
Theranos Secretly Bought Outside Lab Gear, Ran Fake Tests: Court Filings - bobsky
https://www.wsj.com/articles/theranos-secretly-bought-outside-lab-gear-ran-fake-tests-court-filings-1492794470
======
palakchokshi
This explains to some extent why investors might have given the company that
valuation of 9 billion. If the company faked demos and portrayed results
obtained on non Theranos tech as Theranos tech results, most investors can't
be blamed for believing the tech worked and it was only a matter of time
before all tests could be performed by the tech.

What is baffling to me is unless the data was doctored why didn't any one of
the medical consultants or partners bring this up sooner? Why did it take a
deposition to reveal this? I'm sure whistleblower protections would have been
provided to anyone working there with this knowledge who chose to make it
public.

~~~
inetknght
> why didn't any one of the medical consultants or partners bring this up
> sooner?

Outside of direct "I physically see this patient", people can forget they work
in medicine where their answers can mean life or death decisions.

In that situation people end up not wanting to bite the hand that feeds.

When you have automated stuff that has high throughput with little or no human
interaction, you seriously limit the opportunity for humans to raise
questions.

~~~
_Codemonkeyism
Totally agree, not sure why they've killed your karma.

Between taking a pay cheque and whistle blowing, the large majority of people
will always not rock the boat and take the money.

~~~
epmaybe
I think you're referring to the people working for theranos itself. However,
investors generally try and do their due diligence before investing. Did none
of the investors seek an expert to verify the claims made by Theranos prior to
investing?

~~~
Nanite
Yes, and this is why you won't find any reputable biotech VC on the investor
list of Theranos ( Mostly a mix of private equity, family funds and informals)
. Biotech VC's have domain experts in house or in their network who won't take
the narrative at face value and do ask the hard questions.

~~~
inetknght
I write software which analyzes DNA. It's pretty interesting to hear the
varied responses from lab staff when questions are asked. Many times, however,
questions (or sometimes answers) end up being overridden by business needs
(aka deadlines). Being a business, that's rather expected to happen now and
then.

But it bothers me that many of the questions that end up being unanswered are
typically some of the more fundamental questions I ask.

------
Mz
Wow. Okay, this takes it from "Shit happens and people can be totally deluded"
to actual, genuine fraud.

Edit: Also, how can people be that stupid? You have to know the truth will
eventually come out? Right? Or, no?

I don't get it.

~~~
exhilaration
It's easy to fool yourself into believing that the fraud is just a temporary
necessity while you work out the final kinks in your product.

~~~
adventured
It's a frequent fine line in tech.

To get a contract, Bob Noyce claimed for a buyer that Fairchild could produce
& deliver a new type of transistor, in a large quantity, without having any
production capability for it yet, as it had never been built.

Excite bid on getting a place on Netscape's browser, before having the money
to actually pay for it (they figured they'd get it afterward):

[http://bnoopy.typepad.com/bnoopy/2004/09/persistence_pay_1.h...](http://bnoopy.typepad.com/bnoopy/2004/09/persistence_pay_1.html)

Microsoft on multiple occasions said or implied they had something they didn't
have at the time, in dealing with MITS and IBM.

~~~
stanfordkid
I went to Stanford (hence the screen name) ...

Stanford students are generally sheep that know one thing for certain: That
they are smart enough to get into Stanford and that they now have pretty much
zero excuse to not be successful.

They assume that other things (vision, relentless lifelong obsession) are
means to ends. It is a fertile breeding ground for what Trungpa Rinpoche most
accurately describes a "Spiritual Materialism"

Their logical conclusion is that the key to success is not relentless pursuit
of practice, but rather playing tricks like the ones you describe.

Bob Noyce, Bill Gates, Marc Andressen all succeeded as a result of their
passion and relentless dedication to a narrow problem space over years of
effort. They saw "the truth" and thus were able to make those leaps. "Truths"
are always present in every society ... and are hidden. Unfortunately it
requires dedication to uncover such truths and most stanford students would
rather re-use the same hammer that got them into Stanford on real life than to
truly seek "truth".

That's my 2 cents.

