Theranos was a technology firm founded by Elizabeth Holmes in 2003. Holmes dropped out of Stanford University to pursue her dream of devising a medical device that could perform blood tests using much smaller samples than other devices needed, cutting costs and reducing the need for painful needles. Another supposed benefit of the device she invented (named the "Edison") was that it was physically much smaller than standard machines, removing the need for samples to be sent to a central laboratory.
What was the scam?
The technology didn't work. Theranos was unusually secretive, forcing employees to sign non-disclosure agreements and refusing to publish scientific papers on its research. It was later revealed that, while Holmes was making bold claims about the company's potential, and agreeing a deal with pharmacy chain Walgreens, the company's flagship device was so useless that the firm's engineers were secretly buying machines from competitors and performing screens with these instead.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
What happened next?
The huge surge of publicity – Holmes was feted by the press as a new Steve Jobs – prompted journalist John Carreyrou to start asking questions. Richard Fuisz, who was engaged in a patent dispute with Theranos, put Carreyrou in touch with former employees, which led to a series of critical articles in The Wall Street Journal. Government regulators shut down Theranos's lab in July 2016 and Walgreens ended its partnership. By August 2018, the company had been wound up.
Lessons for investors
In March 2018 Holmes – recently dubbed a "millennial Madoff" by The New York Post – and COO Ramesh Balwani paid a fine of $500,000 and surrendered their remaining equity in the company to regulators.
The duo are being prosecuted for misleading investors. All the shareholders were wiped out in the bankruptcy, with any patents reverting to creditors. Rupert Murdoch lost $150m. The whole episode underlines that early stage technology investing can be extremely risky. The fact that Theranos was secretive about its technology, even at a time when its CEO was becoming a celebrity, should have been a big warning sign to investors.
-
Steve Webb: The triple lock is there to do a job. I’m not embarrassed or ashamed of itThe triple lock means 13 million pensioners will now get an above-inflation state pension boost in April. While the rising cost of the policy has stirred controversy, Steve Webb, who served as pensions minister when it was introduced, argues the triple lock is vital and should stay. Webb speaks to Kalpana Fitzpatrick on the new episode of MoneyWeek Talks – out now.
-
How retirement pots risk running out 11 years early if inflation remains highPension savers could find their retirement income may not last as long as they anticipated over fears that inflation may not slow down
-
Christopher Columbus Wilson: the spiv who cashed in on new-fangled radiosProfiles Christopher Columbus Wilson gave radios away to drum up business in his United Wireless Telegraph Company. The company went bankrupt and Wilson was convicted of fraud.
-
Great frauds in history: Philip Arnold’s big diamond hoaxProfiles Philip Arnold and his cousin John Slack lured investors into their mining company by claiming to have discovered large deposit of diamonds. There were no diamonds.
-
Great frauds in history: John MacGregor’s dodgy loans
Profiles When the Royal British Bank fell on hard times, founder John MacGregor started falsifying the accounts and paying dividends out of capital. The bank finally collapsed with liabilities of £539,131
-
Great frauds in history: the Independent West Middlesex Fire and Life Assurance Company's early Ponzi scheme
Profiles The Independent West Middlesex Fire and Life Assurance Company (IWM) offered annuities and life insurance policies at rates that proved too good to be true – thousands of policyholders who had handed over large sums were left with nothing.
-
Great frauds in history: Alan Bond’s debt-fuelled empireProfiles Alan Bond built an empire that encompassed brewing, mining, television on unsustainable amounts of debt, which led to his downfall and imprisonment.
-
Great frauds in history: Martin Grass’s debt bingeProfiles AS CEO of pharmacy chain Rite Aid. Martin Grass borrowed heavily to fund a string of acquisitions, then cooked the books to manage the debt, inflating profits by $1.6bn.
-
Great frauds in history: Tino De Angelis’ salad-oil scamProfiles Anthony “Tino” De Angelis decided to corner the market in soybean oil and borrowed large amounts of money secured against the salad oil in his company’s storage tanks. Salad oil that turned out to be water.
-
Great frauds in history: Gerard Lee Bevan’s dangerous debtsProfiles Gerard Lee Bevan bankrupted a stockbroker and an insurer, wiping out shareholders and partners alike.
