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Theranos Secretly Bought Outside Lab Gear, Ran Fake Tests: Court Filings (wsj.com)
266 points by bobsky 33 days ago | hide | past | web | 170 comments | favorite

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.

> 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.

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.

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?

There is a concept of self-deception. During a con, a successful conman does very little, they "just" have to prime the mark. After they bite, then they fool themselves so to speak.

Just because VC have money doesn't necessarily imply they are more rational or better thinking. Everyone involved here wanted this to be real and true. So while on paper due diligence was done, unconsciously nobody wanted to lift the curtain too much and peek what's behind.

This is also very common with software testing. Often when developers are testing their own software, they are not very good at discovering bugs and so they end up in production. This happens because even though rationally they want to ship a better product, irrationally it is hard to get into a mentality of proving that the product you just sweated months on is broken, or bug ridden or unstable and so on. So tests are written but they are written to show make them pass and show that stuff and unconsciously avoiding the trick or edge cases that would reveal brokenness.

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.

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.

> investors generally try and do their due diligence before investing

They don't, especially in SV. Several of them have written about this. Beyond some cursory checks, they don't do much since it's often too expensive and time consuming to investigate every possible deal. A strong team with good connections and referrals is usually enough.

I recall reading on Quora that the CEO used family connections to land her initial funding from some reputable investors. They may have glossed over the due diligence. The rest just piggybacked on the reputation of the early investors. There may have been some or many which did that diligence but since they didn't speak up, we'll never know.

Herd mentality? Later stage investors probably assumed the early stage investors did their homework, while ultimately no one really did (or the early investors weren't at home enough in the space to realise the product wasn't properly working, or results were being faked, etc)

I think that's a more accurate reason. And it's equally likely that theranos just turned down investors that tried to dig too deep.

Any chance those physicians will be facing investigations?

I'd be willing to bet that it's not just physicians though. Lab staff on the back-end who actually do the work don't have the same rigor of training as medical doctors do.

Did you notice what happened to the original whistleblower that exposed Theranos in the first place?

I didn't - what happened?

I was curious and googled a bit. Relevant part:

> In the past year and a half, the grandson and grandfather have rarely spoken or seen one another, communicating mainly through lawyers, says Tyler Shultz. He and his parents have spent more than $400,000 on legal fees, he says. He didn’t attend his grandfather’s 95th birthday celebration in December. Ms. Holmes did.

> “Fraud is not a trade secret,” says Mr. Shultz, who hoped his grandfather would cut ties with Theranos once the company’s practices became known. “I refuse to allow bullying, intimidation and threat of legal action to take away my First Amendment right to speak out against wrongdoing.”


> what the hell is wrong with Theranos that they seemed so focused on attacking anyone who questions them, rather than focusing on actually fixing the problem

The problem is unfixable because it's a complete fraud. There is nothing. They're holding the fort for as long as possible, and it's amazing they've been able to hold it for so long.

You see this behavior in politics also.

<s>You don't say? Can you cite any recent high profile examples of that kind of behavior in public officials?</s>

"It is difficult to get a man to understand something, when his salary depends on his not understanding it."

a legit company will only go to certain extent to defend. They can still survive.

An illegit company will go all / full lengths to attack and defend. illegit company life depends on this !

Off topic: he's 95 years old?! I don't care how well connected he is, who thought it would be a good idea to have a nonagenarian on the board of a (supposedly) cutting edge health-tech company?!

Could you state reasons to support your assertion that a nonagenarian shouldn't be on the board of an innovative tech. Company ?

95 years old do not have their full faculities.

Even if they were part if a very very small minority that did (if any exist), it would be hard to test for legally I'd imagine.

We judge people by their pasts, in extreme old age this is no longer applicable.

I do think it's a little sad the obvious has to be pointed out.

If not now, in the future you will have to deal with people getting old, hard truths will have to be dealt with at some point.

Such individuals are often chosen to be on the board for their experience and networking prowess.

It's quite true that testing their mental faculty would be a challenge. Therefore the decision could simply lie with other board members based on their observations of his behaviour and the direct contributions he makes to the company.

And what evidence, besides your random agism, do you have to argue that a 95 year old person shouldn't be on the board of a company?

To suggest that mental acuity is uniformly distributed with respect to age seems a bit "post-truth". The priors at play most definetly suggest much greater scrutiny of a 95 year old, but by no means should they be preclusive.

For the same reason an auto insurance company charges my 86 year old grandmother thousands of dollars per year more than myself; your faculties degrade with age.