EDIT: I can see how this was condescendingly phrased and discriminatory
towards a large group of people. We should all note that the person who outed
Ms. Holmes was also a Stanford student and did something very brave. I was
just annoyed with seeing this pattern everywhere and even partaking in it
myself -- something that impacted me very negatively.

~~~
verulito
We should also remember that she graduated like 15 years ago, about the same
time I did. The world was VERY different back then. Her style of management
reflects the generation she was created from. Unlike her peers, she was
unlucky enough to have had access to enough funding to last this long. As a
result, the damage done is larger than was typical even back then but also
ending at a time when it would stand out. Companies like Theranos collapsed
all the time in SV in the late 90s and no one thought anything of it as a
result. It's not an excuse but from the looks of it, her hole was too deep by
the time trends change to do a course correction.

Let's also not forget that she pursued a vision that was severely flawed, no
different than many college students today even. She made a lot of mistakes
that many of her peers made at the same age. She's just really unlucky at this
point.

~~~
Mz
[http://money.cnn.com/2014/10/16/technology/theranos-
elizabet...](http://money.cnn.com/2014/10/16/technology/theranos-elizabeth-
holmes/)

She did not graduate. She dropped out.

I also dropped out of college at a young age, but not to defraud the world in
an effort to become a billionaire. So, this is not intended to suggest being a
drop out is inherently bad.

#JustTheFacts

------
cylinder
So will Holmes go to prison? A green card holder in Texas was just​ sentenced
to eight years in prison for voting in a US election. Surely Holmes will go
away much longer right?

~~~
dmix
Is there even a criminal investigation here? I thought this was over a
lawsuit.

This guy got 6.5yrs in prison for defrauding investors by making it appear the
company had value it actually didn't:
[https://www.law360.com/articles/892055/broker-
gets-6-5-years...](https://www.law360.com/articles/892055/broker-
gets-6-5-years-in-prison-for-5m-tech-startup-scheme)

It's difficult to find other examples as most investor fraud is based on
directly milking investors with obviously false claims.

For example, this SF startup founder lied about being close to acquisition and
never handed over shares in the company in return for money:
[http://www.mercurynews.com/2014/02/20/san-francisco-
startup-...](http://www.mercurynews.com/2014/02/20/san-francisco-startup-
founder-arrested-charged-with-defrauding-investor-of-210000/) that's more
directly fraudulent.

The Theranos thing might be more difficult to prove as it's possible the
technology was somewhat legitimate but clearly if sharing the fake test data
was a critical part of them investing, then it might be much the same.

The early investors who bought into just the idea may not have any claim. But
any later investors who invested based solely on claims made with falsified
test data may have a claim against the company/her.

~~~
ceejayoz
> Is there even a criminal investigation here?

Seems like there sure _should_ be.

~~~
nojvek
Looking at what happen to the Abhishekh Guttani case in Santa Clara court I
believe SV courts are a joke in giving any serious punishments.

I am willing to bet she wouldn't be charged jail time for more than six
months. She would have enough contacts and money to may be totally avoid it.

------
tetrep
Can't read the Journal article so not sure if it has this or not, but reply
from Theranos:

This is a one-sided filing by one party to litigation, and we will respond at
the appropriate time in the appropriate forum. We disagree with much of what
PFM alleges in its complaint. This is not, however, the time or place to
contest their mischaracterizations of the record. We will litigate this case
in court, where it belongs. What we will say now is that the items on which
PFM focuses have nothing to do with why PFM invested, and they amount to a
repackaging of allegations the media have already reported for nearly two
years.

As for the tender offer: As previously disclosed, Theranos is in the midst of
a tender offer involving its most significant shareholders. Elizabeth Holmes’
use of her own shares to recapitalize our C-2 and C-1 investors—and thereby
prevent dilution to our other shareholders—is consistent with her
longstanding, personal commitment to doing the right thing for the Theranos
shareholder base. This tender offer has been in discussion between Theranos
and its shareholders since July 2016. To date, more than 99% of C-2 and C-1
investors other than PFM have chosen to participate.

PFM, a multi-billion dollar hedge fund, opposes the transaction, and is asking
the Court to stop the tender offer because it is “unfair” specifically and
only to PFM. In response to PFM’s suit, the Court suspended the tender offer
for a month in order to permit sufficient time for the court to review the
transaction. PFM’s effort to enjoin the tender offer is meritless; their legal
theories are self-serving and would harm the rest of the Theranos
shareholders. The Company is vigorously opposing PFM’s new suit and looks
forward to completing the transaction with its shareholders.

From: [https://techcrunch.com/2017/04/21/theranos-says-it-has-
been-...](https://techcrunch.com/2017/04/21/theranos-says-it-has-been-
mischaractarized-in-allegations-the-company-faked-tests-and-boosted-
financials/)

There will never be enough popcorn for the Theranos saga.

~~~
ceejayoz
> ... consistent with her longstanding, personal commitment to doing the right
> thing for the Theranos shareholder base...

