18 ms·

Theranos Secretly Bought Outside Lab Gear, Ran Fake Tests: Court Filings

266 points by bobsky 9y ago

JBReefer 9y ago
Is this the first total collapse of a "unicorn" this time around? I can't think of any recent, high profile disintegrations of this order of magnitude.
- meddlepal 9y ago
  Was Theranos really a unicorn? I'd barely heard of them until this story broke.
  - minimaxir 9y ago
    Theranos had received a $9 Billion valuation at its peak. https://www.forbes.com/sites/roomykhan/2017/02/17/theranos-9-billion-evaporatedstanford-expert-whose-questions-ignited-the-unicorn-trouble/ https://www.forbes.com/sites/roomykhan/2017/02/17/theranos-9...
  - dpiers 9y ago
    Yes, they raised $350MM at a $9 billion valuation, and Holmes was hailed as the next Silicon Valley wunderkind.
    - Nanite 9y ago
      Bit more actually, closer to $700M.
      - Nanite 9y ago
        Why is this downvoted? it's true : https://www.crunchbase.com/organization/theranos#/entity https://www.crunchbase.com/organization/theranos#/entity
- dpiers 9y ago
  Gilt Groupe and Fab both sold at significantly lower values than they had previously raised at, not sure if that counts as a "total collapse". I predict the next one will be Hampton Creek, given the criminal probe into their fraudulent buy-back scheme.
  - ithinkinstereo 9y ago
    The federal probe into Hampton Creek has been closed. See: http://www.bizjournals.com/sanfrancisco/news/2017/03/27/hampton-creek-ceo-sec-justice-dept-mayo-probe-over.html http://www.bizjournals.com/sanfrancisco/news/2017/03/27/hamp...
- inetknght 9y ago
  You must have missed the Zenefits stuff. You clearly are missing out on Uber's continuing implosion, too.
  - adventured 9y ago
    > total collapse Neither Zenefits nor Uber meet that definition. Uber particularly isn't even remotely close to it. Unless you consider a company still holding a ~$50 billion valuation, with $9 billion in cash + credit line, chasing down $10 billion in sales for 2017, a total collapse.
palakchokshi 9y ago
This explains to some extent why investors might have given the company that valuation of 9 billion. If the company faked demos and portrayed results obtained on non Theranos tech as Theranos tech results, most investors can't be blamed for believing the tech worked and it was only a matter of time before all tests could be performed by the tech. What is baffling to me is unless the data was doctored why didn't any one of the medical consultants or partners bring this up sooner? Why did it take a deposition to reveal this? I'm sure whistleblower protections would have been provided to anyone working there with this knowledge who chose to make it public.
- inetknght 9y ago
  > why didn't any one of the medical consultants or partners bring this up sooner? Outside of direct "I physically see this patient", people can forget they work in medicine where their answers can mean life or death decisions. In that situation people end up not wanting to bite the hand that feeds. When you have automated stuff that has high throughput with little or no human interaction, you seriously limit the opportunity for humans to raise questions.
  - _Codemonkeyism 9y ago
    Totally agree, not sure why they've killed your karma. Between taking a pay cheque and whistle blowing, the large majority of people will always not rock the boat and take the money.
    - epmaybe 9y ago
      I think you're referring to the people working for theranos itself. However, investors generally try and do their due diligence before investing. Did none of the investors seek an expert to verify the claims made by Theranos prior to investing?
      - charlesdm 9y ago
        Herd mentality? Later stage investors probably assumed the early stage investors did their homework, while ultimately no one really did (or the early investors weren't at home enough in the space to realise the product wasn't properly working, or results were being faked, etc)
cvg 9y ago
An archive of the page: http://archive.is/pijS2 http://archive.is/pijS2
chromagnon 9y ago
I bet there are many other boardrooms around Silicon Valley who are panicking over this. There's so much pressure to be immediately profitable and show predictable year over year growth. How many have faked user trials or cooked the books in ways that would make Enron blush?
- antisthenes 9y ago
  All the more credit to the show Silicon Valley. They illustrated the fake user scenario quite well.
- adventured 9y ago
  > There's so much pressure to be immediately profitable One of Silicon Valley's problems continues to be that there is so little pressure to build a profitable business from early on. It's the exact opposite, they overwhelmingly encourage reckless behavior to chase growth over profit, resulting in almost exclusively extreme binary outcomes (as desired by the VCs).
  - chromagnon 9y ago
    I'm not sure that's true. It's very easy to build a failed business, but to build an overly hyped failed business, you need a taste of success to point to as indicating you are on a rocket ship ride to trillion dollar valuation. It's pretty damn easy to create a fictious $100 million transaction with other insiders, then gloss over the details on the balance sheet.
    - adventured 9y ago
      > It's very easy to build a failed business, but to build an overly hyped failed business, you need a taste of success to point to as indicating you are on a rocket ship ride to trillion dollar valuation. What does that have to do with Silicon Valley VCs intentionally forcing extreme binary outcomes because they are willing to burn down 98 companies to get 2 huge homeruns? There's no debate to be had, we have a lot of actual data in regards to the industry, which numerous prominent VC firms routinely publish. We also have multiple bubbles worth of history in regards to VC behavior and the general day to day crunchbase or VC funding news type information. There's a non-stop 20+ year history of Silicon Valley VCs doing exactly what I've described, leaving a vast parade of thousands of dead formerly multi-million dollar start-ups in their wake. > It's pretty damn easy to create a fictious $100 million transaction with other insiders, then gloss over the details on the balance sheet. I have no idea what you're talking about or how that pertains to what I said.
