The game is up for folks who enjoy pointing out that Theranos founder Elizabeth Holmes (and company president Sunny Balwani) inexplicably escaped serious consequences for the company's billion-dollar blood test hoax. They were charged with fraud today by the Feds.

Both Holmes, who stepped down as CEO of the financially crippled company earlier Friday, and Balwani appeared in U.S. District Court in San Jose, Calif., for arraignment on two counts of conspiracy to commit wire fraud and nine counts of wire fraud.

Both Holmes and Balwani, who surrendered Friday to the FBI, were released on $500,000 bond each and ordered to surrender their passports at the arraignment, which was attended by Holmes

Theranos's blood-testing machines never amounted to much more than hacky prototypes, but the company faked its way to a $9bn valuation by secretly using competitors' traditional technology while keeping employees shushed with a threatening, cultlike corporate culture. CNBC says "Holmes and Balwani face up to 20 years in prison if convicted" but doesn't suggest likely sentencing. Read the rest

John Carreyrou broke the story of Theranos' epic medical fraud. At Wired he now takes a sharp look at its dysfunctional corporate culture, excerpted from his new book on the corrupt Silicon Valley unicorn's spectacular downfall, Bad Blood [Amazon].

Not all of it was Elizabeth Holmes, either. COO Sunny Balwani was a quietly stupid office tyrant:

[Theranos'] device remained very much a work in progress. The list of its problems was lengthy.

The biggest problem of all was the dysfunctional corporate culture in which it was being developed. Holmes and Balwani regarded anyone who raised a concern or an objection as a cynic and a nay-sayer. Employees who persisted in doing so were usually marginalized or fired, while sycophants were promoted.

Employees were Balwani’s minions. He expected them to be at his disposal at all hours of the day or night and on weekends. He checked the security logs every morning to see when they badged in and out. Every evening, around 7:30, he made a flyby of the engineering department to make sure people were still at their desks working. With time, some employees grew less afraid of him and devised ways to manage him, as it dawned on them that they were dealing with an erratic man-child of limited intellect and an even more limited attention span.

Holmes, by contrast, was savvy yet unreasonable. And it got worse after high-ranking staff quit rather than be party to Theranos going public with its unreliable tech...

The resignations infuriated Holmes and Balwani.

Theranos, touting fast and easy blood tests, was a billion-dollar Silicon Valley beast. Read the rest

Theranos, led by charismatic founder Elizabeth Holmes, became a billion-dollar startup on the promise of a pinprick blood test that doesn't work. Walgreens, a retailer suckered into partnering the scam, is suing what's left of it for $140m.

Walgreens has filed suit against Theranos in Delaware district court, asking for $140 million and alleging a breach of contract.

Walgreens successfully moved to seal the complaint, citing the non-disclosure agreement, so the details of the alleged contractual breach are still unknown. A Walgreens spokesperson confirmed that the company had filed the lawsuit, but declined to add further comment.

Walgreens operated the "Theranos wellness centers," but apparently never bothered to validate the technology. (Previously)

Photo: Steve Jurvetson (CC BY 2.0) Read the rest

It's hard to know who to feel less sorry for - a Silicon Valley company with a portfolio of quackery and deceit or the San Francisco hedge fund that was bamboozled into investing $96.1 million in it? On Monday, Partner Fund Management LP filed a lawsuit against Theranos in an attempt to get its money back. A letter to its investors said, "Through a series of lies, material misstatements, and omissions, the defendants engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company.”

From the Wall Street Journal:

The suit is the first sign of trouble from investors who poured about $800 million into the company, and then remained silent as it navigated a challenging year that began when the Journal first reported on shortcomings in its operations and technology last October.

[Founder Elizabeth] Holmes had said Theranos could accurately perform dozens of tests using a few drops of blood, a premise that drove the firm to a valuation of $9 billion in a 2014 fundraising round. The Journal’s investigation showed it used its flagship technology for a small number of tests, relied on devices made by conventional manufacturers and released questionable test results to patients.

Since then, Theranos has voided tens of thousands of test results, faces federal civil and criminal investigations, and is appealing a regulator’s revocation of its blood-testing license at a California lab.

Good luck getting your money back, PFM. And good luck with your pivot, Theranos. Read the rest

Nick Bilton's analysis of his Theranos exposé shows how bad actors like Elizabeth Holmes can misuse employees and government regulators, but he is especially critical of access journalism practiced in the business trades. It's a great read for anyone who writes as part of their job. Read the rest

The rise and fall of Theranos is gripping stuff. The $700m startup touted a revolutionary one-prick suite of blood tests that never worked well. But it managed to keep its failures hidden, writes Vanity Fair's Nick Bilton, thanks to the secrecy and controlling policies of its founder, Elizabeth Holmes. Holmes seems to have been aware of the technology's failure from an early stage, but was committed to it in a way that suggests a cult more than a company. Read the rest