The surrender of Elizabeth Holmes: a complex and cautionary tale of ambition turned deceit

The curtain appears to have fallen on the final act of a true-crime story of massive fraud that captivated not only the business and biotechnology sectors, but also the popular imagination.

On June 14, 2018, a grand jury indicted Elizabeth Holmes and Ramesh "Sunny" Balwani with crimes related to a scheme to promote Theranos, a failed medical technology start-up based in Palo Alto that had promised to disrupt the consumer healthcare industry. In 2022, Holmes and Balwani were convicted in separate trials of conspiracy and fraud related to their claims about Theranos' ability to provide "accurate, fast, reliable, and cheap blood tests and test results." Holmes and Balwani, who served respectively as Theranos' CEO and COO, additionally misrepresented Theranos' financial condition and prospects, defrauding investors of hundreds of millions of dollars. The pair met when Holmes was just 18 years old; they kept their 12-year romantic relationship a secret from investors and employees even when Balwani joined the company as president in 2009, despite having no background in medicine or pharmaceuticals.

After losing her last-minute appeal to the Ninth Circuit for bail while she appeals her conviction, Holmes, age 39, surrendered to authorities on May 30 to begin her eleven-year sentence in FPC Bryan, a federal prison for women in southern Texas. Her sentence begins just months after giving birth to her second child with her spouse Billy Evans, heir to a San Diego-area chain of hotels. On April 20, Balwani, age 57, reported to Terminal Island, a federal prison in San Pedro, to begin his thirteen-year sentence. Former inmates at this facility include Al Capone, Charles Manson (briefly, for auto theft) and LSD evangelist Timothy Leary. Holmes and Balwani's trials were severed after Holmes revealed her defense strategy - that she was unable to think clearly during the time of the crimes because she was the victim of Balwani's emotional and physical abuse. Forensic psychiatrist Dr. Ziv Cohen told Insider, "I think this is weak tea for building a case of emotional abuse that would make someone not responsible for their behavior."

In opening statements at her federal criminal trial, the U.S. Attorney prosecuting Holmes told the jury, "This is a case about fraud, about lying and cheating to get money." Holmes' counsel argued in defense, "Failure is not a crime." Unpersuaded, the jury returned a guilty verdict on four out of eleven counts of fraud. The Silicon Valley mantra, "Fake it till you make it," does not play as well in health care as it does in other fast-moving tech start-ups.

On Nov. 18, 2022, Holmes was sentenced to 135 months in federal prison, and on Dec. 7, 2022, Balwani was sentenced to 155 months. In explaining the harsh sentence, Judge Edward Davila of the U.S. District Court for the Northern District of California spoke of early Silicon Valley success stories such as Hewlett-Packard, which had fostered an environment of innovation and fairness. Theranos similarly had great promise, but that promise was "dashed by untruth, misrepresentations, hubris, and plain lies." For a transcript of Judge Davila's statement, see NPR, "Read what a judge told Elizabeth Holmes before sending her to prison for 11 years," available at the following URL: https://www.npr.org/2022/11/23/1138988456/read-what-a-judge-told-elizabeth-holmes-before-sending-her-to-prison-for-11-year.