deleted 9y ago
[deleted]
Mz 9y ago
Wow. Okay, this takes it from "Shit happens and people can be totally deluded" to actual, genuine fraud. Edit: Also, how can people be that stupid? You have to know the truth will eventually come out? Right? Or, no? I don't get it.
- exhilaration 9y ago
  It's easy to fool yourself into believing that the fraud is just a temporary necessity while you work out the final kinks in your product.
  - deleted 9y ago
    [deleted]
  - adventured 9y ago
    It's a frequent fine line in tech. To get a contract, Bob Noyce claimed for a buyer that Fairchild could produce & deliver a new type of transistor, in a large quantity, without having any production capability for it yet, as it had never been built. Excite bid on getting a place on Netscape's browser, before having the money to actually pay for it (they figured they'd get it afterward): http://bnoopy.typepad.com/bnoopy/2004/09/persistence_pay_1.html http://bnoopy.typepad.com/bnoopy/2004/09/persistence_pay_1.h... Microsoft on multiple occasions said or implied they had something they didn't have at the time, in dealing with MITS and IBM.
    - Mz 9y ago
      I dunno. Those incidents look like brinkmanship, not outright lying and making up evidence. If you think you can get the money and you, in fact, get the money, that may be a gamble, but it doesn't sound on the same order as inventing "evidence" whole cloth.
      - adventured 9y ago
        That's where the fine line comes in. Did Excite sign a contract saying that they had the funds to pay in the case of winning the bid? I don't know the answer to that, it wouldn't be an uncommon requirement when bidding on a contract like that however. Microsoft almost certainly lied on multiple occasions about what they already had, in trying to get MITS and IBM to take them seriously. The common historical story goes that they did lie - just how the wording went, who knows, they were clearly being intentionally deceptive regardless to capture the opportunity.
mankash666 9y ago
How is it always WSJ busting Theranos? is a competitor funding their "investigative journalism"? Not to say the article is untrue, just the super hard-on WSJ has for Theranos is mysterious.
- Mz 9y ago
  My guess: "If it bleeds, it leads." True life drama and gossip (for lack of a better word) has always sold papers.
  - justinzollars 9y ago
    I think integrity is important and I don't like the idea of attacking journalists for printing stories critical of Silicon Valley. Overvaluation effects us all, these hundreds of millions drive up my rent, your rent and could be better allocated to other startup ventures.
    - Mz 9y ago
      I basically agree with you, but I will state that I was not attacking any journalists. Sensationalism sells. There are both good and bad reasons behind that truism. At the moment, the publishing industry is in crisis. I see no reason to look any further than a dire need to increase sales as "motive" for a particular publication apparently revisiting this particular on-going drama repeatedly. My sister was a journalism major in college. She was significantly involved in the school paper in high school and was awarded a journalism scholarship that helped pay for her college education. She went on to do other things and is not a journalist, though an early job of hers did involve working on a publication. I also had a class in journalism in high school (where I was disliked by the teacher for failing to be enough like my older sister, whom he had adored as a student and contributor to the school paper) and I was State Alternate for the Governor's Honors Program in Georgia in the subject of Journalism when I was 15. So, I got my toes ever so slightly wet in journalism in my teens, then, I also went down some other path instead of becoming a journalist. I assure you, my remarks are in no way intended to be an attack on journalists.
- 9y ago
bjshepard 9y ago
One thing to research, and to keep in mind when considering "journalism", is that the media in the US is deeply penetrated by government agents at all levels. Research Project Mockingbird. Research Agent Bob Woodward's past.
- sctb 9y ago
  That this story is a US journalistic article is probably not enough to make this an on-topic comment. Please comment substantively like we've asked. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
anigbrowl 9y ago
I told you her schtick was too smooth. 'I'm too driven to care about anything but my work' is always a red flag.
- chromagnon 9y ago
  The whole 'coming out of nowhere' thing is another red flag. This idea that an undergraduate built revolutionary medical tech in their dorm room no less? Who invests in that? With no data, no trials, no feasibility study?
  - bbctol 9y ago
    People who are used to software success stories, not medical tech success stories. An undergraduate having an idea that changes the world is possible in the relatively unconstrained space of software (which the bubble is used to), less so in the long, dull slog of primary scientific research.
    - Gibbon1 9y ago
