The story of how Elizabeth Holmes came to defraud some of the richest and most powerful investors in the US, only to end up this week facing decades in prison, is so epic and outlandish that it is no wonder it has already flowered into a prize-winning book and a popular podcast, and is reportedly on its way to becoming a Hollywood film, with Ms Holmes to be played by Jennifer Lawrence, no less. But it is more than superb entertainment; it is a parable about how our financial system is badly broken.
At only 19, Ms Holmes decided to reinvent a fundamental part of healthcare: blood testing. No more painful pinpricks, nor anxious waits for results. She dropped out of Stanford to start Theranos in 2003, and in short order pulled in some of the biggest investors in Silicon Valley, garnered adoring magazine profiles and turned her startup into a firm employing 800 staff and valued at £6.6bn.
There was just one problem: the miracle technology was junk. It did not do what it said on the tin. The deception was first exposed in 2015, the company dissolved in 2018 and last August its founder began a four-month long trial. A jury found her guilty this week of four counts of fraud, each carrying a maximum term of 20 years. Ms Holmes is still only 37.
When the going was good, she could count among her backers and board members powerbrokers such as Henry Kissinger and George Shultz. The trial revealed how far networking of contacts served to beguile the supposed smart money, who asked few questions but were satisfied instead with a great backstory and the lustre of the names. Investors gave Ms Holmes their millions and sent notes thanking her for taking them. Not far behind were the profile writers. Far from a few suckers getting duped, this was a political-financial-media elite disastrously short on self-doubt.
As with Jeffrey Epstein, it required dogged journalism to do the serious investigation and expose the truth. Yet when the Wall Street Journal’s John Carreyrou did ask the necessary questions, Ms Holmes admitted in court that she retaliated by going straight to the newspaper’s owner, Rupert Murdoch – who just happened to be a serious investor in Theranos. The WSJ ran the stories anyway, but another organ under different ownership might not have done.
Finally, America and other rich countries have spent years running record-low interest rates and quantitative easing programmes, which have pushed the cost of capital close to zero. This has not sparked a wave of innovation in socially vital technologies, but pumped more air into asset bubbles. And in the case of Theranos, all it has done is provide the kindling for a bonfire of wealth – money that could have been spent more wisely, invested more usefully and done some actual good.