Transcript: John Carreyrou on Theranos


The transcript from this week’s MiB: John Carreyrou on Theranos & Bad Blood is below.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Stitcher. Our earlier podcasts can all be found on iTunesStitcherOvercast, and Bloomberg.



ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, his name is John Carreyrou. He is a two-time Pulitzer Prize winning investigative reporter for “The Wall Street Journal” and author of the book “Bad Blood: Secrets and Lies in a Silicon Valley Startup.”

I could have spoken to John for another nine hours. I found the book absolutely fascinating. I plowed through it on Labor Day weekend and really, really enjoyed it, not just because of how revealing it is of what turned out to be a giant — pick the metaphor — Enron, Bernie Madoff, whatever, a giant fraud.

But it reads like a thriller, it’s a real page turner. There are some giant surprises throughout the book. Lots of people see their reputation damaged and destroyed. It’s amazing.

And as somebody who is also an investor, I can’t help but notice how many times there is red flag after red flag after red flag that are excused, rationalized, ignored, somehow shunted aside instead of, hey, that’s a big red flag, maybe we shouldn’t put a billion dollars into this nonsensical company that doesn’t do any of the things it promises it can do.

Anyway, I highly recommend the book. Whether you’ve read the book or not, you’re going to find this conversation fascinating. So, with no further ado, my conversation with John Carreyrou.

My extra special guest this week is John Carreyrou. He began his career in journalism in 1994. After he graduated from Duke, he joined the Dow Jones Newswires. Shortly after, he moved to European version of “The Wall Street Journal” in Brussels, eventually going to Paris to cover French business, terrorism and everything in between.

He was appointed deputy bureau chief for Southern Europe in ’03. Eventually, he became “The Wall Street Journal’s” health and science bureau chief in New York.

He has won numerous awards in journalism, including the Pulitzer Prize twice. If this sounds like the perfect background for any writer curious about the blood testing startup Theranos, well, it turned out that is exactly right. The unicorn turned out to be a fraud which was broken by Carreyrou in the pages of “The Wall Street Journal.”

He has written a best-selling book, “Bad Blood: Secrets and Lies in Silicon Valley” about the entire Elizabeth Holmes and Theranos saga. John Carreyrou, welcome to Bloomberg.


RITHOLTZ: My pleasure. I have to start out by saying I love the book. It was on my list of 10 to read this summer and I just plowed through it over Labor Day weekend.

There’s so much material to cover. It’s such a fascinating story. Let’s just go back to the beginning. How does Theranos and Elizabeth Holmes out in Silicon Valley first come on your radar?

CARREYROU: It was mid December 2014 and I was on the subway commuting back from my office in Midtown Manhattan to Brooklyn where I live reading “The New Yorker” magazine and in that issue was a long profile of Elizabeth Holmes by Ken Auletta. And she was —

RITHOLTZ: Skeptical or glowing?

CARREYROU: Mostly glowing with some — I have to say with some skeptical passages that I immediately picked up on. And, you know, it was an entertaining read and interesting that there were, as I just said, some things that struck me as odd in that story.

One of the ways she described, you know, how her blood testing technology works and how she summed it up sounded to me like a high school chemistry student as opposed to sophisticated, you know, lab scientist/inventor. But more than any particular thing, it was this notion that a college dropout, someone who’d had two semesters of chemical engineering, had dropped out and then gone on and invented groundbreaking new science that was going to revolutionize, you know, lab testing —

RITHOLTZ: So, let me jump in right here. So, she goes to Stanford, finishes — drops out after her freshman year. She got no medical training. She got no organic chemistry, biology, blood chemistry. None of the things one would normally think would go into complex medical device manufacturing.

This isn’t in a software startup where you could just, hey, anybody could code and whether you have the academic credentials or not is irrelevant, this is a serious science, isn’t it?

CARREYROU: Right. She had zero qualifications. I mean, she had literally had two undergraduate courses with the same professor, Channing Robertson, who ended up being, you know, her first enabler.

RITHOLTZ: That’s an interesting choice of words.


RITHOLTZ: Why did you select enabler?

CARREYROU: Well, so, he was — for those listening who aren’t familiar with him, Channing Robertson was a –

RITHOLTZ: Rock star, right?

CARREYROU: Rock star of the Stanford engineering school faculty, had been an expert witness in the late ’90s for the State of Minnesota and its tobacco litigation. And, you know, also was really popular with students. He had a way with students. He connected with them.

And she had taken two courses with him and then, you know, came back with this cockamamie patent in — after her summer in Singapore working at a lab in Singapore so we’re now in the fall of 2003 and the patent was for this device that she envisioned which was essentially a wristband that would have microneedles that would come out and insert themselves into your wrist and draw micro amounts of blood and then diagnose whatever ailed you and cure you simultaneously.

And it was clear, I mean, this was science fiction. Anyone involved, an engineer or lab scientist, clear that I was not feasible and probably ever feasible at least not for decades. And, you know, he chose to go along with it and encouraged her to drop out or at least didn’t discourage her to drop out and then accompanied her on pitches to VCs.

And so, he gave her credibility. At that point, she’s 19 years old and he’s the star of the Stanford faculty and then he joins the board and he stays on there with her, accompanies her for the next 12 years.


CARREYROU: You know, he is for sure her original enabler.

RITHOLTZ: So, one of the questions I was going to ask you but you kind of hinted at the answer already, you know, when did you first start to smell that something was amiss, but it’s pretty clear, you’re saying right from the beginning this struck you as a little off?

CARREYROU: Yes. But to be honest, I probably would not have done anything with my intuition had I not gotten approached by a source who was a pathologist in the Midwest who I had gotten to know the year before he moonlighted as the writer of this obscure blog called “Pathology Blawg” which he spelled B-L-A-W-G.

And I’d gotten him a year prior to explaining to me some of the complexities of lab billing for a series on Medicare fraud I’d been doing at that time and he had read “The New Yorker” story about Elizabeth Holmes too and had immediately been dubious even more than me in that, you know, he was much more familiar with the intricacies of lab science than I was.

And he wrote a skeptical item on his blog and this guy named Richard Fuisz, who’s a pretty big character in my book by the way, had been a childhood neighbor of Elizabeth and her parents immediately got in touch with the pathology blogger and told him, you’re on the right track. I think Theranos is a scam. You should keep digging into this.

And Fuisz had been involved in litigation with Elizabeth Holmes. He had patented a part of her vision that had caused her to sue him and she had steamrolled him with David Boies. David Boeis had become her attorney and Theranos’ attorney and they had really steamrolled Fuisz in this litigation. And during the course of litigation, Fuisz had become convinced as an actually trained doctor and medical inventor that Theranos was a scam.

RITHOLTZ: Hold that thought. We’re going to come back to that. Coming up, we continue our conversation with John Carreyrou, Pulitzer Prize-winning journalist at “The Wall Street Journal” discussing the fraud that was Theranos. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

RITHOLTZ: I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My special guest today is John Carreyrou. He is an investigative reporter at “The Wall Street Journal” and author of “Bad Blood: Secrets and Lies in a Silicon Valley Startup.”