      Reminds me of what my patent attorney friend said about the difference between copyrights and patents as it relates to software. Copyright serves writing, composing, etc very well because it's a difficult low output craft. Patents serves physical technologies because developing solutions to physical problems is as hard as it gets. With software there very much more tends to be a direct map between requirements and the solution. It's definitely 'work' which should have some protection but not to the extent of copyright or patents. Point to make. With a software company if you have a half decent marketable idea, money, and competent people to execute, you have a business. Because the engineers can make the software work. Maybe it's profitable, maybe not so much, but the result is real. Biotech? Nope. High high chance that your engineers will hit a wall and not be able to make the idea work. And then you have nothing. It sounds like Theranos built a biotech company like as if it were software company and lied when they hit the wall.
  - lobster_johnson 9y ago
    Holmes hasn't actually claimed to have come up with any new discoveries or revolutionary technology while an undergraduate, I think. She had the idea for the company and decided to drop out. Of course, magazines like Inc. had no issues playing up her genius with Silicon Valley hyperbole. Several people -- her professor? I forget -- warned her the blood test wouldn't work, even before she dropped out.
cylinder 9y ago
So will Holmes go to prison? A green card holder in Texas was just sentenced to eight years in prison for voting in a US election. Surely Holmes will go away much longer right?
- MaxfordAndSons 9y ago
  > A green card holder in Texas was just sentenced to eight years in prison for voting in a US election. Surely Holmes will go away much longer right? That certainly sounds like a miscarriage of justice, but not really a sensible point of comparison. It's an entirely different domain of law. And even if it were apples to apples, a random green card holder vs an American tech billionaire will get vastly different treatments and outcomes in the American justice system (which is bad, but simply he reality). > So will Holmes go to prison? I would bet heavily against it. Holmes maintained panoptic control over all of Theranos's operations (until she was barred from operating labs, presumably), so it seems very unlikely that definitive evidence of fraud will surface from within. Also, I imagine that the US regulatory bodies that started actions against Theranos in the past two years are or will soon be... significantly less disposed to vigorously pursuing criminal charges, especially of the kind that would assign personal culpability to corporate management.
- dmix 9y ago
  Is there even a criminal investigation here? I thought this was over a lawsuit. This guy got 6.5yrs in prison for defrauding investors by making it appear the company had value it actually didn't: https://www.law360.com/articles/892055/broker-gets-6-5-years-in-prison-for-5m-tech-startup-scheme https://www.law360.com/articles/892055/broker-gets-6-5-years... It's difficult to find other examples as most investor fraud is based on directly milking investors with obviously false claims. For example, this SF startup founder lied about being close to acquisition and never handed over shares in the company in return for money: http://www.mercurynews.com/2014/02/20/san-francisco-startup-founder-arrested-charged-with-defrauding-investor-of-210000/ http://www.mercurynews.com/2014/02/20/san-francisco-startup-... that's more directly fraudulent. The Theranos thing might be more difficult to prove as it's possible the technology was somewhat legitimate but clearly if sharing the fake test data was a critical part of them investing, then it might be much the same. The early investors who bought into just the idea may not have any claim. But any later investors who invested based solely on claims made with falsified test data may have a claim against the company/her.
nebulous1 9y ago
Hasn't this been known for ages now? (I could only read the start of the article)
phoneyphone 9y ago
Removed the paywall: http://outline.com/DVdmsJ http://outline.com/DVdmsJ
knodi123 9y ago
Man, I started out so sympathetic to Theranos, too. Just goes to show how good my instincts are.
tetrep 9y ago
Can't read the Journal article so not sure if it has this or not, but reply from Theranos: This is a one-sided filing by one party to litigation, and we will respond at the appropriate time in the appropriate forum. We disagree with much of what PFM alleges in its complaint. This is not, however, the time or place to contest their mischaracterizations of the record. We will litigate this case in court, where it belongs. What we will say now is that the items on which PFM focuses have nothing to do with why PFM invested, and they amount to a repackaging of allegations the media have already reported for nearly two years. As for the tender offer: As previously disclosed, Theranos is in the midst of a tender offer involving its most significant shareholders. Elizabeth Holmes’ use of her own shares to recapitalize our C-2 and C-1 investors—and thereby prevent dilution to our other shareholders—is consistent with her longstanding, personal commitment to doing the right thing for the Theranos shareholder base. This tender offer has been in discussion between Theranos and its shareholders since July 2016. To date, more than 99% of C-2 and C-1 investors other than PFM have chosen to participate. PFM, a multi-billion dollar hedge fund, opposes the transaction, and is asking the Court to stop the tender offer because it is “unfair” specifically and only to PFM. In response to PFM’s suit, the Court suspended the tender offer for a month in order to permit sufficient time for the court to review the transaction. PFM’s effort to enjoin the tender offer is meritless; their legal theories are self-serving and would harm the rest of the Theranos shareholders. The Company is vigorously opposing PFM’s new suit and looks forward to completing the transaction with its shareholders. From: https://techcrunch.com/2017/04/21/theranos-says-it-has-been-mischaractarized-in-allegations-the-company-faked-tests-and-boosted-financials/ https://techcrunch.com/2017/04/21/theranos-says-it-has-been-... There will never be enough popcorn for the Theranos saga.
