The Theranos Scandal
Case Summary
At just a young age of 19, Elizabeth Holmes was named as the youngest and wealthiest self-made female billionaire in America, with a net worth of $3.6 billion (Forbes, 2016). Her revolutionary biotech startup, Theranos, which promises to perform an array of blood tests with just a single drop of blood, was valued at $9 billion.
However in 2015, after all her “achievements” were glorified and celebrated by the world, it was exposed that all of it had been a fraud; none of the technology that she and Theranos promised ever existed. Holmes is currently facing numerous fraud charges, which could lead up to 20 years in prison, with penalties and fines.
Watch the entire story at: https://www.youtube.com/watch?v=BgNfrDXr7uA
Analysis
How did Holmes attract so many investors to pour so much money into her company? Why did so many believe in her, and the lies, over so many years? Today, we attempt to understand the rise of this fraud case through two concepts explained earlier: (1) the fraud triangle and (2) the psychology of the fraudster.
Let’s analyze this case using the fraud triangle:
Fraud Triangle
Incentive / Pressure: According to the prosecutor for Elizabeth’s fraud case, in 2009, Elizabeth and her then boyfriend turned to fraud after big pharmaceutical firms refused to support Theranos, leading them to run out of cash. To continue securing investment from the investors, they lied about the test results and exaggerated the firm’s performance. It seems that she had pressure to turn to fraud, in order to save her company, and maintain her fame/reputation throughout the world.
Rationalisation: In accordance with the pressure to sustain Theranos, Holmes could have convinced herself that she was about to achieve ground-breaking things with her quick tests, which would eventually benefit people in the long run when her “technology” finally becomes successful. Additionally, she might have convinced herself that it is ethical to misrepresent and cover Theranos’ failures and use of humans as testing mediums, if eventually more people benefit.
Opportunity: Holmes took the opportunity to lie and convince investors to continue investing money into her and her company. The more people buying into her idea, the more confident she became in perpetuating the lies to others.
With all three elements of the fraud triangle present, it greatly influenced Holmes to commit the fraud and deception.
Nonetheless, we have yet to find out why so many investors believed in her. Let’s look at the psychology of Elizabeth Holmes to better understand how she managed to pull off this deception for many years.
Psychology of Elizabeth Holmes
Recall how one can determine the type of fraudster Elizabeth Holmes can fall under: Calculating Criminal or a Situation-dependent Criminal. Considering Holmes’s actions as a whole, she fits the Calculating Criminal category better. Here’s why:
Not only did her actions not help society, she also brought more harm to the people that attempted to use her technology. People were misinformed of their health due to the accuracy of her blood tests. However, Holmes placed no importance on this and continued to perform the inconsistent and inaccurate tests - a classic sign of a ‘predator’.
Holmes showed no signs of empathy to these people as she continued deceiving them for years, and had every intention of covering it up. This was seen when then Vice President Joe Biden went to visit Theranos. Holmes created a fake laboratory to fabricate that the company is doing well in the research and progress.
Holmes was also very charming, and able to present herself professionally in front of the investors and public. According to Forbes, who managed to talk to Elizabeth’s childhood Psychiatrist, when people posed technical questions, she would often talk about her ancestors instead, and how successful they were in the medical field. This helped to divert the attention from most investors, causing many of them to fall into this trap.
Conclusion
Elizabeth Holmes’ fraud case reminds us, once again, of how vulnerable we are to skilled fraudsters who have every intention to defraud. In this case, Holmes is pictured as a cruel fraudster who has placed thousands of people’s lives at risk, and will soon pay a price for it. It is hence important for due diligence to be conducted before making any decisions, else fraudsters like Holmes will continue to thrive in our society.
References
Cohan, P. (2021, June 29). 4 startling insights Into Elizabeth Holmes from psychiatrist who's known her since childhood. Forbes. Retrieved September 12, 2021, from https://www.forbes.com/sites/petercohan/2019/02/17/4-startling-insights-into-elizabeth-holmes-from-psychiatrist-whos-known-here-since-childhood/?sh=1bb7c63366b0.
Forbes Magazine. (n.d.). Elizabeth Holmes. Forbes. Retrieved September 12, 2021, from https://www.forbes.com/pictures/56d4357fe4b0c144a7f677e9/elizabeth-holmes/?sh=71bd634726ba.
Polisi, C. (2021, September 12). Opinion: Elizabeth Holmes' surprising defense. CNN. Retrieved September 12, 2021, from https://edition.cnn.com/2021/09/11/opinions/elizabeth-holmes-trial-theranos-polisi/index.html.
Rosenblatt, J. (2021, September 8). The Spectacular Rise and Fall of Elizabeth Holmes and Theranos. Bloomberg.com. Retrieved September 12, 2021, from https://www.bloomberg.com/news/storythreads/2020-12-03/the-spectacular-rise-and-fall-of-elizabeth-holmes-and-theranos?cmpid=BBD083121_BIZ&utm_medium=email&utm_source=newsletter&utm_term.
Thomas, D. (2021, September 8). Theranos founder Elizabeth Holmes 'lied and cheated', trial hears. BBC News. Retrieved September 12, 2021, from https://www.bbc.com/news/business-58494912.