Let’s talk about some of those secrets and lies. The question that I still haven’t come to a solid answer was simply this, would — was this a scam from day one or did this eventually morph into a scam? What is–

CARREYROU: It was the latter. It wasn’t a scam from day one in that she didn’t drop out of Stanford at 19 in late 2003 pre-meditating a long con that would defraud investors and eventually put patients in harm’s way. That was not in her thoughts back then even though she’s never spoken to me.

I know that she dropped out wanting to become a successful Silicon Valley entrepreneur. Her idol was Steve Jobs, she worshiped Apple and she wanted to follow in his footsteps. And she also had this, you know, this notion that she should do good for society because her father had worked at the State Department and various other government agencies and provided, you know, help in disaster-torn areas and there were photos of him.

And he had raised her with this notion that she should live a life of purpose and that she should make her mark and not just by getting rich. And so, biotechnology in her mind was the gateway to achieving both, becoming rich like her ancestors, the Fleischmanns, had once been and also doing good.

And so, that’s the way in which she was different from Steve Jobs. She wanted a product that would do good for society. And, you know, so it wasn’t a fraud from the beginning. She had good intentions. It became a fraud with the years as she confronted, you know, failures and difficulties because science is hard, medicine is hard.

RITHOLTZ: Science is hard. So, let —


RITHOLTZ: Let me ask you about that. A number of people that you write about in the book point out that the reason we do venous drawing, the reason we take blood from your arm and fill three big vials is that’s a clean sample of blood. When you do a pinprick, you’re damaging tissue. Even if you clean the surface of the skin, it’s not as clean a sample of blood.

So, it makes me raise the question, isn’t that kind of reckless to say, I could — you know, I could run into medicine and figure this out despite lacking a background? How do you rationalize that?

CARREYROU: Right. I mean, it’s hubris and arrogance. It’s incredibly naïve to think that people haven’t tried capillary blood draws. They had and one of the problems with them, the biggest problem is what you say which is that the risk — that basically capillary draw — that capillary blood is not as pure as venous blood. It’s polluted by tissue from cells and from skin and that stuff interferes with the blood tests.

And so, one of the biggest problems when you try to do a blood test, the biggest problem is the potassium blood test because what happens is when you milk blood from the finger, you cause the red blood cells in the blood to burst and the bursting causes a release of potassium. And so, it increases the concentration of potassium in your sample and the concentration of potassium becomes artificially high in that little blood sample.

And in fact, that is one of the problems that Theranos ruan into when it started going live with its blood tests in Walgreens stores in late 2013 was this hemolysis problem.

RITHOLTZ: And this is in hindsight bias that was well known for decades. This is not a new discovery.

CARREYROU: Right. I mean, the problems with capillary blood draws were well known among lab scientists for sure. And then there’s another problem that you haven’t talked about which doesn’t have to do necessarily with the fact that it was blood pricked from the finger that her vision revolved around. It’s how small the sample was.

She wanted, you know, to be able to do hundreds of tests from a drop or two of blood and no one had figured out how to do that many tests from that small sample. The basic reason is that there are about half a dozen big classes of blood tests and each one of these classes, blood test requires completely different laboratory techniques and laboratory instruments.

And so, once you’ve done a couple of blood tests that are say immunoassays and you try to do blood tests from a different category such as general assays or hematology test, you no longer have any blood left because you’ve used your small sample to do those immunoassays.

RITHOLTZ: You actually consume it to do the test.

CARREYROU: Right. And then you need more blood because the other tests require completely different methods and completely different instruments. And so, no one had been able to crack that nut. They’d been trying to do so for more than two decades in industry and in universities and she came along and claimed that she had solves all these problems.

RITHOLTZ: Even though she hadn’t solved a single one of these problems, she just stated her intention to solve them and money flowed in. Is that a fair statement?

CARREYROU: Well, she — not — I mean, it’s not quite. I mean, that would be more accurate than what she did — had she stated her intention to solve them. She asserted that she had solved them.

She said, I have solved this nut that no one on earth has solved until now. I have cracked it and–

RITHOLTZ: Was that true? Did she crack it?

CARREYROU: It was completely untrue.

RITHOLTZ: So, back to the question about not a fraud from the beginning, when did it become clear that none of their products worked and they started lying to partners, potential investors, even employees that, hey, we got a dead parrot on our hands here?

CARREYROU: Right. So, the lying actually started very early on. I mean, the book opens — the prologue is a scene that takes place in late 2006 and it’s the CFO, the chief financial officer of Theranos at that time learning that these demos that he’s been bringing prospective investors around for for about eight months are not really real.

RITHOLTZ: They’re rigged. It’s a fake machine. It spits out a fake piece of paper.

CARREYROU: Right. Part of the demo is real. The microfluidics part of the demo is real. But then the result at the end is a prerecorded result. So, it’s essentially not the result from the blood that you see flowing through cartridge.

And so, he goes to her and he says, you know, we can’t keep doing this. The investors I’m bringing around are under the impression that this is totally real and it’s not, it’s half fake. So, you know, that’s essentially securities fraud. That’s lying to investors. We have to stop.

And she turns ice cold and says to him, you know, you’re not a team player. I think you should leave right now. And it’s very clear from her demeanor and from her tone of voice that she doesn’t just mean leave her office, she means leave the company.

RITHOLTZ: You’re fired.

CARREYROU: And he’s just been fired. And so, the unethical behavior and the lying goes back as far as easily 2006, meaning, you know, less than two years into the life of the company.

And just to elaborate a little bit the technology, there were three iterations of the technology. There was a real attempt at using microfluidics which is the repurposing of the microfabrication techniques that the computer chip industry pioneered.

A lab scientist realized they could use those microfabrication techniques to create tiny channels through which you could put minute amounts of liquids. She made a real effort in the early years of her company at doing microfluidic device and hit a wall. They just needed many more years and she didn’t have the patience and she was probably under pressure from investors.

And so, they stopped that effort about a year after that scene where she fires the CFO and pivoted to the second iteration of the technology which was a converted glue dispensing robot. It was a glue-dispensing robot that a Theranos engineer had purchased from a company called Fisnar in New Jersey and essentially repurposed to be a blood testing machine.

He affixed a pipette to the robotic arm which had three degrees of motion and then he reprogrammed it to mimic what a lab scientist would do to test blood at the bench. And she disguised it with this sleek black and white case that she got a well-known industrial engineer to design and that was called — she called it the Edison, named it after Thomas Edison.

And the instrumentation, basically, the techniques of the Edison were there was nothing new. It was something, you know, chemiluminescent immunoassays. It was a lab testing technique that had been pioneered in the early ’80s and that was what the Edison did.

RITHOLTZ: And the third iteration?

