Elizabeth Holmes, CEO of Silicon Valley startup Theranos has been exposed for years of fraud after her medical testing company was revealed as being a vast scam, costing investors millions of dollars.
The well known Silicon Valley startup had offered it’s investors a lifeline – or more specifically a bloodline when it hoarded $700 million worth of investments into their blood testing company which was believed to revolutionise modern medicine. The company was identified as facilitating the ‘early detection and prevention of disease,’ through the prick of a finger and advertised the ability to complete 25 medical tests such as identifying cholesterol levels on small samples of blood being assessed through a ‘nanotainer’.
Theranos, however, has now imploded following an extensive investigation by the US Securities and Exchange Commission (SEC) which in a recent press release documented the charges as an ‘elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance’. It has been reported that CEO Elizabeth Holmes and President Ramesh Balwani are facing a charge of $500,000 alongside a ten-year ban on running a business.
The downfall of CEO Holmes also comes as somewhat of a humiliation to the technology community. Formerly heralded as ‘the next Steve Jobs’ by the media, the Stanford College dropout was promoted on a number of magazine covers such a Fortune and Forbes with a company valued at over $9 billion. However alongside speculation from specialists in the science field, the company had already begun to unravel amidst its ambitious claims when the Wall Street Journal challenged the company’s credibility and suggested that it’s technology methods were a fad.
It was even earlier during the company’s hay-day however that Holmes was already embroiled in suspicious company activity which was revealed by the Washington Post in late 2015. Following an accusation in 2012 from the Department of Defense that the company was intending to distribute the technology without official Food and Drug Administration (FDA) clearance, the CEO had sought support from the current US Secretary of Defense James Mattis to dispel the military claims. Having made fleeting comments that the medical technology was already being used by armed forces in Afghanistan, which were discovered to be false, the company had caught the attention of SEC.
Despite the allegations, Holmes managed to maintain the support of leading scientists to this point, industry leaders defended the technology and the investments continued to flood in for the company. The technology business was idealised as at the forefront of successful startups and during the accused periods of 2013 and 2015 maintained a powerful Board of Directors including former Secretary of State George Schultz and current Secretary of Defense, James Mattis.
The ousting of the company in recent days and Holmes fall from grace has also served highlight the startup community’s requirement to comply with U.S regulations. The industry faces scrutiny from government officials to provide honest reviews of the current capabilities of their technologies, as well as future potential. This comes off the back of a number of startups seeing investments channelled into private markets with limited ‘public scrutiny’.
One can only question why Elizabeth Holmes is not facing criminal charges for the phenomenal fraud her company has been evading for the past few years. Though the current charges serve as a warning to startups, it remains to be seen if it’s enough of a warning for investors who, $700 million out of pocket, are the real losers in yesterday’s technology scandal.