If nothing else, he'll almost certainly be dead soon.

Lmao Morris Chang would like a word with your ageism.

Theranos and Boies teamed up to make his life hell.


One might imagine what they'd attempt if he wasn't related to a boardmember, or if his parents didn't have $400K for legal fees...

I remember in the 90s being a teenager reading Boies brilliant work shredding the Microsoft monopoly with such overwhelming skill, and he was almost a hero of mine. Since then I've realized he's just a hired gun, a genius with no morals or integrity who's in it for the money and nothing else. What a disappointment.

If you only want lawyers to take cases on popular sides you're going to be disappointed. And, in fact, I'd argue that you're effectively arguing that only popular opinion should have good representation--which is pretty much at cross-purposes with the function of the judicial system.

ah, David Boies the champion of illegal, deceptive and awful business's.

They called and threatened his mother. Private investigators followed him. He had $400,000 in legal fees from the layers they hired to harass him.

If ever there was a clear cut case of barratry this is it. Too bad it would take an act of God to get the state prosecutors to enforce that law.

And they probably would've done much worse if he wasn't the grandson of one of the board members at Theranos.

> I'm sure whistleblower protections would have been provided to anyone working there with this knowledge who chose to make it public.

From the Vanity Fair piece which brought a lot of this house of cards into the public light, it's mentioned that the teams were hyper-segmented and the secrecy even pervaded the organization. Nobody really knew what anyone else was working on.

One could have asked the same of the VW engineers involved in Dieselgate or the GM engineers who worked on the ignition switch and simply changed the part without changing the part number.

There are those who want to be part of the team and there are those who can really play on that feeling. Then there are those who just want that buck.

How often are parts changed without changing the part number? If it's a common practice, it doesn't have to be seen as malicious. Are there major/minor/patch level part numbers like there are version numbers of software?

> most investors can't be blamed for believing the tech worked

in medicine, you need to be reviewed and mostly provide proof of your methods and results etc, just to publish a single paper.

Are you saying that investors are willing to not only be fooled, but give millions to the one who is fooling them without even checking if their claims are real? Sounds less like investors and more like gamblers tbh.

I don't understand why investors should be absolved from responsibility.

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.

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.

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):


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

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.

I don't really know why this has to link back to Stanford.

Because Stanford cultivates this type of activity through a deep worship of commercial activities rather than pure pursuit of knowledge to a very smart but very impressionable group.

Colleges need to hold learning to the highest regard ... Holmes was constantly invited as a speaker to campus before she became disowned.

Look into Clinkle if you want another example. Kids are obsessed with getting rich quick and glamorizing that behavior and spoon feeding it back to them is a recipe for disaster. Snapchat is another example!

Institutions of learning and knowledge need to emphasize and glamorize that. Often times Professors themselves go to work for these companies ... the intellectual elite should feel that way about themselves: elite in their knowledge. A snobbish dismissal of material wealth might be exactly what the institution needs.

Stanford sells rich parents membership in a club for their children. Their billions is a pile of bribes. Poor smarter children go without.

Stanford (like most top private schools) offers very generous financial aid. Very low tuition for students whose families make < $125k, and very low room and board for students whose families make < $65k. https://news.stanford.edu/2015/03/27/new-admits-finaid-03271...

Of course poor students are less likely to get accepted because of less access to private tutors and other support.

And the rich students who get in because of their rich parents don't have to go through the same rigorous smartness and motivational filters that poor students do.

I'm willing to bet the poor students on financial aid aren't such entitled misogynistic douchebags as the rich ones [1] who go on to found companies that are "only for rich people".

[1] https://en.wikipedia.org/wiki/Evan_Spiegel

In theory, that is great. In practice, it does little to level the playing field.

Many capable high school students are not even aware that schools like Stanford exist, and cannot even begin to conceive what acceptance into such a radically different world would even mean. I surely didn't. It is also possible that those students who are aware, and do aspire to receive this aid, have family members who actively sabotage their efforts.

My point is that it is possible that no one in the history of their high school, or anyone they have ever known, has attended such a school. The student nor their parent(s) have the mental framework to reason about it.

You are correct. I vaguely recall seeing a study that concluded that rural kids at the top of their class were much less likely than urban kids to go to college and, iirc, a factor was that they were much less likely to know about scholarship opportunities. So, they just did not think it was possible because they did not have the money and never even looked into other options since those other options were essentially unimaginable. They and their entire social network were drastically less likely to think college was a viable option and, so, their education ended at 12th grade.