CARREYROU: And the third iteration, so, the Edison can only do immunoassays which are this one class of blood test and, of course, you know, she wanted something because she was begetting the claim that she had something that could do all the blood tests.

So, she needed a machine that could do more than just one class blood test. So, the work on what she called the miniLab began in late 2010 and that work, you know, continued until recently and they’ve never gotten the miniLab to work. It’s a bigger machine than the Edison and it’s an attempt to miniaturize all these laboratory instruments that are used to do these different classes of blood tests and they’ve not — never gotten it to work.

RITHOLTZ: What about the commercial stuff they were buying, the commercial machines and then diluting the–


RITHOLTZ: –small blood samples?

CARREYROU: And so, that became necessary because I think normal people, if they haven’t gotten their device to work yet or will wait until they get it to work to commercialize it, right? Wouldn’t you agree that most people would do that?

RITHOLTZ: Sure. Hopefully.

CARREYROU: Especially in the realm of medicine where your product actually, you know, has impact on people’s lives, well, she didn’t do that. She went live with her vaunted fingerstick blood tests in the fall of 2013 in Walgreens stores in Northern California and Arizona.

And because the miniLab was just a prototype that didn’t work at that time, what she did — what she and her boyfriend ordered Theranos employees to do was to–

RITHOLTZ: That’s Sunny Balwani.

CARREYROU: Sunny Balwani, her boyfriend, her number two executive.


CARREYROU: They ordered people in the lab to hack machines made by the German company Siemens and to adapt them to small fingerstick samples. And one of the steps that was needed to do this hacking was to dilute the tiny fingerstick samples to create more volume in the cup because these regular machines from good old Siemens could only test a normal size sample of blood.

And so, you need a lot more sample for the machine to work and so they diluted the fingerstick blood to create more volume which itself caused all sorts of problems.

RITHOLTZ: Coming up, we continue our conversation with John Carreyrou, Pulitzer Prize-winning journalist at “The Wall Street Journal” discussing the threats of litigation from Theranos and David Boies to “The Wall Street Journal.” I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

Coming up, we continue our conversation with John Carreyrou, Pulitzer Prize-winning journalist at “The Wall Street Journal” discussing the litigation threats he received against publishing his revealing articles on Theranos. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

RITHOLTZ: I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My special guest today is John Carreyrou. He is the two-time Pulitzer Prize-winning journalist at “The Wall Street Journal” who is the author of a new bestseller “Bad Blood: Secrets and Lies in a Silicon Valley Startup” all about Elizabeth Holmes and Theranos, the unicorn startup that turned out to be a giant fraud.

Let’s talk a little bit about the process that it took to get people to speak to you and the threats of litigation and everything against the Journal, how challenging was it to bring this story to light and ultimately to get it in print at “The Wall Street Journal’?

CARREYROU: By far, the toughest story that I’ve ever done in 20 years, 20 plus years of reporting, the challenge was two-fold, it was getting sources to trust me and to talk to me which was very hard because Elizabeth Holmes — they knew that Elizabeth Holmes and her company were very litigious and they knew that the company’s outside counsel was David Boies.

RITHOLTZ: America’s premier litigant.


RITHOLTZ: And when you say litigious, not just — you know, everybody knows people are litigious. These people were seemed to be extremely aggressive and used all sorts of questionable approaches.

CARREYROU: Right. Elizabeth Holmes had sued former employees early on in — as far back as 2007 for supposedly stealing trade secrets and then she had sued her childhood neighbor Richard Fuisz who had patented a part of her vision and that infuriated her.

So, she came up with this story that he and his son had basically colluded to steal proprietary Theranos patent information from a law firm.

RITHOLTZ: Where the son was working.

CARREYROU: Where the son was working but there was never any proof —


CARREYROU: — whatsoever that that ever happened. And personally, based on all my reporting, I believe that it never did happen and that those were false accusations.

RITHOLTZ: When you mentioned trade secrets, what trade secrets? They had nothing — no technology–

CARREYROU: Right. I mean, it was–

RITHOLTZ: Were there any trade secrets? And by the way, I’m relying primarily on your book when I say, I don’t see any trade secrets here. Am I wrong?

CARREYROU: No. There weren’t really any trade — trade secrets was an excuse–

RITHOLTZ: There’s a technical definition of that, isn’t it?

CARREYROU: It was basically a way to say, you know, A, we can’t tell you what we have because if we tell you about it, our big competitors, Quest and LabCorp are going to copy us and, B, you know, all of your reporting you have to either destroy it or return it to us, you know, because it’s sensitive and it could do us great harm. These were the arguments that Theranos and David Boies used to try to get us to kill my reporting and to not publish the story.

RITHOLTZ: Well, they were right, it was sensitive and it could do them great harm. However, there were no — it doesn’t seem like there was anything other than the bad behavior and fraud in the company that you revealed.

CARREYROU: Right. And so, it gave rise to a surreal five-hour showdown at one point in June of 2015 at the Journal’s offices in a conference room pitting me and my editor, Mike Siconolfi and our lawyer Jay Conti on one-sided table and David Boies and two of his associates and his former Boies Schiller partner Heather King who’d become the general counsel of Theranos and we went around in circles for hours because, you know, I had sent them a list of questions ahead of time, and I was trying to get answers of these questions and they would say, well, we can’t answer that question because it’s a trade secret, it covers trade secrets.

And, of course, my questions went to the essence of whether Theranos really had technology and really was using proprietary technology to do its blood test. Based on my sources, my confidential sources, it wasn’t. So, I would ask things like how many of the 250 blood tests on your menu are you doing right now with Theranos proprietary technology, and they would say, we can’t answer that, that’s a trade secret.

And I said, well, are you using any third-party machines by the likes of Siemens to do any of these tests? We can’t answer that, that’s a trade secret. And it got to a point where I said, well, you know, how can using a third-party machine made by another company and modifying it be a trade secret? That’s not inventing anything. That’s not doing anything new.

And, again, you know, we’d go around in circles. I’d described the scene in the book and I think it’s Chapter 21 and I felt like I was watching a performance of the Theatre of the Absurd. And toward the end of that meeting, Boies let us know that he would be sending us correspondence, written correspondence.

RITHOLTZ: I’ve gotten written correspondence from him. Let me share a quick story.

CARREYROU: Go ahead.

RITHOLTZ: So, I write a review of the book and I talked about all the red flags for investors. Not really concerned so much about the details of the litigation. Now, I do say that some people’s reputation suffered, I mentioned George Shultz, I mentioned David Boies.

We got a nastygram from Boies and his legal firm and I have to tell you, I was genuinely shocked that my opinion column based on your book generated this intellectually disingenuous thing full of like, you made all that stuff up. I had to go through your book page by page. This is Page 278, this is Page 263, this is Page — it was a very bizarre experience.

What was the rest of your experiences like fighting Boies? He’s got a reputation as literally the premier litigator in the country.

