Personal take on the Theranos Fraud

Screenshot 2022-11-19 at 11.12.16
The headline this morning: “Theranos founder Elizabeth Holmes sentenced to more than 11 years for defrauding investors”.

The case centred around her false claims that her technology could detect hundreds of diseases from a single drop of blood. The BBC reported, “Silicon Valley is a place where fortunes can be made and squandered. It’s not unusual for investors to lose big sums of money. It’s also not unusual for founders to make grandiose claims about their tech. What is different about Holmes’ case, though, is that Theranos’ unwinding, actually led to fraud charges that stuck”. 

I have a slightly different, and perhaps, more personal take on all this.


I was once the Research Director, later to become the Chief Scientific Officer, for a company offering high-tech solutions in drug development. Unlike Theranos, the technology did work, although the BBC’s observation that, “it’s also not unusual for founders to make grandiose claims about their tech…” does ring some bells. As the company became established so it searched for venture capital. I sat through many meetings with potential investors and they all had one thing in common. The Venture Capitalist brought along business managers, accountants and lawyers, but not one brought along a technical expert. They focused their investment decisions on business plans, projected sales, market share and profits, but to my knowledge, not one assessed the technology itself. The company eventually attained investors, which meant they asked me to attend the occasional board meeting to provide scientific updates. It didn’t take long before I realised the investors had little comprehension of the technology, and at times had some rather skewed views on its capabilities. After one board meeting. I asked whether they had ever considered including a technical expert in their decision-making team. I thought it an obvious question, but they didn’t seem to get it; they saw no need for a boffin, (and I quote). 

In my general dealings with the healthcare industry, I came across another company that had acquired Venture Capital. It was, however, an alternative medicine-type company, selling cures with no convincing evidence any of it worked; although they were very careful in their claims, so as not to overstep legal lines. Given the size of the alternative medicine market, estimated to be $100 billion worldwide, perhaps the Venture Capitalists made a financially wise investment, but this doesn’t alter the fact, they had little idea they were putting their money into a baseless technology.

Theranos reminds me of the case of the fake bomb detector scam, which resulted in the businessman, James McCormick, being jailed for 10 years in 2013. The detectors could apparently detect explosives, money and drugs from a distance using nothing more than a plastic box fitted with an aerial. They sold the detectors to governments all over the world, including the United Nations. If anyone had taken the trouble to look inside the box, instead of finding space-age electronics, all they would have seen is empty space. 

Technical scrutiny for investments in technical companies seems a complete no-brainer to me. To be honest, I have been asked to conduct technical scrutiny on behalf of investors a couple of times but this does not seem to be the norm. Walgreens Pharmacy, for example, did a deal with Theranos without conducting a full independent validation of the technology. Instead they believed Theranos’ claim that several pharmaceutical companies had conducted the validations previously.

I admit it’s easy to judge with 20:20 hindsight but given the “it’s too good to be true” claims of both the fake bomb detector and Theranos, it seems a safe bet that robust technical scrutiny, at least in these cases, might have saved a lot of money and heartache. Certainly caveat emptor (let the buyer beware) seems to be good advice. But that’s just the option of a boffin.

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