We used to think scams were just for rubes and suckers. Slick grifters cheated the unsuspecting.
That was before Bernie Madoff bilked the wealthy. It was before Elizabeth Holmes.
Her company, Theranos, drew prominent backers. “Rupert Murdoch, I think, invested $125 million,” said Alex Gibney, whose HBO documentary is Monday … three days after one on ABC.
Murdoch, the Fox owner, was in prominent surroundings. Betsy DeVos and others were multi-million-dollar investors. Two former secretaries of state, Henry Kissinger and George Shultz, were supporters. Some Democrats were involved, including former Sen. Sam Nunn; Holmes was a Hillary Clinton supporter and was considered Chelsea Clinton’s friend.
Then it crashed. “Theranos went fom $9 billion to bankruptcy, almost overnight,” said HBO’s Nancy Abraham. That ended “a tale of hubris, deception and the dangers of wishful thinking,” as Holmes told of a revolutionary blood-test machine. And it was the Shultz connection that helped spur the collapse.
Shultz was on the board of Theranos, which hired his grandson, Tyler. When Tyler began having doubts that the product really worked, he told his grandfather.
“I looked up to him a lot,” he said. “We would go over to his house all the time …. It was extremely frustrating when he didn’t believe me. He was definitely on Elizabeth’s side for a very, very long time.”
Erika Cheung said she felt the same frustration, when quality-control tests kept showing failure. She talked to COO Ramesh Balwani and others, getting “their insistence (that) ‘it works; there’s something you’re doing wrong.’ And they essentially took out data points and generated, essentially, a fake result.”
Both became whistleblowers. After Wall Street Journal reports (by John Carreyrou) and government probes, Theranos collapsed in 2016.
But how did it get so far that it had a $9-billion valuation? “None of those investors ever looked at an audited financial statement,” Gibney said. “That was jaw-dropping to me.”
He was told that techno-investing is like that, trying long shots.“There is a whiff of the casino about some of the investing in Silicon Valley …. So long as you feel the heat and the vision, you invest.”
And Elizabeth Holmes – with cherubic face and confident manner — offered it. In person, Tyler Shultz said, “she was extremely engaging. She would make you feel like you were the most important person to her right now (and) you were critical to achieving this incredible vision that she had sold you on.”
She had the same effect on groups, Cheung said. “She was a very charismatic speaker.”
Holmes spun a story of innovation and progress. “That’s what Edison was good at,” Gibney said. “That’s what Steve Jobs was good at. (But) unlike Jobs and Thomas Edison, her product didn’t work.”
Holmes had seemed perfect for the times, Gibney said – a young “female entrepreneur who, by dint of her own tenacity and intelligence, comes up with an incredible idea …. We all wanted to believe.”
She may have originally believed it herself, but as the tests kept failing, she started attacking her critics. Tyler Shultz said his family spent $400,000 to $500,000 for his legal fees.
Eventually, his view prevailed. Theranos went bankrupt; Holmes, 35, has been indicted for fraud.
And George Shultz, now 98? Tyler told of a large family gathering last year: “He kind of stopped all conversation and said that he was proud of me.”
— “20/20: The Dropout,” 9-11 p.m. Friday (March 15), ABC.
— “Inventor: Out for Blood in Silicon Valley,” 9-11 p.m. Monday (March 18), HBO; reruns at 2:30 a.m.
— HBO also runs its film at 11:35 p.m., March 20; 5:30 p.m., March 22; 2:30 p.m., March 23; 11 a.m., March 26. Also, HBO2 has it at 10:10 p.m. March 19 and 11:45 a.m. March 24.
— More: “Bad Blood” (2008, Alfred A. Knopf), by John Carreyrou, is being adapted into a movie; Adam McKay (“Vice,” “The Big Short”) plans to direct, with Jennifer Lawrence as Holmes.