In addition to incarceration, Holmes and Balwani were ordered to pay jointly and severally over $450 million in restitution to investors victimized by the fraud, though they may not see a penny of that. Emotional scars will also be hard to remedy. Twenty-something Theranos employees Tyler Shultz and Erika Cheung were initially fans of Holmes and her mission but faced bullying and derision after raising uncomfortable questions to Theranos' management about severe flaws in the technology. After resigning in frustration, Erica, an entry-level lab tech, blew the whistle to a little-known but powerful federal agency - Centers for Medicare and Medicaid Services - which responded by giving Theranos ten days to fix laboratory practices that posed "immediate jeopardy to patient health and safety." Erica has authored a TED Talk about her experiences speaking truth to power. Tyler was a summer intern and ultimately a full-time employee; he was the source of the Wall Street Journal articles that exposed the fraud. His internship at Theranos had been arranged by Theranos' most celebrated board member: Tyler's grandfather, George Shultz, who formerly served as the U.S. Secretary of State, Secretary of Labor, Secretary of the Treasury, and Director of the Office of Management and Budget. George refused to believe Tyler, causing a rift in the family, and Tyler was forced to spend more than $400,000 in legal fees after Holmes directed one of the highest-profile attorneys in America, David Boies (who controversially provided legal services to Theranos while serving on its board), to threaten Tyler and Erica with temporary restraining orders accusing them of leaking trade secrets. Company records show that Theranos spent $150,000 to spy on Tyler and Erica; Holmes admitted she had former employees followed. Undeterred, Tyler told the Wall Street Journal, "I refuse to allow bullying, intimidation and threat of legal action to take away my First Amendment right to speak out against wrongdoing." Tyler received the James Madison Freedom of Information Award and is mentioned approximately 200 times in Wall Street Journal reporter John Carreyrou's national bestseller, "Bad Blood: Secrets and Lies in a Silicon Valley Startup." Tyler's most resonant quote: "Fraud is not a trade secret."

There have been countless media accounts of Holmes, first of her rise and later of her fall. At age 19, Holmes dropped out of Stanford in 2004 to found Theranos (a portmanteau of "therapy" and diagnosis"), with a mission to revolutionize blood testing by providing hundreds of direct-to-consumer medical results using just a pinprick of blood. With little more than a high school science background, Holmes quickly became a venerated icon to young women in technology and a trusted advisor to both the Clinton and Obama administrations. Her meteoric ascension ended in 2015 when the Wall Street Journal called into question the efficacy of her claims. Carreyrou's reporting resulted in investigations of Theranos by the FDA, the US Senate, and the US Securities and Exchange Commission. Media coverage of this true crime drama includes an eight-episode mini-series starring Amanda Seyfried ("The Dropout," Hulu, 2019) and a documentary ("The Inventor: Out for Blood in Silicon Valley," HBO, 2019, directed by Alex Gibney). ABC News produced a chart-topping podcast ("The Dropout," 2019), which began as six but was later expanded to 36 episodes ("The Dropout: Elizabeth Holmes on Trial," 2021), as well as a 20/20 special ("The Dropout: The Rise and Con of Elizabeth Holmes," Hulu, 2022).

At its apex, the consumer health care company was valued at $9 billion and secured an ill-fated partnership with Walgreens to offer blood-testing services in 40 Walgreens "Wellness Centers" in Arizona. In addition to George Shultz and Boies, Henry Kissinger and James Mattis served on Theranos' board. High profile investors included the Walton family Walmart heirs ($150 million), media mogul Rupert Murdoch ($125 million), the family of former Education Secretary Betsy DeVos ($100 million), Walgreens ($50 million) and Oracle founder Larry Ellison (undisclosed).

Holmes' self-confidence and undisputedly driven nature is hard to square with the deception for which she was convicted. In the documentary, "The Inventor," a Duke University professor of behavioral psychology, Dan Ariely, PhD, offers an explanation. In an experiment he conducted, participants self-reported rolls of a six-sided die. Participants earned small amounts of money corresponding to the number that they rolled. Unsurprisingly, on occasion, participants reported statistically improbable numbers, thus earning greater sums of money. A lie director test connected to these participants generally confirmed deception. Surprisingly, however, when participants were told the money earned would be donated to charity, not only was there more cheating, but the lie detector no longer detected the cheating. Simplistically, this might be an example of the misguided belief that an immoral act is excused if the goal is noble, i.e., "the end justifies the means." But the failure of the lie detector suggests that some of us - and Holmes could be one - can deceive ourselves into believing that we are not behaving immorally at all, eliminating the cognitive dissonance between our values and unethical behaviors.

Holmes, initially a media darling, graced the covers of Forbes, Fortune, and Inc. magazines, which lauded her as the youngest and wealthiest self-made female billionaire. After the WSJ's exposé, New York Times Style magazine featured her in yet another cover story. This time, however, the tale was of a brilliant young woman seduced by the power of her own myth.