- ceejayoz 9y ago
  > ... consistent with her longstanding, personal commitment to doing the right thing for the Theranos shareholder base... Uh huh. That's why the offer comes with a "you agree not to sue us" clause, I'm sure.
  - apahwa 9y ago
    well, to be fair, if they cashed out and then sued as well then that would be double dipping a bit right?
kpwagner 9y ago
This all sounds preliminary to me. Based on the headline and one paragraph I was able to read (not pay-walled), this doesn't necessarily indicate malicious intent or foul play. Big companies are complicated, and they do things in weird ways sometimes for reasons that aren't immediately obvious. It's amazing how quickly the winds of the internet shift to absolutely condemn a person/company before all (or any) of the facts are in. The world is a better place when we all extend a benefit of doubt to our fellow humans and there creations.
- ceejayoz 9y ago
  There are plenty of facts available around the Theranos situation. Not much benefit of the doubt left here.
joering2 9y ago
I will keep repeating that: The fact that Elizabeth house is not FBI raided and she is not in jail without ability to talk to co-conspirators just show how you can run your scam enterprise by simply having the right people on your board.
- edc117 9y ago
  Agreed, it's bullshit like this that makes it VERY clear that the law only applies to the poor and non-influential.
  - venture_lol 9y ago
    How do you expect to have folks listen to you if you have no money and no influence? :) Just the law of nature ... :)
  - joering2 9y ago
    I go even further - the fact that nowodays nobody cares how obvious your statement is, makes it even more frightening especially in the "free" country that should be run by law and order.
iblaine 9y ago
This trainwreck is going to make a great movie.
- lobster_johnson 9y ago
  It's already being made: http://m.imdb.com/title/tt5795144/ http://m.imdb.com/title/tt5795144/
hakcermani 9y ago
Someone should make a movie about this!
- kirubakaran 9y ago
  Bad Blood http://www.imdb.com/title/tt5795144/ http://www.imdb.com/title/tt5795144/
pottersbasilisk 9y ago
Companies like this are a good reason to end limited liability for corporations. Corporations arent people, and the people behind them escape with golden parachutes.
- bravo22 9y ago
  The shareholders and investors can go after the executives for fraud. They're not protected in this case.
  - pottersbasilisk 9y ago
    Until corporate officers and shareholders are subject to lawsuits, Limited liability creates an entity that behaves pathologically - without regard to anyone/anything outside of itself. Theranos,Enron,Volkswagen scandals are just some of the way too many to count scandals that damage citizens.
kilroy123 9y ago
My question is, who is still working at this place and why??? Also, some reviews here are amusing and frightening: https://www.glassdoor.com/Reviews/Theranos-Reviews-E248889.htm https://www.glassdoor.com/Reviews/Theranos-Reviews-E248889.h...
yalogin 9y ago
This is an outright scam. Why haven't we seen any arrests?
- verulito 9y ago
  Because it takes many years to build cases like these. It may still happen.
- chmaynard 9y ago
  Because the US legal code is written by politicians who accept bribes to make it difficult or impossible to prosecute white-collar crime in a timely fashion. These weak laws are enforced very selectively, based on the whims of senior officals and judges in the executive and judicial branches of our government. This is reality. Deal with it.
lutusp 9y ago
A very worthwhile story, behind a paywall. Welcome to modern times.
- nemothekid 9y ago
  Will the world ever come back to their senses and we will ever return to the "modern" times of 2002-2012 when all journalism was free?
brilliantcode 9y ago
HN is on fire today. Zecco and now Theranos. I'm getting the feeling that we are going to see more and more stories like this in the near future. Theranos running fake tests is just another example of the type of charlatans enabled by socioeconomic lineage. > Theranos plans to offer investors shares in the company in exchange for them not filing lawsuits against the embattled blood-testing company. How far removed can you be from reality to even think like this?
- sortaThrowaway 9y ago
  did not see a story on Zecco when I searched past week on HN. What post are you referring to?
  - ramblenode 9y ago
    https://news.ycombinator.com/item?id=14166966 https://news.ycombinator.com/item?id=14166966
- frik 9y ago
  List of YCombinator companies: http://yclist.com/ http://yclist.com/
  - brilliantcode 9y ago
    One can a lot from this list, this is super valuable for my needs!
Spooky23 9y ago
So when does "the next Steve Jobs" end up as "the next Jeff Skilling"?
joshmn 9y ago
Who made this call? What was their goal? Like, they couldn't have honestly thought they were able to back up their claims, did they? Holmes?
DonHopkins 9y ago
"Perhaps Holmes should call up the folks over at Magic Leap, they know a thing or two about getting busted for fake demonstrations and overselling technology." [1] [1] http://nymag.com/selectall/2017/04/theranos-staged-fake-blood-tests-for-investors.html http://nymag.com/selectall/2017/04/theranos-staged-fake-bloo...
Pyxl101 9y ago
Paywall bypass redirect: http://facebook.com/l.php?u=https://www.wsj.com/articles/theranos-secretly-bought-outside-lab-gear-ran-fake-tests-court-filings-1492794470 http://facebook.com/l.php?u=https://www.wsj.com/articles/the...
notadoc 9y ago
It is never ending bad news about this company.

