Theranos and Elizabeth Holmes: Scamming in Modern Time

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In the world of scamming the story of Victor Lustig is one of the most amazing and unbelievable ones. Lustig, a professional con man, was successful in selling the Eiffel Tower. Although this case was not very old, it happened at a time where there was no computer, Internet or any mass communication.

In 1925, while living in Paris, Lustig observed the discussion in the French newspapers about the problem with the cost of maintenance of the Eiffel Tower. The Eiffel Tower was the entrance to the 1889 World’s Fair, and as the construction of it finished, the problem with the cost of maintenance inspired Lustig for his scam. After hiring a forger to produce fake government stationery, he got ready to start. To proceed with his plan, Lustig invited a small group of metal dealers to a confidential meeting at a luxurious hotel, presenting himself as Deputy Director General of the Ministère de Postes et Télégraphes. In the meeting with the metal dealers, he was able to convince them that the Eiffel Tower was becoming too much for Paris. Thus, he conveyed that the French government wished to sell it so that the metal could be reused but underlined that the government did not want this information to be revealed since it might be controversial and create reactions from the population. This is why nothing could be disclosed until all the details were thought out. During the meeting, he paid attention to who could be the most likely to fall for his scam. He found André Poisson as the person most probable to fall to his fraud, somebody who he felt as eager to rise amongst the inner circles of the Parisian business community and the one who showed the most interest in purchasing the monument. He then arranged a private meeting with Poisson and made him believe that he was a corrupt official and convinced him to pay a hefty bribe to secure ownership of the Eiffel Tower. Once Lustig received his bribe and the funds for the monument, he fled to Austria.

The Lustig story seems unbelievable in today’s world, but we might think that was possible at that time since people did not have the level of communication that we enjoy today.

Now let’s look at the story of Elizabeth Holmes and her company Theranos as it is a story parallel to the Lustig case.

Elizabeth Holmes, a young woman who was admitted to Stanford University, dropped out to found her company Theranos in 2003 at the age of 19. She observed that the business of blood tests was enormous and with many analyses conducted every day it was a vast industry. In addition to that, every politician would love to bring this cost down, as that was an appealing issue for the population in regards to healthcare. She claimed that she had the technologies to analyze blood with just a drop of it; thus, no need for precious blood taking procedures and physician prescriptions. She claimed that she had the technology to do so. Theranos quickly raised more than $700 million from venture capitalists, and private investors and the company in 2014 was valued at $10 billion. Elizabeth Holmes claimed that Theranos “Edison” machine was capable of performing hundreds of tests with just with one drop of blood. Despite experts’ opinions who qualified the process technically impossible, Holmes continued her claim, and the company signed up with Safeway and CVS pharmacy and the Cleveland Clinic as a partner. The company was kept private so as not to provide the details of how they did their work. Holmes was able to convince many political leaders and business leaders to have their backing. She also invited many of them to join her company’s board, and this included: former U.S. Secretary of State George P. Shultz, William Perry (former U.S. Secretary of Defense), Henry Kissinger (former U.S. Secretary of State), Sam Nunn (former U.S. Senator), Bill Frist (former U.S. Senator and heart-transplant surgeon), Gary Roughead (Admiral, USN, retired), James Mattis (General, USMC), Richard Kovacevich (former Wells Fargo Chairman and CEO) and Riley Bechtel (chairman of the board and former CEO at Bechtel Group).

In short, Elizabeth Holmes and her partner Ramesh “Sunny” Balwani never had any technology to do what they were claiming, and by closely monitoring every employee they were successful in keeping this secret until the investigative journalist John Carreyrou of The Wall Street Journal questioned the validity of Theranos’ technology. And the final episode was played out on September 4, 2018, when Theranos announced that it would cease operations and release its assets and remaining cash to creditors after all efforts to find a buyer came to nothing. Most of the company’s remaining employees were laid off on the previous Friday, August 31.

For those who might be interested in knowing more, I would recommend watching an excellent HBO documentary “The Inventor: Out for Blood in Silicon Valley” directed and produced by Alex Gibney, or read “Bad Blood: Secrets and Lies in a Silicon Valley Startup,” by John Carreyrou.

Looking at these two stories we see many parallel points. However, the extent of this scamming is much more significant than the Lustig bribery case especially considering, of course, the context and time. It is astonishing to see that in the 21st century, in Silicon Valley (reputed as the most technologically advanced area in the world), such a case of scamming and fraud could occur for over 15 years. The main question that needs to be answered is who were the people who benefited from this scam.

Interestingly, this case did not have a lot of coverage in the press and media. Maybe too many high profile people were involved.

In cybersecurity, we still see many people fall victim to Phishing emails or social engineering. If we can scam and make a very elite group people believe in an impossible case, then how can we blame an individual for falling victim to a phishing mail?!

Abbas Moallem

Published in the HCI International News, Number 95, May 2019


Gibney Alex (2019): “The Inventor: Out for Blood in Silicon Valley” HBO Documentary, 1h 59m, Initial release: January 24, 2019

https://www.hbo.com/documentaries/the-inventor-out-for-blood-in-silicon-valley/about

Carreyrou John, Siconolfi Michael and Weaver Christopher (2016): “Theranos Dealt Sharp Blow as Elizabeth Holmes Is Banned From Operating Labs” The Wall Street Journal, July 8, 2016.

https://www.wsj.com/articles/u-s-regulator-bans-theranos-ceo-elizabeth-holmes-from-operating-labs-for-two-years-1467956064

Carreyrou John (2018): “Bad Blood: Secrets and Lies in a Silicon Valley Startup by John Carreyrou”, Knopf Publishing Group, May 21st, 2018.

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