This is a real problem not only for the rural youth essentially cheated of opportunity, it is also a problem for a nation missing out on untapped talent.

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.


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.


white people commit massive fraud stealing millions: 'unlucky'

minorities sell 5 oz of weed: '25 years in prison'

Promising to do something you aren't entirely sure you can do or haven't done yet, isn't fraud unless you lie about having done it before or being ready to go tomorrow or something.

Arguably, it is not even fraud when Theranos took samples and used a different method of testing (as long as the testing was just as accurate).

Therano's fraud was then telling investors and potential partners/clients that it had been testing using their test, when they really weren't. That is a lie designed to get additional funding or contracts.

Actually, it turns out that they also fabricated data on their test (Herpes I think) and they ended up having to send out letters to tens of thousands of customers who got false positives. They must be pissed... think of all the damage those have caused.

Microsoft didn't lie about having DOS - that's a myth. They originally sent them to Digital Research and when they failed to work with them said they knew where they could get an OS and they'd take care of it. IBM relied on them as a bit of a liason to the microcomputer industry - which they didn't have a good understanding of.

I dunno. Those incidents look like brinkmanship, not outright lying and making up evidence. If you think you can get the money and you, in fact, get the money, that may be a gamble, but it doesn't sound on the same order as inventing "evidence" whole cloth.

Yeah, because things worked out and they were ultimately able to deliver before everything imploded.

It can be a fine line. Theranos didn't know where that line was.

It is a fine line. From practical experience: there is a class of inventors who have genuinely convinced themselves that their broken tech will work if only they get the bugs worked out, and this is always just over the horizon. They probably see themselves as doing you a favor by lying to you because you will reap the benefits after all, once the pay-day arrives.

I've seen lots of misery because of this, both with the inventors themselves, their families and employees. In one case a suicide.

It's very sad and one of the downsides of being in the business I'm in because I have come to recognize the signs of this particular ailment fairly quickly and it is a huge balancing act in both convincing my client not to invest while at the same time not pulling the rug out from under a quite possibly already unstable person.

Fraud can be intentional, or it can be the consequence of someone genuinely believing their own misguided version of reality, usually powered by some form of 'wouldn't it be great if' and associated lines of thinking.

Even so, Theranos - to me at least - seems to have crossed over into outright fraud from very early on in their lifetime. There were significant questions about the tech early on and without a good answer to those the project should have never moved as far as it did without some serious caveats about what they believed to be possible and total transparency about what had actually been achieved.

For a nice example of how gullible people are check out the Ilium thread on the homepage right now, it's a great example of how wishful thinking can cause investors to part with their money:


uBeam is another, so far they produce roughly two ecstatic press releases per year but there is no product in sight.

It depends on who the onlooker is, though. I'm always fascinated with flying car stories because I understand them: I can look at the Ilium story and know immediately things about it, for instance that it will not glide with weight distribution and wings as shown.

But if I looked at Theranos, I wouldn't have any idea what I'm looking at. We all have our own brain structures that set up our respective abilities to call BS: part of this is understanding the psychology, as you (jacquesm) do. This gives the background to not take claims at face value.

The other part of BS-calling is that structure of experience telling us things like 'center of mass for the object will be here' or 'adding 20 more people to this dev team will have this effect on their ability to coordinate development'. These are heuristics that might be more difficult to explain than to be directed by, but in practice they'll tend to function like iron laws: if an exception is ever found it's a huge deal. The trick is getting people to accept the iron law without the structure of experience to support it.

That's where the fine line comes in.

Did Excite sign a contract saying that they had the funds to pay in the case of winning the bid? I don't know the answer to that, it wouldn't be an uncommon requirement when bidding on a contract like that however.

Microsoft almost certainly lied on multiple occasions about what they already had, in trying to get MITS and IBM to take them seriously. The common historical story goes that they did lie - just how the wording went, who knows, they were clearly being intentionally deceptive regardless to capture the opportunity.

What I am saying is there is a difference between "It has not been done, but I believe I can pull it off" and "Look, look, we can totally do this and have already succeeded, here are the (completely faked) test results proving it!"

The former is a gamble, but it may be an informed gamble where you already have some idea of how to make it happen. The latter is a lie.

Startups absolutely should be operating in the realm of "It has not been done, but we think we can pull it off. In fact, we are pretty confident of that." They should not be operating in the realm of outright con artistry and fraud.

If you have the right experience, skills, education, personal assets of various sorts and solid mental models, predicting your expected success in a specific domain does not guarantee you will succeed. But it isn't necessarily just BS either.