266 points by bobsky 9y ago

Is this the first total collapse of a "unicorn" this time around? I can't think of any recent, high profile disintegrations of this order of magnitude.

meddlepal 9y ago
Was Theranos really a unicorn? I'd barely heard of them until this story broke.
- minimaxir 9y ago
  Theranos had received a $9 Billion valuation at its peak. https://www.forbes.com/sites/roomykhan/2017/02/17/theranos-9-billion-evaporatedstanford-expert-whose-questions-ignited-the-unicorn-trouble/ https://www.forbes.com/sites/roomykhan/2017/02/17/theranos-9...
- dpiers 9y ago
  Yes, they raised $350MM at a $9 billion valuation, and Holmes was hailed as the next Silicon Valley wunderkind.
  - Nanite 9y ago
    Bit more actually, closer to $700M.
    - Nanite 9y ago
      Why is this downvoted? it's true : https://www.crunchbase.com/organization/theranos#/entity https://www.crunchbase.com/organization/theranos#/entity
dpiers 9y ago
Gilt Groupe and Fab both sold at significantly lower values than they had previously raised at, not sure if that counts as a "total collapse". I predict the next one will be Hampton Creek, given the criminal probe into their fraudulent buy-back scheme.
- ithinkinstereo 9y ago
  The federal probe into Hampton Creek has been closed. See: http://www.bizjournals.com/sanfrancisco/news/2017/03/27/hampton-creek-ceo-sec-justice-dept-mayo-probe-over.html http://www.bizjournals.com/sanfrancisco/news/2017/03/27/hamp...
inetknght 9y ago
You must have missed the Zenefits stuff. You clearly are missing out on Uber's continuing implosion, too.
- adventured 9y ago
  > total collapse Neither Zenefits nor Uber meet that definition. Uber particularly isn't even remotely close to it. Unless you consider a company still holding a ~$50 billion valuation, with $9 billion in cash + credit line, chasing down $10 billion in sales for 2017, a total collapse.

palakchokshi 9y ago

This explains to some extent why investors might have given the company that valuation of 9 billion. If the company faked demos and portrayed results obtained on non Theranos tech as Theranos tech results, most investors can't be blamed for believing the tech worked and it was only a matter of time before all tests could be performed by the tech. What is baffling to me is unless the data was doctored why didn't any one of the medical consultants or partners bring this up sooner? Why did it take a deposition to reveal this? I'm sure whistleblower protections would have been provided to anyone working there with this knowledge who chose to make it public.

inetknght 9y ago
> why didn't any one of the medical consultants or partners bring this up sooner? Outside of direct "I physically see this patient", people can forget they work in medicine where their answers can mean life or death decisions. In that situation people end up not wanting to bite the hand that feeds. When you have automated stuff that has high throughput with little or no human interaction, you seriously limit the opportunity for humans to raise questions.
- _Codemonkeyism 9y ago
  Totally agree, not sure why they've killed your karma. Between taking a pay cheque and whistle blowing, the large majority of people will always not rock the boat and take the money.
  - epmaybe 9y ago
    I think you're referring to the people working for theranos itself. However, investors generally try and do their due diligence before investing. Did none of the investors seek an expert to verify the claims made by Theranos prior to investing?
    - charlesdm 9y ago
      Herd mentality? Later stage investors probably assumed the early stage investors did their homework, while ultimately no one really did (or the early investors weren't at home enough in the space to realise the product wasn't properly working, or results were being faked, etc)

cvg 9y ago

An archive of the page: http://archive.is/pijS2 http://archive.is/pijS2

chromagnon 9y ago

I bet there are many other boardrooms around Silicon Valley who are panicking over this. There's so much pressure to be immediately profitable and show predictable year over year growth. How many have faked user trials or cooked the books in ways that would make Enron blush?

antisthenes 9y ago
All the more credit to the show Silicon Valley. They illustrated the fake user scenario quite well.
adventured 9y ago
> There's so much pressure to be immediately profitable One of Silicon Valley's problems continues to be that there is so little pressure to build a profitable business from early on. It's the exact opposite, they overwhelmingly encourage reckless behavior to chase growth over profit, resulting in almost exclusively extreme binary outcomes (as desired by the VCs).
- chromagnon 9y ago
  I'm not sure that's true. It's very easy to build a failed business, but to build an overly hyped failed business, you need a taste of success to point to as indicating you are on a rocket ship ride to trillion dollar valuation. It's pretty damn easy to create a fictious $100 million transaction with other insiders, then gloss over the details on the balance sheet.
  - adventured 9y ago
    > It's very easy to build a failed business, but to build an overly hyped failed business, you need a taste of success to point to as indicating you are on a rocket ship ride to trillion dollar valuation. What does that have to do with Silicon Valley VCs intentionally forcing extreme binary outcomes because they are willing to burn down 98 companies to get 2 huge homeruns? There's no debate to be had, we have a lot of actual data in regards to the industry, which numerous prominent VC firms routinely publish. We also have multiple bubbles worth of history in regards to VC behavior and the general day to day crunchbase or VC funding news type information. There's a non-stop 20+ year history of Silicon Valley VCs doing exactly what I've described, leaving a vast parade of thousands of dead formerly multi-million dollar start-ups in their wake. > It's pretty damn easy to create a fictious $100 million transaction with other insiders, then gloss over the details on the balance sheet. I have no idea what you're talking about or how that pertains to what I said.