CARREYROU: Right. And so, after that five-hour showdown, we got a first letter that hinted at litigation threats if we didn’t immediately return or destroy the supposed trade secrets that I’ve obtained through my reporting. And then a few days later, I believe it was a 26-page letter that was just this assault on my journalistic integrity and this attempt to portray me as a rogue reporter that the Journal should disown.

And at the end of that letter, it was very explicit that if we continue to proceed with my reporting that the Journal would be sued and even as these increasingly threatening letters land, some of my sources start either going dark or calling me petrified because they tell me they’re being followed and they’re being threatened as well.

One of my sources has since emerged was Tyler Shultz, a young man who’s the grandson of the former Secretary of State George Shultz who was a member of the Theranos board.

RITHOLTZ: Tyler is essentially the hero of the book.

CARREYROU: He’s a hero. I wouldn’t say he’s the only hero.


CARREYROU: I would say another guy who I might refer to as Alan Beam in the book who’s the ex-lab director, that’s a pseudonym. I would say he’s arguably the bigger hero because he was the first to talk to me and to launch my investigation.

But Tyler is absolutely a hero in this and Tyler had worked at the company for eight months, become convinced during his stint there based on what he’d saw — seen and heard that the company was a fraud, tried to alert his grandfather, tried to talk sense into him, hadn’t been able to and then had had to keep that all bottled up for a year until I came along and made contact with him.

And then he became corroborating source and after that five-hour meeting or in fact it was little bit before even but unbeknownst to me two Boies Schiller attorneys ambushed Tyler and his grandfather George’s house off the Stanford campus and tried to get him to sign documents essentially, you know, acknowledging that he’d been a source for the Journal and naming other Journal sources

And at that point, began a three or four-month campaign of threats and intimidation against Tyler. He had to hire his own counsel with the–

RITHOLTZ: Did they threaten to bankrupt to him? What–

CARREYROU: They — at one point, a lawyer for Boies Schiller named Mike Brille threatened to bankrupt Tyler Shultz’s entire family if he didn’t sign the documents that Theranos wanted him to sign and the documents were an affidavit where he basically acknowledged having talked to me and said it was essentially recounting of everything he told me.

And then they also wanted him to name my sources and Tyler never signed any of these documents despite these outrageous threats that were made and, you know, stood firm. And in large part, thanks to him, I was able to go to print months later with my first story which broke the scandal open.

RITHOLTZ: That was in 2015.

CARREYROU: That was in 2015. Yes.

RITHOLTZ: Coming up, we continue our conversation with John Carreyrou discussing the ultimate fall of Theranos. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

RITHOLTZ: I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg radio.

My special guest today is John Carreyrou, he is the Pulitzer Prize-winning investigative reporter for “The Wall Street Journal” and author of “Bad Blood: Secrets and Lies in a Silicon Valley Startup.” All about the rise and fall of Theranos.

Let’s continue discussing the fall. So, you have a couple of people who were insiders. George Shultz’s grandson, Tyler. There was a woman who worked with him, who worked in the lab —

CARREYROU: Erika Cheung.

RITHOLTZ: — who, apparently, was scared out of her mind —


RITHOLTZ: What happened with her? What did she do? What was she sharing with you and what happened? Why – what were the intimidation attempts with her?

CARREYROU: So, Boies and his henchman came to the Journal’s offices, I think – I believe it was on Tuesday, in late June and that Friday, three days later, Erika was working at her new employer. She had left Theranos, in fact, the day after Tyler had left Theranos, a year prior, and she was now working at a new company.

RITHOLTZ: So, it’s a year after she quit?

CARREYROU: Right. And she’s working late at this new company and I think it was Sunnyvale, California, and one of her colleagues taps her on the shoulder and says, you know, there’s a man who’s been waiting outside for long time, saying he wants to talk to you.

And so, her sort of alarm bells start ringing in her head because the head of human resources at Theranos, this woman, Mona, who was, you know, part of the inner circle with Elizabeth Holmes and Sunny Balwani had been trying to reach her and leaving increasingly frantic messages that day.

And so, immediately Erika was on her guard. And so, she asked the colleague who had tapped on the shoulder to accompany her to her car as she left the office which the colleague did and when they walked out of the building, a young man came out of a black SUV and made a beeline toward them and handed to Erika an envelope.

And the envelope contained a letter, a very aggressive letter signed by David Boies, threatening to sue her for disclosing trade secrets and giving her an ultimatum which is that she had to meet with him and his bushel of associates by a certain day and a certain time or she would be sued.

But before she even got to the letter, what freaked her out the most was that the envelope had her name and an addressed typed on it and the address was a house in East Palo Alto, of a colleague’s at her new company, that she had been staying at for less than two weeks because Erika had planned on moving to China.

And so, she had given up the lease on her a place in Oakland just a couple weeks prior and started staying with a colleague, basically shacking at a colleague’s house in East Palo Alto and no one knew she was staying there except for the colleague. Her mother didn’t even know she was staying there. So, there was absolutely no way to have known this were – this was her new address without having followed her.

And so, she goes home that that evening, Friday evening, petrified and stays inside this house in East Palo Alto with the blind closed all weekend, doesn’t dare go out. And then first thing on Monday morning, she calls me and she’s terrified and she tells me what has happened and I’m in my car at that point, double parked on the street in Brooklyn waiting for the street sweeping trucks to go by — it’s one of the better aspects of living in New York City —

RITHOLTZ: (Inaudible).

CARREYROU: Yes, I’m being ironic.

And so, I answered the phone and it’s her and we talk and I realized that she’s right. There’s no way – I try to run through the scenarios and permutations, there’s no way anyone could have known that was her address without having her followed.

RITHOLTZ: How many people in the book felt like they were being followed? How many participants in the book or that you didn’t – might not have printed?

CARREYROU: At least three. Alan beam, the ex-lab director — again, that’s a pseudonym — Tyler Shultz and Erika, all either got word that they were being followed or strongly suspected they were being followed or had evidence or had a reason to believe that they were being followed.

RITHOLTZ: And what about Fuiszes? Did there any – any suspicion?

CARREYROU: Right. The Fuiszes had been — had come to the conclusion that they were being followed by PIs, but that was several years prior during the patent litigation that had pitted them against Theranos.

RITHOLTZ: So, something interesting that was brought up from that, Boies won the patent litigation —


RITHOLTZ: And was paid, not in cash but in Theranos stock. I was very surprised by that. Is that common in legal circles or Silicon Valley? I know in Silicon Valley, it’s not unusual.

But in patent litigation, how common or uncommon is that?

CARREYROU: I mean, I don’t think it’s very common. And for me, when I learned about it – I learned about it, I think it was in the in the winter of 2016, a couple months after my first story was published, I thought it was a huge conflict of interest because here you had a lawyer and his law firm that owned almost 5 million shares, you know —

RITHOLTZ: Five million dollars.

