The Reporter Who Took Down a Unicorn

In late September of 2015, Elizabeth Holmes, the CEO of the once-high-flying but now disgraced Silicon Valley health-care company Theranos, was in the News Corp. office of Rupert Murdoch. She had first met Murdoch in 2014 to pitch him on Theranos, and convinced him to pour $125 million into the company, making him the largest investor.

This time, Holmes was trying to get Murdoch to squash a devastating story on Theranos, soon to be published in The Wall Street Journal by reporter John Carreyrou. According to Bad Blood: Secrets and Lies in a Silicon Valley Startup, Carreyrou’s chronicle of how his coverage exposed Theranos as a fraud and destroyed its $1o billion valuation, Holmes told Murdoch that she hoped he would “offer to kill it.”

Three floors below, Carreyrou was sitting at his desk in the Journal’s office. For months, Carreyrou had been trying to get an interview with Holmes, seemingly coming close but never quite succeeding. He didn’t know it at the time, but now she was just an elevator’s ride away. “This was going to be her last tool to kill the story,” Carreyrou told me. “And given how much she had to hide, that appeal to Murdoch was her last weapon.”

Murdoch refused, for the second time, Holmes’s request to interfere, telling her he trusted the Journal editors to make the best decisions. Just over a year later, Murdoch sold back his $125 million investment for one dollar and took, according to Carreyrou, a massive tax write-off.

Several people who have worked at Murdoch papers have told me that he isn’t above interceding in editorial matters, but in this case, despite his personal interest, he didn’t. A source who has known Murdoch for years explained it, “He’s a newsman — and a good story is a good story no matter what or who the story is about.”

Bad Blood is indeed a great and at times almost unbelievable story of scandalous fraud, surveillance, and legal intimidation at the highest levels of American corporate power. (It will be adapted into a movie directed by The Big Short’s Adam McKay and star Jennifer Lawrence as Elizabeth Holmes.) Near the beginning, Carreyrou recounts an anecdote told to him by a relative of Holmes.

When Holmes was just 9 or 10, one of her relatives asked her, “What do you want to do when you grow up?”

Holmes replied, “I want to be a billionaire.”

“Wouldn’t you rather be president?” Holmes was asked.

She replied, “No, the president will marry me because I’ll have a billion dollars.”

Later in life, Holmes offered an equally quixotic vision: She wanted to change how patients’ blood was tested, which would change medicine, and in turn the world.

Holmes, who is now 34, dropped out of Stanford to found Theranos at 19, and for a few years, her childhood and adult dreams meshed. Theranos’s blood-testing system, which the company said only required a finger prick, made it a “unicorn” — Silicon Valley parlance for a billion-dollar start-up — on paper at least. Blue-chip investors included Rupert Murdoch, Larry Ellison, Carlos Slim, Walmart heirs, President Trump’s secretary of Education, Betsy DeVos, and her family, and companies like Safeway and Walgreens, which hoped to set up wellness centers in their stores where customers could have their blood tested without involving a doctor. Theranos’s board was filled with names like former Defense secretary William Perry, former secretaries of State George Shultz and Henry Kissinger, former senator Sam Nunn, former Wells Fargo CEO Richard Kovacevich, super-lawyer David Boies, and President Trump’s secretary of Defense James Mattis, who joined in 2013 after retiring as head of U.S. Central Command.

That first Carreyrou story reported that Theranos’s blood-testing machine had significant accuracy issues and had been used for only 15 out of a claimed 240 tests. Subsequent stories revealed that the machines never really worked, would often malfunction, and could lead to inaccurate diagnoses. Today, the investors are gone; Holmes and the former president and chief operating officer of Theranos, Sunny Balwani, who was also her secret boyfriend at the time, are both facing federal criminal investigations, and they have been charged by the SEC with running an “elaborate, years-long fraud.”

The story of Theranos may be the biggest case of corporate fraud since Enron. But it’s also the story of how a lot of powerful men were fooled by a remarkably brazen liar. It took just one reporter, and three former Theranos employees, to expose her.

The reporting that brought down a unicorn is contained in 22 small notebooks stacked neatly in a guest bedroom in the Brooklyn apartment Carreyrou shares with his wife, Molly Schuetz, an editor at Bloomberg News, and three children. Carreyrou, who grew up in France with a French journalist father and an American mother, has already won two Pulitzer Prizes, both shared with colleagues. But he has sole ownership over the Theranos story to a degree that is rare in journalism.

