The rise and fall of Elizabeth Holmes

Martina Eriksson

10 November 2020


White collar crime has no official definition by law according to Pickett and Pickett (2002, p. 1-3), however it can be described as a type of financial crime, where trickery is utilized for illicit achievements and the actual intentions of the activities is veiled. The phrase is often correlated with the word fraud or financial crime (Pickett and Pickett, 2002, p. 3). Minkes and Minkes (2008, p. 103) argue that one field of corporate crime revolves around the owners and managers who con their own organizations in order to gain something themselves, with no consideration on the consequences on the others. Moreover, corporate crimes can be difficult to be prosecuted, since many crimes are either left unnoticed by the authorities or not reported by the involved parties. One example of a case that was brought to the attention of the public and has gained popularity in the media, is the fraud committed by Elizabeth Holmes and her company Theranos. The purpose of this essay is to analyze this case of Holmes and the crimes regarding her medical company and examine the consequences of the criminal acts committed by the company on our society.

The case

Elizabeth Holmes left university at the age of 19 and became the founder of Theranos, a medical company that provided highly evolved blood testing, without the need to draw large amounts of blood from the vein. The blood diagnostic tests analyzed by Theranos could be performed with a hundred times less blood than a more commonly used test and could examine multiple types of tests of just one small blood sample. This promising invention had potential to become popular among patients who were not able or willing to draw massive amounts of blood, such as children or cancer patients. Holmes further developed her business in Silicon Valley and subsequently was valued at around 9 Billion USD and she managed to become the youngest self-made female billionaire at this time (Parloff, 2014, p. 66). She became quickly a celebrated personality and appeared on many magazine covers, such as Fortune and Forbes. However, in reality the blood testing device provided by Theranos could perform a minor fraction of the promised tests, in addition to the company using devices by competitors to analyze blood samples (, 2015). This meant that the investors, the customers of the company and also the media were misled and granted false promises (, 2020).

There was a whistleblower involved in the case, Tyler Shultz who had worked at the company for less than a year, realized in 2015 that the research had been tampered with and quality checks had been failed. It turns out that Holmes took advantage of a loophole in the regulations regarding laboratory testing, which allowed her to build and operate her business without anyone monitoring the policies linked to her actions (Carreyrou, 2016). As Pickett and Pickett (2002, p. 86) suggest, the easiest way to find out about fraud inside a company is to find someone willing to talk, that is close to the source. He immediately reached out to Holmes and expressed his concerns internally through an email. The president of the company Ramesh Balwani made a mockery of Shultz’s claims and wrote to him in an email that the only reason why he even got hired was the relationship between Balwani and Shultz’s grandfather, who was on the board of directors at Theranos. As a result, Shultz resigned from the company and decided to come public with his claims, after he tried to express his concerns internally and failed at it. In order to protect patients, he decided to use an alias to inform the public health lab in New York, in addition to speaking with a journalist from the Wall Street Journal (Carreyrou, 2016). The same journalist who brought the case to the public, ended up writing a book about the case called Bad Blood, Secrets and Lies in a Silicon Valley Startup, through interviewing former employees and other involved people (Boni and Sammut, 2019, p. 67). After the news story with whistleblowers as the source came out to the public, Elizabeth Holmes and her company became part of a media frenzy revolving around her fraudulent behavior. Holmes was banned from being involved in any public companies and also lost all voting rights in Theranos, in addition to returning all shares of her company (, 2020). Furthermore, the streaming service HBO released a documentary in 2019, which investigates the case is called The Inventor: Out for Blood in Silicon Valley, which increased the public interest in the matter (, 2019).

The crimes committed and legal consequences

In 2018, Elizabeth Holmes and the president of her company Ramesh Balawni, were charged with massive fraud and accused of raising over 700 million USD through fraudulent activities at their company Theranos (, 2020). The scheduled trial for U.S vs Holmes has been delayed due to the global pandemic, but a date for the court trial has been set for early 2021. Both Holmes and Balawni are indicted with “two counts of conspiracy to commit wire fraud and nine counts of wire fraud” and face up to twenty years in prison, in addition to paying a fine and restitution (, 2020). The lawyers of Elizabeth Holmes have suggested that they will use Holmes’s mental state as a defense, in order to excuse her from carrying the fault of the accused crimes. It has not been determined how the defense will argue against the charges and have kept any details about their arguments secret. The only known fact is, that a psychiatric professor will evaluate Holmes, in order to support the mental state defense (Sandler, 2020).

Analysis and impact on society

The downfall of Holmes and her company came from her being too focused on fame, instead of developing the technology and the products she promised to her customers. She has no medical education, which means that she not only misled investors and committed fraud, but also endangered patients with inaccurate test results. Since Holmes and Balawni were aware of the fact that the products they were promoting to the pharmaceutical industry and doctors, did not produce the accurate and extensive results as promised, suggests that moral hazard is an issue in this case. In 2016, the pharmacy chain Walgreens sued Theranos for the amount they had invested in the company, due to breach of contract. Because the case and the settlement are sealed, there is not a lot of information about the case. Nevertheless, it is interesting that before the Wall Street Journal article came out, there had already been suspicion about the blood testing of Theranos and if it works as promised (, 2017). The question remains how Holmes could fool the investors in later stages to invest in the business, when according to Boni and Sammut (2019, p. 71) anyone with knowledge about blood testing business would have been skeptical about the services Theranos claimed to provide. The board of the organization consisted of powerful and prominent people, including secretaries of state and people involved in government, politics and the military. Nevertheless, almost none of the directors had experience in medicine, which meant that they had no previous knowledge in the field that could have led them to question Holmes and her actions (Wasley, 2016). The case has shown the public how easily investors can be deceived, in order for the business to gain capital and make large amounts of profits on the expense of customers in desperate need for the product. Moreover, the case exemplifies that the motivation of becoming a self-made entrepreneur has shifted from providing the society with something important, to making a lot of money off the invention.

This case could have been prevented by applying further policies regarding the industry and monitoring the organizations providing the products and services, in order to uncover malpractice or fraud in time. The company should have been investigated after Walgreens sued Theranos and argued, that the test results were not up to the standard they were guaranteed when they made an investment. Elizabeth Holmes however fooled her colleagues, investors, customers and even the public to believe her, through the strong belief in her ideas, but will face the consequences of her actions in court next year.