CARREYROU: Five million dollars worth of shares. And so, he was no longer just the legal advocate of Theranos, he also had skin in the game financially.


CARREYROU: And I felt —

RITHOLTZ: It’s self-interest not mere advocacy on behalf of a client.

CARREYROU: Right. And you know, I strongly felt that that was a conflict of interest and other —

RITHOLTZ: I wonder if that – I wonder if that clouds a lawyer’s judgment in some of the things you describe. If people do that when they’re representing clients as opposed to trying to protect their own money.

CARREYROU: I don’t see how they can say that it doesn’t. And I don’t see how it doesn’t. It has to.

I mean, you’re —

RITHOLTZ: You no longer object.

CARREYROU: You’re protecting a pile of 5 million dollars that, by the way, you accepted in lieu of regular compensation because you expected that pile to grow as the stock and evaluation that company grew.

So, to – you know, to hear them if they come out and say so, you know, say that this didn’t influence how they behaved and how they worked with Theranos, I think, I would maintain is hogwash.

RITHOLTZ: So, here – let’s put some flesh on the bones about the dollar value of Theranos and what people – why people thought it could go to the moon. At its peak, what was the most the company was worth?

CARREYROU: 10 billion dollars.

RITHOLTZ: And how much money had investors put into it/

CARREYROU: So, if you count the money that was loaned by the private equity firm, Fortress Investment Group, late last year to keep Theranos afloat, that was 65 million dollars. If you count that cash injection, almost 1 billion dollars.

RITHOLTZ: Wow. And so, that’s a – immediately, you’re talking about 10x return if it keeps going.

The thing that keeps coming up, as I was working my way through the book was, there’s no there there. There’s really – there was this initial idea and then there was no new science developed there was no new technology developed. It was shocking.

At what point did the outside world, before your column, start to think, hey, there’s a fraud here. Where did the red flag start appearing outside of the John Carreyrou’s journalism?

CARREYROU: Right. Right. No, there were grumblings among people in the laboratory science profession. In fact, one of the early voices was a guy at Stanford, John Ioannidis, laboratory medicine professor at Stanford. And in fact, he and I recently had a testy exchange by email because he was angry that I had mentioned him in my book.

And I told him that that I apologize for the omission, but I said at the same time, you know, he had essentially written an opinion piece in of the Journal of the Association for or the American Medicine –
Medical Association, JAMA. And I believe it was in February or March 2015. And I had become aware of it about a month into my reporting on the company.

And really, what he does in this piece is as he raises the question of whether Theranos should be allowed to do what he termed stealth research. And he posed hard questions about this trend toward companies in Silicon Valley bypassing the traditional system of peer-reviewed publication which was totally valid.

And you know, he put his finger on something. But what I did respond to him was you know it’s one thing to raise some of these questions, it’s another thing to prove that the company was a fraud. And I think he had – he could agree that, you know, I did the heavy lifting to prove that.

RITHOLTZ: The two biggest red flags that lept out to me from the book, the initial board of directors, nobody from medicine, blood sciences lab. It’s all – it’s two secretary of states, it’s people from the defense – it’s like a run of crazy things, nobody from medicine.

CARREYROU: Right. I mean —

RITHOLTZ: Eventually, they add somebody years later but —

CARREYROU: There were – there were two out of, I think, 12 old men, old white men on the board. There were two who had some connection to medicine, one was Bill Frist who had once been a transplant surgeon before becoming a politician —

RITHOLTZ: But not from the beginning, right? Wasn’t he a later addition?

CARREYROU: No, no, no. He was there —

RITHOLTZ: From the beginning?

CARREYROU: Not from the beginning but the board changed over the years.


CARREYROU: The last iteration of the board essentially dated back to 2011, 2012, 2013.

RITHOLTZ: So, almost a decade after they started. It’s like —

CARREYROU: Yes. She acquired this new board because she felt that it would help her. It was sort of an exercise in reputational laundering.


CARREYROU: You know, she attracted these larger-than-life figures with fantastic resumes —

RITHOLTZ: And then the other thing that was a giant red flag was all of the healthcare medical sciences, medical device venture capitalists, every one of them took a pass. Not a one put any money on this.

CARREYROU: Right. Because either – because either she wouldn’t meet with them or when she did accept meetings and some of these people started asking hard questions, her interest in continuing to meet, you know, waned and basically evaporated.

So, yes there were also – there were suspicions and there were grumblings among laboratory sciences and there were also vague suspicions among VCs with experience in medical technology investing. However, none of these people who had, you know, who were quietly grumbling to one or another had any proof of what the company was doing and had any knowledge of what was going on inside the walls of Theranos.

RITHOLTZ: John, can you stick around a bit? I got a ton more questions for you.

We’re speaking to John Carreyrou. He is the author of “Bad Blood: Secrets and Lies in a Silicon Valley Startup.”

If you enjoy this conversation, well, be sure and come back for the podcast extras where we keep the tape rolling and continue to discuss all things fraudulent at Theranos.

You can find that wherever your finer our podcasts are sold, Apple iTunes, Stitcher, Overcast, and of course, Be sure and check out my daily column. You can find that on Follow me on twitter @ritholtz. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

RITHOLTZ: Yes, John, thank you so much for doing this.

I have to tell you, I really enjoyed reading the book. It’s like a thriller. As you’re going through it, it’s just, what? That’s just astounding.

It’s mind blowing. I’ll come back to some of the red flags. I have a ton of other questions. But I have to ask you, how much fun was this to write?

CARREYROU: You know, it was a lot of fun. It was the most fulfilling thing I’ve ever done in my life, professionally or probably otherwise. It was nerve-wracking at the very beginning because, you know, I had a book deal and a movie deal, too.

RITHOLTZ: Wait, when did the movie deal? Before the book was written?

CARREYROU: Right. Because the – I’d reached my deal with Knopf to do the book. I think it was in March, late March of 2016. And then the movie deal came less than three months later.

And I only went on book leave and started writing the book in around October of 2016.


CARREYROU: So, I had this pressure from these two deals and from the fact that I’ve never written a book before. And you know —

RITHOLTZ: That’s easy. Just keep going. You write a column but you don’t stop till you get 150,000 words.

CARREYROU: Yes. So, anyways, it wasn’t easy staring at a blank Word document at first. But once I got a couple chapters in and I got the – I felt like I was in rhythm and I was immersed, and by the way, I was continuing to do a lot of reporting because the first three quarters of the book are told in a third person and are the what happens at the company until I come along.

And I had to re-report a lot of that. Tons of new material came out of that reporting process.

So, I was really reporting and writing at the same time. And it was just so fun and fulfilling and I’m glad that – to hear you say that it read like a thriller because I tried to make it read like a page-turner.

I’m a big fan of Agatha Christie, and you know, I also read people like Michael Crichton and Dan Brown.


CARREYROU: And, you know, I’ve picked up on some of their – some of their techniques to keep the reader interested and I channeled some of that as I was writing this book.