“Theranos was a combination of fraud, with hubris mixed with incompetence,” Carreyrou told me in his precise, economical manner. “Some part of Sunny and Elizabeth, I believe, knew they were committing fraud. Knew that they were lying to investors, to a lot of people. But part of them also were convinced that the Theranos technology that they were working on — which they knew was still a work-in-progress — that it actually was revolutionary. That it actually was great,” he says.

Having met Holmes twice — first at Theranos headquarters to discuss proposed health-care legislation (I worked in politics at the time), then at David Boies’s 75th birthday party in Las Vegas — I can attest to how charming and captivating she was in person. Modeling herself on Steve Jobs, down to the simple uniform of a turtleneck and slacks, she sold her vision masterfully. She spoke in a voice that was so deep it would take people by surprise; Bad Blood reveals that she may have been intentionally lowering it by a couple octaves. At one of her meetings with Rupert Murdoch, according to Carreyrou, the mogul was stunned by Holmes’s phalanx of bodyguards — Murdoch travels with only one.

But Holmes didn’t have any medical experience, and for years neither did her board, until former heart surgeon and senator Bill Frist joined in 2014. “Sources who worked with her, even some recently, said that she never really showed any curiosity about what was going on in academia and industry,” Carreyrou told me. Balwani, who ran operations at Theranos day-to-day, “was essentially a computer programmer at first, and then mostly a salesman. And he had zero training or knowledge in medicine or blood diagnostics. So you have both the lying and the outright fraud combined with this hubris that’s in large part founded on ignorance. It’s incredible in that sense.”

Holmes and Balwani never allowed investors or anyone else from the outside to scrutinize the Theranos technology. Even staff who asked questions were ostracized, fired, and/or threatened. Investors were told they wouldn’t receive regular reports about the status of the company and that Theranos wasn’t going public anytime soon. And because nobody wanted to miss the opportunity to have a stake in the next Uber or Facebook, the questions always stopped. “In Silicon Valley over the past five years, it was easy to have that attitude,” Carreyrou said. “Money was flowing in from an area where it was so easy to get. So the second she got a question she didn’t like, or too many questions, she just shut off and was basically like, ‘If you don’t want to go by these rules, then I’ll just walk.’”

Publications like Fortune and Inc. published glowing profiles of Holmes. Carreyrou doesn’t blame the reporters, saying, “You could make a case that maybe they should have done more reporting beyond interviewing her and her immediate entourage. But how much is a writer/reporter to blame when the subject is bald-face lying to him, too?”

Michael Siconolfi, Carreyrou’s longtime editor, said that Carreyrou was uniquely positioned to expose Theranos. “John had this powerful combination of being an expert on health care and existing outside the ecosystem of Silicon Valley, so he wasn’t sucked into that relationship between and among venture capitalists, entrepreneurs, and the media. He was able to look at it with an outside lens — which allowed him to see through it. Some other members of the media didn’t because they were very close to it,” he told me.

Theranos’s tactics went well beyond lying and into surveillance and intimidation. In early 2016, Carreyrou was lunching with a relative of Holmes who would become a source. An hour after they parted ways, the relative received an email from Holmes’s mother offering thanks for continued support. The relative immediately called Carreyrou, saying that that Holmes’s mother never emailed them. The relative believed that Carreyrou was under surveillance; Carreyrou replied he couldn’t be sure.

If he was, it wouldn’t be surprising. Carreyrou calls three former Theranos employees who were his primary sources “heroes” — Tyler Shultz, the grandson of Theranos board member George Shultz, Erika Cheung, and a former Theranos lab director whom he calls Alan Beam. All three faced repercussions; they were followed by private investigators and threatened with litigation and ruin. But it was Shultz who got the harshest treatment.

Shortly after a meeting between Carreyrou and Tyler Shultz on Stanford’s campus, in May 2016, Shultz’s lawyers heard from Theranos’s lawyers that they knew about the meeting. As Carreyrou writes in Bad Blood, “I now suspected Theranos had had both of us under continuous surveillance for a year. And, more than likely, Erika Cheung and Alan Beam too.”