The challenge is for other people to know which category you fall in. But you should know whether you are genuinely confident or straight up conning people -- barring serious delusion of some sort.

It's extremely common to get the tense wrong. "This is what our product does" instead of "this is what our product will do." (They hope, if all goes well.) This is not (just) grammar nit-picking, it's often the difference between a promise and a lie.

For public companies, this is what results in "forward-looking statements" boilerplate. But it happens all the time in technical presentations.

I try to call people on it, but sometimes it's a losing battle.

Yeah, one of my very, extremely backburner (dead?) projects is called The Memome Project. The idea was to try to develop the architecture of ideas more solidly. Words and ideas have real value, meaning and power. I think Startups very much operate in the realm of ideas. Some ideas are really solid things, based on good mental models and rubrics and good data. And others are basically hot air. They are cheap and insubstantial and don't mean much of anything.

We need better ways to talk about and think about and measure the difference between those two things. The difference can be the difference between brinkmanship and outright fraud.

Yes, it's unfortunate that "fake it 'til you make it" became such a popular meme in SV et. al.

There is value in that philosophy in some respects, but claiming that your medical tests are real and reliable when they are not most certainly does not fall under that particular umbrella.

Yes! I had previously noted how Holmes was, in many ways, taking the HN/SV memes seriously, in believing:

- that an entire industry has been doing it wrong

- that it can be fixed by a low-bureaucracy, Angel-funded startup

- that once you have enough success you can just rewrite the laws that were slowing you down

- that no one knows what they're doing anyway, major projects are 100% guesswork, and you should just "fake it till you make it"

- that any skill is just a matter of 10,000 hours of practice

- that you can outsmart an industry before even passing or placing out of sophomore level classes

- that any self-doubt must be Impostor Syndrome, and so it's not worth your time to even check if that doubt has a factual basis


I remember watching an interview where she actually said those things. I would be suspicious with a person who talks like that.

This actually sounds a lot like Donald Trump's campaign message.

I think the problems arise when you've moved beyond exaggerating putative customers' level of interest or how finished the software is to faking a solution which technical experts have very good reason to believe isn't actually achievable, or when your mistakes are likely to kill people. Often these two overlap, because when a solution is as important as life and death and the field is mature enough to actually have experts, you probably shouldn't assume the reason they didn't solve it was because their company culture wasn't as cool as yours.

That's why I'm somewhat more irritated about reading about an apparently very worthy electrical VTOL aircraft project featured on here boast of an apparently purely-hypothetical "300km range" on its website as if other engineers are just idiots for thinking battery weight might prevent that than I am about actually writing marketing material for people that have a lot more ability to solve problems than customers.

I think Enron makes a good example: because they had insulated themselves from reality for so long, they convinced themselves that what they were doing wasn't really that bad until it was clear it was going to collapse, at which point they were already fucked. Also, a lot of those people got away with it because they left before the fraud was uncovered, despite being part of it. And there are more than enough examples of people getting away with it completely. Fraud has been uncovered by banks in the past couple of years and they just gave the corporation a fine, not jailed the people involved in it. KPMG got away with tax fraud by paying a fine, too. In fact, it might be the case that you're far more likely to get away it than not:http://people.stern.nyu.edu/msubrahm/papers/M&A.pdf.

I don't see how a CFO wouldn't see the issue with "mark to market" and showing potential future gains as current profit.

I am a little fascinated with Theranos because it seems like more employees (vs just leadership) seemed to be aware of, or participating in, the deception.

Almost makes more sense in the Enron case, as the people committing the fraud all had so much more to gain.

> You have to know the truth will eventually come out? Right? Or, no?

You have to know, but psychopaths usually don't.

> Also, how can people be that stupid? You have to know the truth will eventually come out?

In an equities market defined by quarterly profit statements, "eventually" is far enough away to be irrelevant. The reason this sort of thing happens again and again is because it works -- as the company disintegrates in a blizzard of accusations, the principals safely descend on golden parachutes.

In which case the danger becomes this: is that behavior sufficiently optimized that it's impractical to do anything else? There comes a point where the system compels everybody in it to pursue this strategy, or automatically be forced out.

> Also, how can people be that stupid? You have to know the truth will eventually come out?

People quite often think they can get away with things that, it turns out, they can't. The fact that something is true does not mean that people must believe it.

It's just like Pied Piper on Silicon Valley!

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?

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...

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-... 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.

> Is there even a criminal investigation here?