Uh huh. That's why the offer comes with a "you agree not to sue us" clause,
I'm sure.

~~~
apahwa
well, to be fair, if they cashed out and then sued as well then that would be
double dipping a bit right?

------
chromagnon
I bet there are many other boardrooms around Silicon Valley who are panicking
over this. There's so much pressure to be immediately profitable and show
predictable year over year growth. How many have faked user trials or cooked
the books in ways that would make Enron blush?

~~~
floathub
Look at facebook. 1.23 billion active daily users? Really? And this is
published in financial and technical press with precious little skepticism. FB
must be happily counting every single incidental embedded bit of javascript
that phones home from a facebook logo on an otherwise unrelated site count as
an active user. And then some. One in 6 people on the _planet_. Every day.
Think about the boldness of saying that with a straight face. But the hype
machine is happy to keep echoing that claim.

~~~
LordHumungous
Well the stakes are a lot lower when it's social media or something. Theranos'
problem was that it tried to take the Silicon Valley mentality to medicine,
and as we've seen there's a little agency called the FDA that doesn't give a
damn how hot or well funded you are. They will crush you into dust if you try
to play games.

------
kilroy123
My question is, who is still working at this place and why???

Also, some reviews here are amusing and frightening:

[https://www.glassdoor.com/Reviews/Theranos-
Reviews-E248889.h...](https://www.glassdoor.com/Reviews/Theranos-
Reviews-E248889.htm)

------
cvg
An archive of the page: [http://archive.is/pijS2](http://archive.is/pijS2)

------
joering2
I will keep repeating that: The fact that Elizabeth house is not FBI raided
and she is not in jail without ability to talk to co-conspirators just show
how you can run your scam enterprise by simply having the right people on your
board.

~~~
edc117
Agreed, it's bullshit like this that makes it VERY clear that the law only
applies to the poor and non-influential.

~~~
joering2
I go even further - the fact that nowodays nobody cares how obvious your
statement is, makes it even more frightening especially in the "free" country
that should be run by law and order.

------
JBReefer
Is this the first total collapse of a "unicorn" this time around? I can't
think of any recent, high profile disintegrations of this order of magnitude.

~~~
meddlepal
Was Theranos really a unicorn? I'd barely heard of them until this story
broke.

~~~
dpiers
Yes, they raised $350MM at a $9 billion valuation, and Holmes was hailed as
the next Silicon Valley wunderkind.

~~~
Nanite
Bit more actually, closer to $700M.

~~~
Nanite
Why is this downvoted? it's true :
[https://www.crunchbase.com/organization/theranos#/entity](https://www.crunchbase.com/organization/theranos#/entity)

------
DonHopkins
"Perhaps Holmes should call up the folks over at Magic Leap, they know a thing
or two about getting busted for fake demonstrations and overselling
technology." [1]

[1] [http://nymag.com/selectall/2017/04/theranos-staged-fake-
bloo...](http://nymag.com/selectall/2017/04/theranos-staged-fake-blood-tests-
for-investors.html)

------
knodi123
Man, I started out _so_ sympathetic to Theranos, too. Just goes to show how
good my instincts are.

------
iblaine
This trainwreck is going to make a great movie.

~~~
lobster_johnson
It's already being made:
[http://m.imdb.com/title/tt5795144/](http://m.imdb.com/title/tt5795144/)

------
Spooky23
So when does "the next Steve Jobs" end up as "the next Jeff Skilling"?

------
phoneyphone
Removed the paywall: [http://outline.com/DVdmsJ](http://outline.com/DVdmsJ)

------
joshmn
Who made this call? What was their goal? Like, they couldn't have honestly
thought they were able to back up their claims, did they?

Holmes?

------
nebulous1
Hasn't this been known for ages now? (I could only read the start of the
article)

------
anigbrowl
I told you her schtick was too smooth. 'I'm too driven to care about anything
but my work' is always a red flag.

~~~
chromagnon
The whole 'coming out of nowhere' thing is another red flag. This idea that an
undergraduate built revolutionary medical tech in their dorm room no less? Who
invests in that? With no data, no trials, no feasibility study?

~~~
lobster_johnson
Holmes hasn't actually claimed to have come up with any new discoveries or
revolutionary technology while an undergraduate, I think. She had the idea for
the company and decided to drop out. Of course, magazines like Inc. had no
issues playing up her genius with Silicon Valley hyperbole.