RITHOLTZ: No doubt about it.

CARREYROU: I got more questions I want circle back to, but I have just get into the whole back and forth with “”The Wall Street Journal’s” editors and the threats of litigation. And then the last-minute Hail Mary Elizabeth Holmes pulled with Rupert Murdoch, of all people, who owns the “The Wall Street Journal.”

So, let’s talk a little bit of that. Your editors sound like they’re great. They seemed really stand up and there was never any Carreyrou, what the hell are you doing to us? You’re going to get us sued. Come on. This is crazy.

Tell us what the process was like in the newsroom?

CARREYROU: Right. So, my editor is a guy named Mike Siconolfi who’s been —

RITHOLTZ: Old school, right?

CARREYROU: Yes. He’s been at “The Wall Street Journal” since, I think, the 1800s.


CARREYROU: I’m kidding.

RITHOLTZ: It didn’t start until the 1890s, so it can’t —

CARREYROU: I tease him a lot about how long he’s been at “the Journal.” I think he actually joined “The Wall Street Journal” in 1984.

But he’s a legend at the Journal and he is loved and admired and it’s for a good reason. He’s a real journalist, loves to do hard-hitting stories, and to back reporters who are on to hard-hitting stories.

And he’s also great in the sense that he knows to let you have a long leash and to follow your nose. He doesn’t try to micromanage you.

And early in 2015, I think it was February, the first or second week, I’d gotten the tip from the pathology blogger coming on top of “The New Yorker” story that had raised questions in my mind. I went to Mike and I said, I think, potentially there’s a story here and I think potentially it could be a really sexy, big story.

And he sort of listen to me summarize what I thought the story might be and he was like, go ahead. You know, try it for a couple weeks and then just give me an update in a couple weeks. And that’s how the process started.

And, you know, when I gave him the next update, it was probably two or three weeks later and I had made some headway. And so then, he was like, well, keep going.

And, yes. So, he’s a great editor, for sure.

RITHOLTZ: What about when the nastygram start to show up? I have to tell you, when I got mine and it’s nothing like what your – I wrote a book review, someone didn’t like my book review. I got a three-page letter.

But my immediate reaction is, “Oh my God, I totally screwed up. What will I do?” And I start reading through them and I’m like, wait a second, that’s not – that’s not true.

Everything I wrote in there, you said henchmen, I used the word thug. But more or less, everything in there, in my review, came right for your book. In fact, normally I don’t do that.

I do my here are the 10 books I’m going to read this summer or this winter and I read a book and I’m like, “oh, that’s interesting,” and I put it aside.

But I so totally enjoyed the story. I’m, like, unlike there are red flags everywhere. There are lessons for investors. I’m going to write something.

Like, that – not my usual approach. And I wrote it, never in a million years expecting we’re going to get letter.

But this – you get the e-mail and it shakes you. You’re like, holy cow, what did I do? And for a microsecond, it’s – I really – I screwed the pooch. I really did something terrible here.

And then it took about 10 seconds before, wait, no, I literally shut the book and started dictating on my iPhone because I was on the beach in the Hamptons, got home wrote it up that night, polished it the next morning, off it went. It was literally the book could not have been more fresh in my mind before that – before that column.

And so, after the letter came, after I finally, like, took a deep breath, figured out all the page citations that were being complained about, “you made the stuff up.” No, I didn’t. It’s right from the book.

I stopped and I said, what was it like when – my nothing little book review, you’re breaking major new stories. You’re breaking stories that ultimately leads to the revealing of fraud.

So, we have – we haven’t even talked about the SEC and the other litigation that’s going on, but you basically brought down a company that A, was a fraud; B, was putting people’s life and safety at risk. If you get a false-positive, well, it scares the hell out of you, but there’s no danger, if you get a false negative, if they miss something because they – this thing doesn’t work, people die.

So, what was it like when these letters started coming in? These nastygrams start coming in? I can’t imagine the process you went through.

CARREYROU: Right. It was stressful. I mean, some of your colleagues who’ve interviewed me about the book have asked whether there was any moment where I felt in physical danger.

And I don’t think there was any moment that I felt in physical danger. I mean, there are moments when I’d come out of my apartment building in Brooklyn and I’d looked left and right to see if I could spot anyone following me.

RITHOLTZ: Do you think you were followed?

CARREYROU: I don’t know. I don’t know. I think —

RITHOLTZ: My assumption is they do a full online search and pull whatever they can.

CARREYROU: If they had – if they had someone following me and that comes out, I will not be surprised. But I can’t say one way or another whether they did or not. I just don’t know.

I didn’t – I didn’t feel physically threatened. My biggest source of stress was that this scorched earth campaign to intimidate my sources and turn them into also intimidate the paper that it would be fruitful and that they would succeed in destroying the scaffolding of reporting upon which I’d built the story and it ultimately, you know, the story wouldn’t come out.

That was, for me, that was the big source of stress. And I finally, you know, breathed a sigh of relief when the story was in the paper. I think, it was October 15, 2015, and then I didn’t really have time to bask in it very long because then I immediately, you know —

RITHOLTZ: On to the next one.

CARREYROU: I was on to the first follow-up story which we published that very night. And you know, from there, it was months and months of more follow-up reporting.

And I think with each week that passed and with each regulatory inspection and finding, we were vindicated more and more. Until recently, you know the criminal charges that were filed by the Justice Department, the wire fraud charges filed against Elizabeth Holmes and Sunny Balwani by the Justice Department, really, you know were the ultimate vindication that my reporting was correct and I’d been right all along.

RITHOLTZ: What about the State of California? Did they do any criminal investigation? Did they – it all took place primarily in California.


RITHOLTZ: Are they getting a pass by the state?

CARREYROU: Well, if you – it depends if you count the U.S. Attorney’s Office in San Francisco —

RITHOLTZ: Federal, it’s not state.

CARREYROU: OK. So, then if you count them, California did nothing.

RITHOLTZ: That’s shocking. I mean, this is a serious fraud. It’s a billion dollars in investor money, not counting – not counting the Fortress stuff after the fact.


RITHOLTZ: So, it’s almost 1 billion dollars and the risk to individuals. You know, one of – in the book, you describe the Theranos people and I don’t remember cannot remember if it was the lawyers or others intimidating some of the doctors who had – had used this.

CARREYROU: That was Sunny Balwani. That was the number two executive of the company, the President of the company, who was the boyfriend of the founder.

RITHOLTZ: Secret boyfriend of the founder.

RITHOLTZ: Secret boyfriend of the founder — she was hiding it from everyone including her own board — flew out to Phoenix and proceeded to intimidate and threaten all the doctors who had spoken to me on the record and how did they know the names of those doctors? Because they’d asked that we give them information about the doctors and patients and their blood test results so that they could rebut them and respond to them which is natural.

I mean, we, you know —


CARREYROU: — you have to have the party that you’re investigating and writing about has to have the opportunity to respond. And so, we did that and what they do? Rather than responding, they went and they used the information to find the people and threaten them.