Seems like there sure should be.

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.

I hope you were kidding, but apparently not.


What an abomination. 8 years in prison. They should really pat themselves on the back.

I bet $1000 if this lady committed the same crime in NJ, she wouldn't have faced any prison time.

> 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?

That certainly sounds like a miscarriage of justice, but not really a sensible point of comparison. It's an entirely different domain of law. And even if it were apples to apples, a random green card holder vs an American tech billionaire will get vastly different treatments and outcomes in the American justice system (which is bad, but simply he reality).

> So will Holmes go to prison?

I would bet heavily against it. Holmes maintained panoptic control over all of Theranos's operations (until she was barred from operating labs, presumably), so it seems very unlikely that definitive evidence of fraud will surface from within.

Also, I imagine that the US regulatory bodies that started actions against Theranos in the past two years are or will soon be... significantly less disposed to vigorously pursuing criminal charges, especially of the kind that would assign personal culpability to corporate management.

I'm extremely skeptical that this could in any way be possible, but is it remotely possible that she herself did not know the extent of the fraudulence of the tests?

If there is a criminal investigation, it looks like there are too many and some powerful people (investors,advisors) involved.

We should send them all to the slammer as well...Locking up some of these plutocrats sounds like something we could use right now

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-...

There will never be enough popcorn for the Theranos saga.

> ... 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.

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

Note, however, that they do not state that the allegations are false.

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?

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.

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.

That's not true. I'm pretty sure they only include people who has some interaction with the app, in phone the app needs to be in foreground.

Are "active daily users" humans checking a Facebook app? Or the app checking in with Facebook?

> There's so much pressure to be immediately profitable

One of Silicon Valley's problems continues to be that there is so little pressure to build a profitable business from early on. It's the exact opposite, they overwhelmingly encourage reckless behavior to chase growth over profit, resulting in almost exclusively extreme binary outcomes (as desired by the VCs).

I'm not sure that's true. It's very easy to build a failed business, but to build an overly hyped failed business, you need a taste of success to point to as indicating you are on a rocket ship ride to trillion dollar valuation.

It's pretty damn easy to create a fictious $100 million transaction with other insiders, then gloss over the details on the balance sheet.

> It's very easy to build a failed business, but to build an overly hyped failed business, you need a taste of success to point to as indicating you are on a rocket ship ride to trillion dollar valuation.

What does that have to do with Silicon Valley VCs intentionally forcing extreme binary outcomes because they are willing to burn down 98 companies to get 2 huge homeruns? There's no debate to be had, we have a lot of actual data in regards to the industry, which numerous prominent VC firms routinely publish. We also have multiple bubbles worth of history in regards to VC behavior and the general day to day crunchbase or VC funding news type information. There's a non-stop 20+ year history of Silicon Valley VCs doing exactly what I've described, leaving a vast parade of thousands of dead formerly multi-million dollar start-ups in their wake.

> It's pretty damn easy to create a fictious $100 million transaction with other insiders, then gloss over the details on the balance sheet.

I have no idea what you're talking about or how that pertains to what I said.

I think you are actually agreeing with me to some extent, that SV is based (partly? Largely?) on funny money.

I'm just pointing out that in addition to that, insider dealing and cooked books play a greater role in the funny money economy than anyone likes to talk about.

All the more credit to the show Silicon Valley. They illustrated the fake user scenario quite well.

My (limited) contact with the VC biotech world is more than enough to stay well away from it. It is, by and large, scientifically bankrupt outside of more traditional pharma and ag stuff.

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

Also, some reviews here are amusing and frightening:


An archive of the page: http://archive.is/pijS2

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.

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

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.

How do you expect to have folks listen to you if you have no money and no influence? :)

Just the law of nature ... :)

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?

List of YCombinator companies: http://yclist.com/

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

did not see a story on Zecco when I searched past week on HN. What post are you referring to?

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.

Gilt Groupe and Fab both sold at significantly lower values than they had previously raised at, not sure if that counts as a "total collapse".

I predict the next one will be Hampton Creek, given the criminal probe into their fraudulent buy-back scheme.

The federal probe into Hampton Creek has been closed. See: http://www.bizjournals.com/sanfrancisco/news/2017/03/27/hamp...

You must have missed the Zenefits stuff. You clearly are missing out on Uber's continuing implosion, too.

> total collapse

Neither Zenefits nor Uber meet that definition. Uber particularly isn't even remotely close to it. Unless you consider a company still holding a ~$50 billion valuation, with $9 billion in cash + credit line, chasing down $10 billion in sales for 2017, a total collapse.