After Tyler Shultz resigned in early 2014, Holmes called his grandfather and, as Shultz’s mother frantically described the message to Tyler, told George that if his grandson insisted on “carrying out your vendetta,” he would lose. In a now-infamous confrontation, George Shultz invited Tyler over to his home to try to convince him to keep things quiet. (One source close to Shultz told me that they were astounded that a man who as secretary of State had gone up against the Soviets was so easily deceived.) After Tyler said he would consider signing a document stating that he would maintain his commitment to confidentiality, George told him, “Good, there are two Theranos lawyers upstairs; can I go get them?”

The lawyers, who were from David Boies’s firm Boies Schiller, tried to pressure Tyler into signing the document; he declined, but the next day came close to signing an affidavit admitting that he had made a mistake by speaking to Carreyrou. A Boies Schiller source told me that the firm mishandled their interactions with Shultz: “In retrospect, given his age and given the fact that he didn’t have a lawyer there — while there wasn’t any legal obligation, I think under all the circumstances, he should have been treated more gently than he was.” The source added that at the time Boies Schiller was being told by Theranos that Shultz was “revealing trade secrets.” As Shultz later told Carreyrou, “Fraud isn’t a trade secret.”

David Boies, who is famous for, among other things, representing Al Gore during the 2000 election recount battle, was initially hired by Theranos to determine whether the lab industry’s two dominant players, Quest Diagnostics and Laboratory Corporation of America, were attempting to undermine the company. For this Boies received 300,000 Theranos shares; later he advised the company on a wide range of matters and joined the board of directors. Heather King, a partner at Boies Schiller, left the firm to join Theranos as its general counsel.

The clash between Boies Schiller and Carreyrou came to a head during a June 2015 meeting at the Journal, before Holmes made her plea to Murdoch in September. Boies and King brought along Peter Fritsch, a former Journal reporter turned opposition researcher, in addition to four other lawyers. Since leaving the Journal, Fritsch had co-founded the opposition-research firm Fusion GPS, which put together the now-infamous Christopher Steele Trump-Russia dossier. A Boies Schiller source said that Fritsch was retained because they thought he could “speak to [Carreyrou and his editor] with credibility.”

In the book, Carreyrou says both King and Boies himself were inappropriately aggressive (a Boies Schiller source denies this claim), and a few days after the meeting Boies threatened in a letter to sue the Journal if it moved forward with the story. Carreyrou told me it was a “a very stressful time. I knew that they were working hard on intimidating sources and turning sources, and making people recant.” He described Boies Schiller’s actions as “beyond the pale.”

Carreyrou said that in the past, subjects of his stories have hired private investigators to conduct research, but he told me that Boies Schiller went far beyond what he had ever experienced. “I’ve been a reporter for over 20 years, and I’d never experienced anything of that magnitude. I mean, it’s not even close,” he told me. A Boies Schiller source said the firm does not think it’s appropriate to hire private investigators to follow journalists, but declined to say whether it’s appropriate to do the same for company employees or whistle-blowers.

Boies issued this statement to me: “John deserves a lot of credit for his reporting and his reporting was important. Particularly in his book and his writing this year, he has tended to over-dramatize events, which is too bad because he had a story that was already dramatic enough.”

The other powerful figure whose role in this saga deserves more scrutiny is James Mattis. During his confirmation hearing for Defense secretary, Mattis was not asked about his time at Theranos, even though he had just resigned from the board. Mattis met Holmes in 2011, and even before joining the board, he had tried to get the Pentagon to test Theranos machines on the battlefield, but failed due to regulatory concerns. While he was a board member, Holmes and Balwani falsely represented to investors that Theranos products were being used by the Department of Defense.

“I think he had no inkling of the shenanigans,” Carreyrou told me. “But he got off easy in the sense that he should have left the board immediately [after Carreyrou’s first Theranos report]. And he stuck by her for, what, a year and a half, until finally, Trump nominated him.” (A representative for Mattis declined comment for this story.)

Mattis offered glowing quotes to reporters that helped to further promote Theranos in the eyes of powerful reporters and investors. But one quote that Mattis issued was never published. Mattis told Roger Parloff, who wrote the Fortune cover story featuring Holmes, “She has probably one of the most mature and well-honed sense of ethics  — personal ethics, managerial ethics, business ethics, medical ethics that I’ve ever heard articulated.”

For years, Holmes fooled men who walked into Theranos’s boardroom with accomplishments that most people would be in awe of. No one I have spoken to thinks that the board was knowingly complicit in Holmes and Balwani’s fraud. They were all duped, until a reporter almost 3,000 miles away started asking questions.

The Reporter Who Took Down a Unicorn