healthcare.

All the attacking that needs to be done is political/social, not technical.
Want to attack healthcare? Strip middlemen out so that the money flows to
providers and researchers (Single payer + pouring additional money into the
NIH/NSF, with the results being public domain).

All of these YC startups I see "hacking" healthcare (Dr Chrono, HealthSherpa,
etc) are just bandaids on a patient bleeding out from the jugular.

EDIT: Before you chime in to state that single payer can't be done, 58
countries [1] enable it just fine. Governments can be even more accountable
than the current breed of private health insurance providers (I cannot replace
the board at my insurance carrier, nor can I FOIA them).

If you want to "hack" healthcare and fix the problem, get involved in
government and get single payer done.

[1]
[https://en.wikipedia.org/wiki/Universal_health_coverage_by_c...](https://en.wikipedia.org/wiki/Universal_health_coverage_by_country)

~~~
zzz157
Single Payer would be great if you can trust the uh, payer. But our government
is delightfully corrupt, so I'm sure a lot of people with more rare medical
conditions would end up with worse treatment than they can get now.

~~~
georgemcbay
"Single Payer would be great if you can trust the uh, payer. But our
government is delightfully corrupt"

Lucky for us the health insurance industry we have is a paragon of virtue
whose integrity is beyond reproach!

------
maverick_iceman
I wonder why WSJ went so aggressively against Theranos. (Not that I'm
complaining.) Does anyone know the backstory there?

~~~
adevine
Basically, it looks like one reporter starting pulling at the thread, and the
whole sweater fell apart. I wouldn't really say they went after Theranos
aggressively until they realized there was a much bigger story.

~~~
kchoudhu
*whole turtle neck.

See:
[https://www.bing.com/images/search?q=elizabeth+holmes&FORM=H...](https://www.bing.com/images/search?q=elizabeth+holmes&FORM=HDRSC2)

------
homero
Pump and dump couldn't dump!

------
bane
This is great, it couldn't have happened to nicer people. However, I'm willing
to bet no charges will come out of it.

