Saturday, December 11, 2021

Theranos: A Company Made to Deceive (2015-2021)

 Theranos: A Company Made to Deceive (2015-2021)

Case Controversy:

In 2003, Elizabeth Holmes, a 19-year-old Stanford student dropped out of college and launched Theranos inc. Theranos was a blood testing company whose business model revolved around the idea that they could run blood tests using proprietary technology that required only a finger prick and a small amount of blood. These tests were allegedly supposed to be able to detect medical conditions like cancer and high cholesterol using small, automated devices (Hartmans Leskin Jackson 8). Between the years of 2004 and 2007 Theranos attracted investors and raised millions of dollars. Theranos’ valuation went from about $30 million in 20014 to $197 million in 2007.

In 2009 Ramesh Balwani, who was romantically involved with Holmes’ at the time, joined the company. Balwani would serve as president and CEO of Theranos. Balwani and Holmes would continue to grow the company and in 2013 Theranos’ blood tests were available to the public through a partnership with Walgreens. Theranos’ value would skyrocket as it reached $9 billion. Holmes’ net worth was now $4.5 billion, and she was considered the youngest self-made billionaire on planet Earth (Tun 3). 

On October 15, 2015, an article published by the Wall Street Journal exposed the shortcomings of Theranos. The article claimed that the blood tests were not being run on proprietary technology but instead on commercial blood analyzers. The effectiveness and accuracy of Holmes’ breakthrough blood testing machine “Edison'' was also brought into question in the article as it was reported the device could only perform 15 tests which is not what Theranos’ website claims. The article stated, “But Theranos’s outside lawyer, David Boies, acknowledges that the company isn’t yet using the device for all the tests Theranos offers. The transition to doing every test with the device is “a journey,” he says. Asked about the claim on the company’s website, Mr. Boies replied that using the device for the “full range” of blood tests is a goal Theranos will eventually achieve.” (Carreyrou 9). In the midst of the Wall Street Journal’s reporting Theranos deleted claims on their website that their test only required a few drops of blood among other things. They would come out publicly and say that the website alterations were done for marketing accuracy. 

Holmes continued to back her company and claimed that they were in a pause period while waiting for federal approval of their proprietary technology. However, in January of 2016 during an inspection by the Medicare and Medicaid services it was discovered that Theranos’ California lab which housed its proprietary technology had deficiencies that posed immediate health and safety risks to patients. The four-page letter from the Medicaid and Medicare services included major infractions in five different categories including Hematology tests. Hematology tests are extremely important for patients with diabetes and with blood coagulation issues. The tests determine whether patients should be put on anticoagulation medication whose side effects are life threatening (Carreyrou 12). Shortly after the inspection Balwani would leave Theranos for good in May 2016

In October 2016, about a year after the Wall Street Journal's initial reporting Theranos made the decision to close its medical lab operations. About 6 months later the Arizona attorney general announced that all Arizonians could get a full refund if they purchased a Theranos product as part of a $4.65 million settlement with the company. In 2018 after another $100 million settlement with an investment firm Theranos collapsed. In March of 2018 the Securities and Exchange commission charged Theranos, Holmes, and Balwani with civil securities fraud. Theranos and Holmes reached settlements without admitting or denying liability. On June 18, 2015, federal prosecutors brought criminal fraud charges to Holmes and Balwani. The initial indictment detailed two counts of conspiracy to commit wire fraud and nine counts of wire fraud. “According to the indictment, the charges stem from allegations that Holmes and Balwani engaged in a multi-million-dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients.  Both schemes involved efforts to promote Theranos, a company founded by Holmes and based in Palo Alto, California.” (United States Department of Justice 1). The indictment further explained how Holmes and Balwani knew Theranos’ tests were not able to produce accurate and reliable tests and that Theranos’ technology was likely to produce inaccurate and unreliable results. It is stated that Holmes was aware that Theranos claimed to use their own proprietary technology for blood tests but instead was using third party, commercial blood analyzers. (United States Department of Justice 2). The indictment continues to allege that, “defendants used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors.  Specifically, the defendants claimed that Theranos developed a revolutionary and proprietary analyzer that the defendants referred to by various names, including as the TSPU, Edison, or minilab.” (United States Department of justice 5).

Holmes’s lawyer has repeatedly stated that “Failure is not a crime” to counter assistant US attorney general Robert Leach who, “painted Ms. Holmes as an executive who took shortcuts to try to keep her company solvent and lied to keep investor money flowing” (Randazzo 2). During the opening statements of Holmes' trial on September 8th. While the trial is yet to conclude Holmes is facing up to 20 years in prison. This is an unusually long sentence for a Silicon Valley startup failure. Reasoning for this is, “The reason Holmes is facing up to 20 years in prison, rather than a slap on the wrist, has to do with the brazenness, magnitude and longevity of her alleged deceits, which included secretly sending blood samples for outside lab tests rather than using the company’s own technology.” (Oremus 7)