deleted 9y ago

[deleted]

Mz 9y ago

Wow. Okay, this takes it from "Shit happens and people can be totally deluded" to actual, genuine fraud. Edit: Also, how can people be that stupid? You have to know the truth will eventually come out? Right? Or, no? I don't get it.

exhilaration 9y ago
It's easy to fool yourself into believing that the fraud is just a temporary necessity while you work out the final kinks in your product.
- deleted 9y ago
  [deleted]
- adventured 9y ago
  It's a frequent fine line in tech. To get a contract, Bob Noyce claimed for a buyer that Fairchild could produce & deliver a new type of transistor, in a large quantity, without having any production capability for it yet, as it had never been built. Excite bid on getting a place on Netscape's browser, before having the money to actually pay for it (they figured they'd get it afterward): http://bnoopy.typepad.com/bnoopy/2004/09/persistence_pay_1.html http://bnoopy.typepad.com/bnoopy/2004/09/persistence_pay_1.h... Microsoft on multiple occasions said or implied they had something they didn't have at the time, in dealing with MITS and IBM.
  - Mz 9y ago
    I dunno. Those incidents look like brinkmanship, not outright lying and making up evidence. If you think you can get the money and you, in fact, get the money, that may be a gamble, but it doesn't sound on the same order as inventing "evidence" whole cloth.
    - adventured 9y ago
      That's where the fine line comes in. Did Excite sign a contract saying that they had the funds to pay in the case of winning the bid? I don't know the answer to that, it wouldn't be an uncommon requirement when bidding on a contract like that however. Microsoft almost certainly lied on multiple occasions about what they already had, in trying to get MITS and IBM to take them seriously. The common historical story goes that they did lie - just how the wording went, who knows, they were clearly being intentionally deceptive regardless to capture the opportunity.

mankash666 9y ago

How is it always WSJ busting Theranos? is a competitor funding their "investigative journalism"? Not to say the article is untrue, just the super hard-on WSJ has for Theranos is mysterious.

Mz 9y ago
My guess: "If it bleeds, it leads." True life drama and gossip (for lack of a better word) has always sold papers.
- justinzollars 9y ago
  I think integrity is important and I don't like the idea of attacking journalists for printing stories critical of Silicon Valley. Overvaluation effects us all, these hundreds of millions drive up my rent, your rent and could be better allocated to other startup ventures.
  - Mz 9y ago
    I basically agree with you, but I will state that I was not attacking any journalists. Sensationalism sells. There are both good and bad reasons behind that truism. At the moment, the publishing industry is in crisis. I see no reason to look any further than a dire need to increase sales as "motive" for a particular publication apparently revisiting this particular on-going drama repeatedly. My sister was a journalism major in college. She was significantly involved in the school paper in high school and was awarded a journalism scholarship that helped pay for her college education. She went on to do other things and is not a journalist, though an early job of hers did involve working on a publication. I also had a class in journalism in high school (where I was disliked by the teacher for failing to be enough like my older sister, whom he had adored as a student and contributor to the school paper) and I was State Alternate for the Governor's Honors Program in Georgia in the subject of Journalism when I was 15. So, I got my toes ever so slightly wet in journalism in my teens, then, I also went down some other path instead of becoming a journalist. I assure you, my remarks are in no way intended to be an attack on journalists.
9y ago

bjshepard 9y ago

One thing to research, and to keep in mind when considering "journalism", is that the media in the US is deeply penetrated by government agents at all levels. Research Project Mockingbird. Research Agent Bob Woodward's past.

sctb 9y ago
That this story is a US journalistic article is probably not enough to make this an on-topic comment. Please comment substantively like we've asked. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html

anigbrowl 9y ago

I told you her schtick was too smooth. 'I'm too driven to care about anything but my work' is always a red flag.

