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Illustration: Aïda Amer/Axios

Jury selection begins Tuesday in the criminal trial of Elizabeth Holmes, the disgraced founder and former CEO of Theranos.

Why it matters: The case will draw a bright line between “fake it ’til you make it” and outright fraud.

Flashback: Theranos billed its tech as the holy grail of blood testing, making it possible to run hundreds of assays from just a pinprick.

  • It once was valued at $9 billion and raised more than $700 million from investors like Tim Draper, Carlos Slim and Rupert Murdoch. Its board included former Henry Kissinger, Jim Mattis and George Shultz.
  • The company struck partnerships with Safeway and Walgreens, and Holmes became a regular presence on national business magazine covers.
  • But a series of exposés by the Wall Street Journal's John Carreyrou revealed that Theranos' tech didn’t work as advertised, that it secretly used commercially available blood analyzers, and that it falsified information shared with regulators.
  • Since then, Holmes and the company have been sued by investors, Walgreens and the SEC. It’s also voided two years of test results and dissolved its operations.

Between the lines: The role of due diligence—or lack thereof—is a central point of failure in the Theranos story.

  • Theranos had just a couple of experienced VC investors and only two board members with medical experience (albeit not in phlebotomy).
  • Google Ventures founder Bill Maris once revealed that GV passed after a team member took a Theranos test at Walgreens (Holmes has disputed this).
  • Holmes cleverly used one credible supporter’s backing to get the next one, and then the next one, all while evading close scrutiny (or even sharing audited financials).
  • Notably, the company told prospective investors in 2014 that the company was on track to break even and generate $100 million in revenue. It brought in little more than $100,000 for that period.

The bottom line: Theranos is the biggest fraud to have ever come out of Silicon Valley, dwarfing other tales of malfeasance. It not only took investors for hundreds of millions of dollars, but it also put thousands of people's health at risk.

Go deeper

Felix Salmon, author of Capital
Sep 9, 2021 - Economy & Business

Why corporate fraud remains unchecked

Illustration: Eniola Odetunde/Axios

As the first Theranos trial begins, there have never been fewer incentives to uncover or prosecute corporate fraud.

Why it matters: There was a brief crackdown on white-collar crime at the end of last year, as Republican prosecutors negotiated deals before a new administration was sworn in. Now, however, there's no such urgency.

Mike Allen, author of AM
2 hours ago - Politics & Policy

Fauci fires back at Rand Paul for slam on tonight's "Axios on HBO"

Responding to charges by Sen. Rand Paul on Sunday's "Axios on HBO," NIAID director Anthony Fauci told "ABC This Week" that it's "molecularly impossible" for U.S.-funded bat virus research in China to have produced COVID-19.

Why it matters: The issue 0f Wuhan research was reignited on the right last week with a National Institutes of Health letter to Congress disclosing more about the research.

Manchin, Schumer huddle with Biden in Delaware to discuss spending bill

Senate Majority Leader Chuck Schumer (L) and Sen. Joe Manchin (R) at the U.S. Capitol on Nov. 13, 2014. Photo: Win McNamee/Getty Images

Sen. Joe Manchin (D-W.Va.) will meet with President Biden and Senate Majority Leader Charles Schumer (D-N.Y.) on Sunday morning in Delaware as Democrats look to reach an agreement on the massive spending measure.

Driving the news: Democrats are still negotiating what to keep in the bill and how to pay for it, with Biden saying on Thursday that the party does not have the votes to raise the corporate tax rate.

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