         The stakeholders in this specific case are the company, Theranos, Elizabeth Holmes, investors, the patients and doctors that used Theranos’s technology, and the stores that sold Theranos’ products. Theranos is an obvious stakeholder in this case. As a company, before the allegations of inaccurate test results and findings, Theranos was worth billions of dollars. After the allegations and charges, the company was forced to collapse and is now no longer a thing. Elizabeth Holmes as her reputation as an entrepreneur, valuation, and future are all affected by this case. Holmes' reputation as an entrepreneur is at stake as it now appears she is willing to deceive and mislead investors in order to get their money. Before the case Holmes was valued at $4.5 billion and was named the youngest self-made billionaire of all time. After the case her net worth is now estimated to be zero due to her entire net worth being her 50% stake in Theranos. Now that Theranos has collapsed that value is gone (Herper 2). Her future is at stake as she is currently at trial for her role in the Theranos scandal and is facing up to 20 years in federal prison. The many people that invested mass amounts of money into Theranos were greatly affected as they lost all of their money due to the collapse of the company. The doctors who implemented and used Theranos supposedly proprietary technology are affected as they could have possibly run false and misleading tests on their patients. This could lead to serious life-threatening repercussions for patients and could ruin a doctor’s reputation and credibility. Patients who were given blood tests administered by Theranos’ technology are also affected by this. Due to many tests, being inaccurate and unreliable, patients ' health and safety is severely at risk. The companies and stores that distributed Thernaos’ product such as Walgreens and Safeway, are also affected. These companies are obviously forced to no longer sell these tests and will have to revert to the old products they used to distribute


Under utilitarianism, businesses should ​​ aim to maximize happiness for all parties that are involved in the business action. This happiness should be maximized not only in the short term but also in the long term. Utilitarians must compare the business actions with other possible actions to find out which possible actions would benefit happiness in the long term (Salazar 17). A utilitarian would view Elizabeth Holmes, and her company Theranos as very unethical as they didn't maximize the short term or long-term happiness of all the stakeholders involved in their business actions. For Elizabeth Holmes, her happiness was maximized in the short term, with the wealth she acquired, but was not maximized in the long term as she would end up losing all her money, and potentially facing jail time for her role in the Theranos scandal. The investors that pumped money into Theranos At the start of the fraudulent product also did not have their happiness maximized. Like Holmes, the investors would end up being happy in the short term as the company's value steadily grew, but in the long term they would suffer as the company was found out to be fraudulent and collapsed. The doctors that were involved in this case due to using Theranos’ “new technology'' did not benefit from this case at all. By using the technology, doctors were making false and unreliable blood test readings for their patients. This puts patients at short- and long-term health risks. Patient’s happiness in this case was not maximized in the short or long term. Theranos’ inability to produce effective blood testing kits put the patients in a situation where they had to make important health decisions based on false readings. Patients that received these false readings most likely had to return to their respective doctor and get new readings done with the proper testing kits. They were also forced to most likely change medications based on new results. There were also many instances where the original medication a patient was put on due to the false readings had side effects that were life threatening and could have ended up being deadly if used incorrectly. Theranos’ partners, Walgreens, Safeway, and Capital BlueCross are also unhappy. Due to them distributing Theranos’ blood testing kits it makes them have to revert back to their previous contract with another company that had reliable blood testing kits. This costs money and time in the long term. Overall, none of the Stakeholders involved in this case benefited from the actions of Theranos. A company that would be considered ethical under a utilitarian viewpoint would maximize their stakeholder’s happiness. Unfortunately, Theranos almost maximized unhappiness for its stakeholders in both the short term and the long term. Theranos deceived not only the investors that trusted them with their money, but the everyday person that trusted them with their health and safety.


Under individualism, businesses should act in order to maximize their profits while remaining with the constraints of the law. Milton Friedman developed the doctrine as a theory of business ethics that states that “an entity’s greatest responsibility lies in the satisfaction of the shareholders.”  He also said Friedman “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud” (DesJardins 2014).

Those quotes and this theory go alongside how Holmes and Sunny had strategic advertising and marketing plans and were able to gather over $700 million from investors. Holmes and Sunny promised this revolutionary type of testing that brought so much hope to not only consumers but also investors making them so willing to contribute and invest in the company. These two were trying to maximize their company’s profits and make the most money however they failed to follow the single most important part of individualism, which is remaining within the constraints of the law. The defendants Holmes and Sunny knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests even though they allegedly knew they were likely to contain inaccurate and unreliable results yet continued the company while scamming their investors. Not only were the two wrong for scamming their investors but they also “misled doctors and patients about the reliability of medical tests that endangered health and lives," said John F Bennett of the Federal Bureau of Investigation. Since they failed to produce devices that were FDA approved as well as mislead patients to believing these tests were reliable, Theranos failed to maximize profits for the owners, and failed to stay within the constraints of the  law, therefore rendering their practices unethical and destroying the company that was once worth 9 billion dollars. 