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

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

Bit more actually, closer to $700M.

Theranos had received a $9 Billion valuation at its peak. https://www.forbes.com/sites/roomykhan/2017/02/17/theranos-9...

"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...

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

This trainwreck is going to make a great movie.

It's already being made: http://m.imdb.com/title/tt5795144/

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

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?


Removed the paywall: http://outline.com/DVdmsJ

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

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

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?

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.

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.

People who are used to software success stories, not medical tech success stories. An undergraduate having an idea that changes the world is possible in the relatively unconstrained space of software (which the bubble is used to), less so in the long, dull slog of primary scientific research.

Reminds me of what my patent attorney friend said about the difference between copyrights and patents as it relates to software. Copyright serves writing, composing, etc very well because it's a difficult low output craft. Patents serves physical technologies because developing solutions to physical problems is as hard as it gets.

With software there very much more tends to be a direct map between requirements and the solution. It's definitely 'work' which should have some protection but not to the extent of copyright or patents.

Point to make. With a software company if you have a half decent marketable idea, money, and competent people to execute, you have a business. Because the engineers can make the software work. Maybe it's profitable, maybe not so much, but the result is real.

Biotech? Nope. High high chance that your engineers will hit a wall and not be able to make the idea work. And then you have nothing. It sounds like Theranos built a biotech company like as if it were software company and lied when they hit the wall.

I could believe someone making a rbeakthrough and then leaving college to commercialize it. That's what happened with Google and a bunch of other unicorn firms, and I'm plenty willing to believe in the posibility of innovation/discovery by a fresh thinker who noticed a pearl among the gravel.

But when Elizabeth Holmes burst upon the scene, she just seemed too good to be true - gee, you're an original, off-the-wall thinker and innovator and you're a goody-two-shoes workaholic of the kind MBAs and investors fantasize about? Nah.

My sister is very much that hard worker/high achiever personality but she's intellectually very conservative and compartmentalized. There's absolutely nothing wrong with this - indeed it's part of what makes her good at her medical profession - but innovators usually also demonstrate a playful streak and a tolerance for failure rather than needing to be perceived as perfect.

I wonder if this apparent fraud will result in criminal prosecution. It would be a sad end for la Holmes to matriculate at San Quentin.

You have to admit, though, it does take a fresh thinker to be able to maintain this scale of scam. Just not a scientific prodigy.

>'I'm too driven to care about anything but my work' is always a red flag.

Silly little things like "truth" or "integrity" are just distractions. . .

Charitably, "anything" also included "reality", "the truth", "potential negative outcomes". She was just telegraphing her intent all along :)


No appreciation for humor, I see.

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

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.

Because it takes many years to build cases like these. It may still happen.

It is never ending bad news about this company.

Someone should make a movie about this!

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

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?


That this story is a US journalistic article is probably not enough to make this an on-topic comment. Please comment substantively like we've asked.


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.

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

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.

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.

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

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.

An investigative reporter at WSJ was the first to break the story about issues at Theranos, and he and other reporters have been assigned to keep investigating and keep reporting on it. I think this is pretty standard investigative reporting, similar to how it was always the Washington Post breaking news on Watergate.

Here's how it works: Whoever writes the landmark news-breaking story on a given scandal is the main person that people with axes to grind will go to with more information. Positive feedback cycle.

Let's take a step back. How many news organizations are well-known for investigative journalism? I'd say the number is relatively small, so you're already working with a small set. Journalism is also a function of the individual editors and journalists who are actually doing the work. What interests them? What are they good at? Looking at the situation from just these, it's not all that surprising that a single news organization tends to be responsible for a majority—if not all—of the investigations with respect to a particular topic without the necessity of competition funding.

There are honest reasons why a news outlet might take a strong interest in a group of stories.

A journalist might have become interested in a story early, and his immediate collegues then followed once it started picking up steam, for example. It's a bit like why a university might develop expertise in a new field faster than others.

It's possible that that initial interest came from outside influence of a competitor, but it's also reasonable to suspect that it was an honest skepticism from a journalist. After all, it's not hard to be skeptical of the many startups popping up these days.

A better question is why do other most of the other media firms (including all of the valley tech shops) believe reprinting press releases is journalism?

They broke the original story in the first place. Makes sense for them to keep following it up.

They broke the story, and are one of the few places still doing real investigative journalism?

My guess:

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

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.

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.

Why, hello, Theranos employee and/or Tim Draper.

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