chromagnon 9y ago
The whole 'coming out of nowhere' thing is another red flag. This idea that an undergraduate built revolutionary medical tech in their dorm room no less? Who invests in that? With no data, no trials, no feasibility study?
- bbctol 9y ago
  People who are used to software success stories, not medical tech success stories. An undergraduate having an idea that changes the world is possible in the relatively unconstrained space of software (which the bubble is used to), less so in the long, dull slog of primary scientific research.
  - Gibbon1 9y ago
    Reminds me of what my patent attorney friend said about the difference between copyrights and patents as it relates to software. Copyright serves writing, composing, etc very well because it's a difficult low output craft. Patents serves physical technologies because developing solutions to physical problems is as hard as it gets. With software there very much more tends to be a direct map between requirements and the solution. It's definitely 'work' which should have some protection but not to the extent of copyright or patents. Point to make. With a software company if you have a half decent marketable idea, money, and competent people to execute, you have a business. Because the engineers can make the software work. Maybe it's profitable, maybe not so much, but the result is real. Biotech? Nope. High high chance that your engineers will hit a wall and not be able to make the idea work. And then you have nothing. It sounds like Theranos built a biotech company like as if it were software company and lied when they hit the wall.
- lobster_johnson 9y ago
  Holmes hasn't actually claimed to have come up with any new discoveries or revolutionary technology while an undergraduate, I think. She had the idea for the company and decided to drop out. Of course, magazines like Inc. had no issues playing up her genius with Silicon Valley hyperbole. Several people -- her professor? I forget -- warned her the blood test wouldn't work, even before she dropped out.

cylinder 9y ago

So will Holmes go to prison? A green card holder in Texas was just sentenced to eight years in prison for voting in a US election. Surely Holmes will go away much longer right?

MaxfordAndSons 9y ago
> A green card holder in Texas was just sentenced to eight years in prison for voting in a US election. Surely Holmes will go away much longer right? That certainly sounds like a miscarriage of justice, but not really a sensible point of comparison. It's an entirely different domain of law. And even if it were apples to apples, a random green card holder vs an American tech billionaire will get vastly different treatments and outcomes in the American justice system (which is bad, but simply he reality). > So will Holmes go to prison? I would bet heavily against it. Holmes maintained panoptic control over all of Theranos's operations (until she was barred from operating labs, presumably), so it seems very unlikely that definitive evidence of fraud will surface from within. Also, I imagine that the US regulatory bodies that started actions against Theranos in the past two years are or will soon be... significantly less disposed to vigorously pursuing criminal charges, especially of the kind that would assign personal culpability to corporate management.
dmix 9y ago
Is there even a criminal investigation here? I thought this was over a lawsuit. This guy got 6.5yrs in prison for defrauding investors by making it appear the company had value it actually didn't: https://www.law360.com/articles/892055/broker-gets-6-5-years-in-prison-for-5m-tech-startup-scheme https://www.law360.com/articles/892055/broker-gets-6-5-years... It's difficult to find other examples as most investor fraud is based on directly milking investors with obviously false claims. For example, this SF startup founder lied about being close to acquisition and never handed over shares in the company in return for money: http://www.mercurynews.com/2014/02/20/san-francisco-startup-founder-arrested-charged-with-defrauding-investor-of-210000/ http://www.mercurynews.com/2014/02/20/san-francisco-startup-... that's more directly fraudulent. The Theranos thing might be more difficult to prove as it's possible the technology was somewhat legitimate but clearly if sharing the fake test data was a critical part of them investing, then it might be much the same. The early investors who bought into just the idea may not have any claim. But any later investors who invested based solely on claims made with falsified test data may have a claim against the company/her.

nebulous1 9y ago

Hasn't this been known for ages now? (I could only read the start of the article)

phoneyphone 9y ago

Removed the paywall: http://outline.com/DVdmsJ http://outline.com/DVdmsJ

knodi123 9y ago

Man, I started out so sympathetic to Theranos, too. Just goes to show how good my instincts are.

tetrep 9y ago

Can't read the Journal article so not sure if it has this or not, but reply from Theranos: This is a one-sided filing by one party to litigation, and we will respond at the appropriate time in the appropriate forum. We disagree with much of what PFM alleges in its complaint. This is not, however, the time or place to contest their mischaracterizations of the record. We will litigate this case in court, where it belongs. What we will say now is that the items on which PFM focuses have nothing to do with why PFM invested, and they amount to a repackaging of allegations the media have already reported for nearly two years. As for the tender offer: As previously disclosed, Theranos is in the midst of a tender offer involving its most significant shareholders. Elizabeth Holmes’ use of her own shares to recapitalize our C-2 and C-1 investors—and thereby prevent dilution to our other shareholders—is consistent with her longstanding, personal commitment to doing the right thing for the Theranos shareholder base. This tender offer has been in discussion between Theranos and its shareholders since July 2016. To date, more than 99% of C-2 and C-1 investors other than PFM have chosen to participate. PFM, a multi-billion dollar hedge fund, opposes the transaction, and is asking the Court to stop the tender offer because it is “unfair” specifically and only to PFM. In response to PFM’s suit, the Court suspended the tender offer for a month in order to permit sufficient time for the court to review the transaction. PFM’s effort to enjoin the tender offer is meritless; their legal theories are self-serving and would harm the rest of the Theranos shareholders. The Company is vigorously opposing PFM’s new suit and looks forward to completing the transaction with its shareholders. From: https://techcrunch.com/2017/04/21/theranos-says-it-has-been-mischaractarized-in-allegations-the-company-faked-tests-and-boosted-financials/ https://techcrunch.com/2017/04/21/theranos-says-it-has-been-... There will never be enough popcorn for the Theranos saga.