A Kantian would view Theranos’ way of handling the situation as incredibly unethical and impermissible. Kantianism’s basis for deciding whether or not an action is ethical or permissible uses consistency within a person’s judgement and their actions performed. In order for a person and their action to be considered permissible and ethical, they would have to not treat anybody as a mere means in order to achieve a result and act as though everyone is a person who should be respected. This would be the basis for the Formula for Humanity. That person would also have to act rationally and not out of bad intentions or motivations. Deceit and lying would be a form of bad intention because you are not complying with Categorical Imperatives which include the opposite of irrational actions. In our case, Elizabeth Holmes is caught lying and spreading false information to everybody including the stakeholders. This would be an immediate form of deceit which would then deem this case as unethical. 

Virtue Theory:

Virtue theory is best described as that something is inherently good if it serves its function well. There are five main virtues in virtue theory, and these main virtues help us get along with the rest of society. These five virtues are courage, honesty, temperance/self-control, justice, and fairness. When looking at the case of Elizabeth Holmes and her company, these virtues are well represented in both positive and negative ways. Someone who displayed multiple virtues was John Carreyrou, the writer for Wall Street Journal. He went into the company and observed their environment. This led to him finding issues within the company and calling them out on it. He received backlash from the company, and the company even threatened to sue him for becoming a perceived enemy to the company. Also, there were reports of company employees starting a chant saying, “F*** you Carreyrou”. Despite all this backlash, he still displayed courage and was able to fight for what is right. He promoted honesty by not trying to hide what was going on with the company. The reason he was honest was because he wanted to promote justice and fairness in order to make things right and not allow this company to take advantage of anymore people.  Elizabeth Holmes and Ramesh Balwani were two people who displayed almost the opposite of all these virtues. These two individuals were the masterminds behind all of the company’s success. When looking at the five main virtues, it is safe to say that they lacked all five of these virtues. They did not have courage because they were hiding and operating in secret for an entire decade before they were eventually forced to go public. They lacked any sort of honesty as they lied and manipulated many different investors into investing millions of dollars into the company. They also had no self-control because of how quickly they gave in to their desires. They saw a market to manipulate people and make money in the blood testing business and went straight for it, without even considering the negative aspects of it. They did not promote justice in any way because they were sneaking around and doing illegal things. They had no interest in doing what was right, and they only cared about doing what would make them the most money. Lastly, they did not have any fairness either. There were reports of them running tests while using other companies' technology. They did not play by the rules or play fair and would use whatever cheap tricks they could to gain an advantage over the competition.

​​Overall, none of the Stakeholders involved in this case benefited from the actions of Theranos. Not only were the two wrong for scamming their investors but they also “misled doctors and patients about the reliability of medical tests that endangered health and lives," said John F Bennett of the Federal Bureau of Investigation. Unfortunately, Theranos almost maximized unhappiness for its stakeholders in both the short term and the long term, broke the law while trying to maximize their profit, had poor judgement deeming their actions impermissible, and broke the virtues of honesty, justice and fairness . Theranos deceived not only the investors that trusted them with their money, but the everyday person that trusted them with their health and safety.

Action Plan:

Theranos’ main problem revolved around the company's dishonesty about what their technology and products were capable of doing. The CEO of Theranos, Elizabeth Holmes, and the COO, Ramesh Balwani were consistently dishonest about their capabilities of their new blood testing technology, in order to deceive investors into dumping hundreds of millions of dollars into the company. This all came crashing down when it was discovered that Theranos’ technology was ineffective and nothing like it was marketed to be. Theranos as a company collapsed after Balwani and Holmes were charged with fraud. 

If Theranos as a company stayed afloat it would need to seriously change their values and mission. Theranos mission moving forward should have been to produce innovative, effective blood testing devices that are smaller and cheaper than anything made prior. As a company, Theranos values convenient, simple, and cheap medical care, but most importantly the health and well being of all their customers 

As a company Theranos needs to establish new core values. Before the scandal it seemed as if Theranos valued things such as making money, dishonesty, and deception. Holmes and Balwani were not in the industry to improve other people's lives but they were solely trying to improve their own lives. A new look Theranos would have core values that prioritize patient safety, convenience, innovation, and honesty. These values would guide the company to doing what they initially intended to do, make innovative and effective medical equipment. By committing to patient safety, Theranos will make it their main goal to put patients first, they will be sure to research and test new testing devices effectively before putting them to market and will never prioritize profit over safety which they had previously done. Convenience and innovation are important values for the company as they are looking to release the smallest and cheapest blood testing devices on the market. By doing this they will be like no other medical technology/equipment company in the world. Honesty is obviously something Theranos needs to value. There was no honesty in the company run by Holmes and Balwani, and transparency will be of the utmost importance in order to gain back patients and doctors' trust.

To ensure ethical business procedures are being abided by, Theranos will obviously need to hire a new CEO and COO. Theranos should target leaders who value the same things that they as a company value. Theranos also needs to make sure that the engineers, doctors, and lab workers they employ in order to produce and analyze the tests are competent and qualified enough for their job. By doing these things, Theranos will be able to actually produce what they initially set out to produce. This will guarantee profit as it is already proven that the proposed technology will attract investors and distributors. This time around, Theranos just has to execute what they say they are trying to. 

Brian Geitner, Anthony Kelliher, Destiny Swierkosz, Ryan McCann


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