Several people -- her professor? I forget -- warned her the blood test
wouldn't work, even before she dropped out.

~~~
chromagnon
As I recall, she had a co-founder who built the tech, including the whole dorm
room story.

Holmes is the MBA part of the team.

------
yalogin
This is an outright scam. Why haven't we seen any arrests?

~~~
chmaynard
Because the US legal code is written by politicians who accept bribes to make
it difficult or impossible to prosecute white-collar crime in a timely
fashion. These weak laws are enforced very selectively, based on the whims of
senior officals and judges in the executive and judicial branches of our
government. This is reality. Deal with it.

------
notadoc
It is never ending bad news about this company.

------
hakcermani
Someone should make a movie about this!

~~~
kirubakaran
Bad Blood
[http://www.imdb.com/title/tt5795144/](http://www.imdb.com/title/tt5795144/)

------
Pyxl101
Paywall bypass redirect:

[http://facebook.com/l.php?u=https://www.wsj.com/articles/the...](http://facebook.com/l.php?u=https://www.wsj.com/articles/theranos-
secretly-bought-outside-lab-gear-ran-fake-tests-court-filings-1492794470)

------
lutusp
A very worthwhile story, behind a paywall. Welcome to modern times.

~~~
nemothekid
Will the world ever come back to their senses and we will ever return to the
"modern" times of 2002-2012 when all journalism was free?

------
brilliantcode
HN is on fire today. Zecco and now Theranos. I'm getting the feeling that we
are going to see more and more stories like this in the near future.

Theranos running fake tests is just another example of the type of charlatans
enabled by socioeconomic lineage.

> Theranos plans to offer investors shares in the company in exchange for them
> not filing lawsuits against the embattled blood-testing company.

How far removed can you be from reality to even think like this?

~~~
frik
List of YCombinator companies: [http://yclist.com/](http://yclist.com/)

~~~
brilliantcode
One can a lot from this list, this is super valuable for my needs!

------
pottersbasilisk
Companies like this are a good reason to end limited liability for
corporations. Corporations arent people, and the people behind them escape
with golden parachutes.

~~~
bravo22
The shareholders and investors can go after the executives for fraud. They're
not protected in this case.

~~~
pottersbasilisk
Until corporate officers and shareholders are subject to lawsuits, Limited
liability creates an entity that behaves pathologically - without regard to
anyone/anything outside of itself.

Theranos,Enron,Volkswagen scandals are just some of the way too many to count
scandals that damage citizens.

------
kpwagner
This all sounds preliminary to me. Based on the headline and one paragraph I
was able to read (not pay-walled), this doesn't necessarily indicate malicious
intent or foul play. Big companies are complicated, and they do things in
weird ways sometimes for reasons that aren't immediately obvious.

It's amazing how quickly the winds of the internet shift to absolutely condemn
a person/company before all (or any) of the facts are in. The world is a
better place when we all extend a benefit of doubt to our fellow humans and
there creations.

~~~
ceejayoz
There are plenty of facts available around the Theranos situation. Not much
benefit of the doubt left here.

------
mankash666
How is it always WSJ busting Theranos? is a competitor funding their
"investigative journalism"? Not to say the article is untrue, just the super
hard-on WSJ has for Theranos is mysterious.

~~~
Mz
My guess:

"If it bleeds, it leads." True life drama and gossip (for lack of a better
word) has always sold papers.

~~~
justinzollars
I think integrity is important and I don't like the idea of attacking
journalists for printing stories critical of Silicon Valley.

Overvaluation effects us all, these hundreds of millions drive up my rent,
your rent and could be better allocated to other startup ventures.

~~~
Mz
I basically agree with you, but I will state that I was not attacking any
journalists.

Sensationalism sells. There are both good and bad reasons behind that truism.
At the moment, the publishing industry is in crisis. I see no reason to look
any further than a dire need to increase sales as "motive" for a particular
publication apparently revisiting this particular on-going drama repeatedly.

My sister was a journalism major in college. She was significantly involved in
the school paper in high school and was awarded a journalism scholarship that
helped pay for her college education. She went on to do other things and is
not a journalist, though an early job of hers did involve working on a
publication. I also had a class in journalism in high school (where I was
disliked by the teacher for failing to be enough like my older sister, whom he
had adored as a student and contributor to the school paper) and I was State
Alternate for the Governor's Honors Program in Georgia in the subject of
Journalism when I was 15. So, I got my toes ever so slightly wet in journalism
in my teens, then, I also went down some other path instead of becoming a
journalist.

I assure you, my remarks are in no way intended to be an attack on
journalists.