ceejayoz 9y ago
> ... consistent with her longstanding, personal commitment to doing the right thing for the Theranos shareholder base... Uh huh. That's why the offer comes with a "you agree not to sue us" clause, I'm sure.
- apahwa 9y ago
  well, to be fair, if they cashed out and then sued as well then that would be double dipping a bit right?

kpwagner 9y ago

This all sounds preliminary to me. Based on the headline and one paragraph I was able to read (not pay-walled), this doesn't necessarily indicate malicious intent or foul play. Big companies are complicated, and they do things in weird ways sometimes for reasons that aren't immediately obvious. It's amazing how quickly the winds of the internet shift to absolutely condemn a person/company before all (or any) of the facts are in. The world is a better place when we all extend a benefit of doubt to our fellow humans and there creations.

ceejayoz 9y ago
There are plenty of facts available around the Theranos situation. Not much benefit of the doubt left here.

joering2 9y ago

I will keep repeating that: The fact that Elizabeth house is not FBI raided and she is not in jail without ability to talk to co-conspirators just show how you can run your scam enterprise by simply having the right people on your board.

edc117 9y ago
Agreed, it's bullshit like this that makes it VERY clear that the law only applies to the poor and non-influential.
- venture_lol 9y ago
  How do you expect to have folks listen to you if you have no money and no influence? :) Just the law of nature ... :)
- joering2 9y ago
  I go even further - the fact that nowodays nobody cares how obvious your statement is, makes it even more frightening especially in the "free" country that should be run by law and order.

iblaine 9y ago

This trainwreck is going to make a great movie.

lobster_johnson 9y ago
It's already being made: http://m.imdb.com/title/tt5795144/ http://m.imdb.com/title/tt5795144/

hakcermani 9y ago

Someone should make a movie about this!

kirubakaran 9y ago
Bad Blood http://www.imdb.com/title/tt5795144/ http://www.imdb.com/title/tt5795144/

pottersbasilisk 9y ago

Companies like this are a good reason to end limited liability for corporations. Corporations arent people, and the people behind them escape with golden parachutes.

bravo22 9y ago
The shareholders and investors can go after the executives for fraud. They're not protected in this case.
- pottersbasilisk 9y ago
  Until corporate officers and shareholders are subject to lawsuits, Limited liability creates an entity that behaves pathologically - without regard to anyone/anything outside of itself. Theranos,Enron,Volkswagen scandals are just some of the way too many to count scandals that damage citizens.

kilroy123 9y ago

My question is, who is still working at this place and why??? Also, some reviews here are amusing and frightening: https://www.glassdoor.com/Reviews/Theranos-Reviews-E248889.htm https://www.glassdoor.com/Reviews/Theranos-Reviews-E248889.h...

yalogin 9y ago

This is an outright scam. Why haven't we seen any arrests?

verulito 9y ago
Because it takes many years to build cases like these. It may still happen.
chmaynard 9y ago
Because the US legal code is written by politicians who accept bribes to make it difficult or impossible to prosecute white-collar crime in a timely fashion. These weak laws are enforced very selectively, based on the whims of senior officals and judges in the executive and judicial branches of our government. This is reality. Deal with it.

lutusp 9y ago

A very worthwhile story, behind a paywall. Welcome to modern times.

nemothekid 9y ago
Will the world ever come back to their senses and we will ever return to the "modern" times of 2002-2012 when all journalism was free?

brilliantcode 9y ago

HN is on fire today. Zecco and now Theranos. I'm getting the feeling that we are going to see more and more stories like this in the near future. Theranos running fake tests is just another example of the type of charlatans enabled by socioeconomic lineage. > Theranos plans to offer investors shares in the company in exchange for them not filing lawsuits against the embattled blood-testing company. How far removed can you be from reality to even think like this?

sortaThrowaway 9y ago
did not see a story on Zecco when I searched past week on HN. What post are you referring to?
- ramblenode 9y ago
  https://news.ycombinator.com/item?id=14166966 https://news.ycombinator.com/item?id=14166966
frik 9y ago
List of YCombinator companies: http://yclist.com/ http://yclist.com/
- brilliantcode 9y ago
  One can a lot from this list, this is super valuable for my needs!

Spooky23 9y ago

So when does "the next Steve Jobs" end up as "the next Jeff Skilling"?

joshmn 9y ago

Who made this call? What was their goal? Like, they couldn't have honestly thought they were able to back up their claims, did they? Holmes?

DonHopkins 9y ago

"Perhaps Holmes should call up the folks over at Magic Leap, they know a thing or two about getting busted for fake demonstrations and overselling technology." [1] [1] http://nymag.com/selectall/2017/04/theranos-staged-fake-blood-tests-for-investors.html http://nymag.com/selectall/2017/04/theranos-staged-fake-bloo...

Pyxl101 9y ago

Paywall bypass redirect: http://facebook.com/l.php?u=https://www.wsj.com/articles/theranos-secretly-bought-outside-lab-gear-ran-fake-tests-court-filings-1492794470 http://facebook.com/l.php?u=https://www.wsj.com/articles/the...

notadoc 9y ago

It is never ending bad news about this company.