RITHOLTZ: And didn’t one of the doctors pretty much tell them to go jump? I thought one of the doctors was a real stand up in the book.

CARREYROU: There are a couple doctors who either refused to meet with them or told them – you know, one and one comes to mind, Dr. Adrian Stewart, who two – had two colleagues who had buckled under pressure and signed these statements essentially recanting what they told me.

She wasn’t there when her two colleagues —

RITHOLTZ: Chickened out.

CARREYROU: — were presented with those statements and chickened out. And she came back a week later by which time I had managed to reach her. And so, she was prepared to be assailed, which she was, as soon as she got back by Sunny Balwani.

And she stood, you know, she refused to sign the document that he put to her even though he told her if your name appears saying anything about Theranos in the “Wall Street Journal’s” story, we will drag your reputation through the mud.

RITHOLTZ: Nice guy. Good for her. She’s another one of the heroes in the book.

So, I have to bring up the Hail Mary that Elizabeth Holmes pulled with Rupert Murdoch, who – owner of Fox News of which Wall Street Journal is part of all the – one of the business holdings?

CARREYROU: Wait. I have to correct you —

RITHOLTZ: Now it’s been split.


RITHOLTZ: Blah-blah-blah.

CARREYROU: “The Wall Street Journal’s” part of News Corp which is a separate company.


CARREYROU: Fox is part of 21st Century Fox.

RITHOLTZ: Right. So, this is, at the time, it was a single entity. This is pre-split, right?

CARREYROU: This was post-split.


CARREYROU: Yes. The split was 2013.

RITHOLTZ: Really. All right.


RITHOLTZ: So, part of News Corp. An investor in Theranos and the day before publication, what is it? October 14th, 2015?

CARREYROU: No, it’s two weeks before publication, she – and she had already done this once, a month or two, prior when she’d invited Murdoch to come to Theranos offices in Palo Alto and she’d raised my story with him and told him I had gathered all this information that was false, misleading and that would do great damage to the company if it was published and she —

RITHOLTZ: Well, she’s right about that, the last one, the latter.

CARREYROU: She invited him to kill it and he demurred, told her that, you know, he trusted the Journal’s editors to do the right thing and didn’t want to involve himself.

And then she came again late September, I think it was September 30th, two weeks before my first story was published.


CARREYROU: She met with him in his eighth floor office in News Corp. building —

RITHOLTZ: Your office is where?

CARREYROU: On fifth floor.

RITHOLTZ: So, three floors above you —

CARREYROU: Three floors above me, she was there. Meeting with him one on one, raising my story with him urgently again, hoping that he would volunteer to kill it.

And he did no such thing despite having a 125 million reasons to do so.

RITHOLTZ: 125 dollar million investment in Theranos.


RITHOLTZ: Eventually, Murdoch, to his credit, so the story publishes. Some years later, Murdoch sells his interest back to the company for a dollar?


RITHOLTZ: So, he gets the tax write off.

CARREYROU: A year and a half later, approximately sells his stake back into the company to the company for a symbolic dollar so that he can use that huge loss to write off taxes on other earnings. But there was an addendum to that buyback deal which was that if Theranos settled any litigation with an investor who felt they had been defrauded for more than 40 million dollars, then Murdoch would be entitled to another payment of 4 million dollars.

And so that – the did get that additional 4 million dollars later —


CARREYROU: — because Theranos settled with the San Francisco hedge fund, Partner Fund, that had invested 100 million. Theranos settled with them for 43 million dollars in the spring of 2017.

And so, that entitled Murdoch to another $4 million. So, he got 4 million dollars plus 1 dollar. So, he’s still – in other words, he’s still lost 121 million dollars.

RITHOLTZ: Amazing. There’s a couple of other films I wanted to ask. There’s Safeway and Walgreens. These companies had such a bad case of FOMO.


RITHOLTZ: They spent a ton of money because they were afraid their competitors would get in over them despite never seeing the machine, never getting the technology of the science —

CARREYROU: Well, they saw the machine, but she would do these fake demos. Again —

RITHOLTZ: Never saw the real machine. They saw —

CARREYROU: No. They saw the real machine but there was a – what they call this secret demo protocol where the Walgreens or the Safeway representative or sometimes the board member or even the journalists came and had, you know, saw the miniLab which was this big black box with a digital interface and they’d have their finger pricked and the small fingerstick sample would be put in this cartridge which itself would be slotted in to the miniLab machine.

The miniLab machine would be turned on and the testing would – you’d hear the whirring of the machine so you’d think the testing has started. And they’d say this is going to take a while. Why don’t you go out for lunch or visit the rest of the building or meet with Elizabeth in her office and then we’ll get you your test result.

And so, the person, Walgreen, Safeway, or a board member would leave the room and then when they were out of sight, a Theranos employee would stop the Theranos miniLab, take the cartridge out, take the blood sample out of the cartridge and bring it to the Theranos lab where they would either test it manually at the bench or run it on one of the hacked Siemens analyzer.

RITHOLTZ: So, if someone says, no, I’m fine. I got my phone, I’m going to just stay busy, I just want to watch this machine work. Nothing would have happened?

CARREYROU: Well, they – yes, you would have been pretty much without saying so, calling their bluff.


CARREYROU: And I’m sure they would have come up with, you know, some excuse to get you out of the room at some point —


CARREYROU: — so that they could pull off their sleight of hand.

RITHOLTZ: So, this is – this has been a deep fraud from, let’s call it ’06-’07? Is that about right?

CARREYROU: Yes. I mean, you could argue that the fraud didn’t matter as much until 2013 as long as the company remained in R&D mode and —

RITHOLTZ: Right. Who cares?

CARREYROU: — and never went live with the technology.

RITHOLTZ: Well, the investors care.

CARREYROU: Right. But the second you commercialize the technology and you start offering it to the public which is what started happening in the fall of 2013, then it becomes a gigantic fraud because it’s not just investors who are being defrauded but it’s the public that’s being put in harm’s way. And that’s really, you know, I think that’s what elevates this scandal in puts it in the county of, you know, modern financial scandal.

RITHOLTZ: Let’s talk about the Army and Lt. Col. Shoemaker, a no-nonsense guy with a medical background —


RITHOLTZ: — who approved all of these experimental R&Ds. Holmes — but or whoever it was bumps in to him when trying to get this approved for the Army and this guy doesn’t take any BS —


RITHOLTZ: — sees right through it practically from the beginning. Tell us about it.

CARREYROU: Right, because – well, he didn’t – he didn’t necessarily think that the technology didn’t work, he didn’t know whether it worked it not. But what he felt strongly about was that this device needed to be approved by the FDA.

RITHOLTZ: Right. It’s a medical device for testing blood, how couldn’t it be?

CARREYROU: Right. And the FDA approves all laboratory testing equipment that labs buy. And so, he felt that the Theranos device was no exception.


CARREYROU: And so, what he really had a problem with was this regulatory strategy that Elizabeth Holmes had, you know, presented him with in 2011, a couple months after she had met Mattis and wrapped Mattis around her finger and got Mattis to back this notion that the Theranos technology would be used in a field in Afghanistan.

And for that to happen, it had to go through Lt. Col. Shoemaker at Fort Detrick in Maryland because he was the guy who had to approve such experiments.

RITHOLTZ: So, this lieutenant colonel gets a phone call from a four-star general, is that right?

CARREYROU: Right. And so, yes, later, you know, he had – has these clash – diplomatic clashes with Elizabeth and it becomes clear to her that she’s not going to be able to steamroll him and – but, so she appeals to Mattis and she emails him and at that point, he’s actually in the war theater in Afghanistan and she – because what’s happened by then is that Shoemaker has not only resisted what she wants to do, he has passed on what’s he – what his learned about the Theranos regulatory approach to the FDA and to CMS, the Centers for Medicare and Medicaid Services.

And CMS has dispatched an inspector to do a surprised visit and Elizabeth is furious about this. And so, she writes Mattis who’s in Afghanistan and Mattis gets her email, he’s furious. And so, in August of 2012, Shoemaker has to fly down with an FDA official to Tampa, Florida, which is the, you know, the headquarters of the Central Command because Mattis, at that point, was the head of the Central Command.

And he has to meet with Mattis and explain to this legendary journal —

RITHOLTZ: General.

CARREYROU: General — I’m sorry — that, you know, that he can’t say yes to what this general wants and here’s why.

And so, he and this FDA official named Alberto Gutierrez, go and brief Mattis. And they reached a compromise which is that if Theranos can – the Theranos experiment can proceed only if it’s using after the fact leftover deidentified samples from wounded soldiers, wounded or healthy for that matter.

And so that —

RITHOLTZ: In other words, they could feed it into it if they want to big sample of blood to run tests but nobody in the field is relying on this for medical —

CARREYROU: Exactly. And so, but that, you know, that opens a window Theranos to do this and inexplicably, over the ensuing months, Theranos can never seem to get its act together to get the study protocol written and ready.

And then, you know, everyone retires. Mattis retires, his aide-de-camp retires, Shoemaker ends up retiring mid-2013, the live experiment in field in Afghanistan that Elizabeth wanted never ends up happening and in part —

RITHOLTZ: Wait, wait, wait, wait, wait. Why would she want a live – is she still under the illusion this damn thing works?

Like, how delusional is she?

CARREYROU: She thinks that it sort of works and then in the end —

RITHOLTZ: Just a few tweaks.

CARREYROU: Right. That, you know, will iterate and basically what she has her eyes on is two things. She has her eyes on the potentially huge new revenue stream that a contract with the Pentagon would bring. And she has her eyes on the validation of Theranos that she would get by virtue of being a supplier of this technology to the Pentagon.

RITHOLTZ: And what year is this? This is 2012-2013.

So, when did this Safeway and the Walgreens deals fall apart?

CARREYROU: So, Walgreens deal only fell apart after my revelations and it took along —


CARREYROU: Not even. 2016, really. I mean, it fell apart in steps.

But they really, you know, ended the whole thing in 2016. I think it was the summer of 2016.

RITHOLTZ: Just a big 300 dollars million write-off or whatever it was.

CARREYROU: It was 140 million dollars that Walgreens put in Theranos. But, I mean —

RITHOLTZ: But what about the – who did the big renovation?

CARREYROU: The renovation was Safeway. Safeway loaned Theranos 30 million dollars. But on the side, in addition to that loan, it renovated these clinics inside its supermarkets, in about 800 of its supermarkets in anticipation of, you know, having the Theranos technology offered there. And that renovation cost $350 million.

RITHOLTZ: Wow. At least they got new paint and carpet. It’s amazing.

The other two, before I get to my standard questions, the other two, sort of frauds that stood out, that surprising, one was the Johns Hopkins letter —


RITHOLTZ: Explain the faux endorsement.

CARREYROU: Right. So, she goes to – Walgreens has hired Johns Hopkins as sort of a consultant as it’s beginning to set up this partnership with Theranos. And so, in – I believe it’s May of 2010, Elizabeth and her boyfriend, Sunny, go to the Johns Hopkins campus to meet with several Hopkins officials, among them laboratory scientists.

And they come with what is then the Edison, the black-and-white device and they come with binders full of data and they explain, you know, what the device does and they show these binders with these graphs that show – you know, it’s basically a diagonal line that shows a very tight correlation between the data from the Theranos tests and regular technology with, you know, regular venous draws —

RITHOLTZ: And that was a scam also.

CARREYROU: And that was a scam. Those were fake graphs and fake data. But they met for a couple hours. And you know, the meeting, at Theranos’s request, gave rise to a two-page letter, not even two pages, a page and a half, which was essentially a summary of the meeting minutes from the meeting say this meeting happened and, you know, what Theranos has described sounds interesting.

And by the way, there’s like small boilerplate at the end of the second letter saying, you know, this is in no way an endorsement by Johns Hopkins of any Theranos technology.

And she then uses this over the ensuing two or three years to claim that Theranos’s technology has been independently verified and validated by the Johns Hopkins School of Medicine and everyone falls for it.

RITHOLTZ: Nobody calls up Johns Hopkins and says it seems that —


RITHOLTZ: This is a stunning thing.


RITHOLTZ: Time and time and time again, there are these statements made, these claims made —


RITHOLTZ: Nobody does due diligence, nobody sees the technology, nobody sees the actual, well, open up the machine. I can’t —


RITHOLTZ: Like, I would have – it’s clear why the VCs walked because you have to show us this or we can’t give you money. This is not – this isn’t a negotiating tactic.


RITHOLTZ: It’s show it to us or we’re out because that’s how we run.

CARREYROU: Yes, the – one of the Hopkins lab scientists who attended this meeting, back in the spring of 2010, at the end of the meeting said to Elizabeth, you know, this is all well and good but, you know, for us to really do rigorous verification, you would need to send us one of your devices.

Either you could leave this one or ship another one of them to us and then I’ll want to have it in my lab for several months and put it, you know —

RITHOLTZ: Put through its paces.

CARREYROU: Put through its paces and compare it with the diagnostic equipment that I have in my lab. And so, he encouraged her to do that and she said she would. And of course, it never —

RITHOLTZ: She promised a lot of stuff —

CARREYROU: It never happened.

RITHOLTZ: Never does.

CARREYROU: Never happened.

RITHOLTZ: She promised data she never delivered.


RITHOLTZ: She promised documentation, never delivered. But we know why because this thing was a fraud —


RITHOLTZ: — for years and years —


RITHOLTZ: — before. How do you live like that? How does somebody not expect to get caught?

CARREYROU: You know, again, in her mind it goes back to the way that she channeled the traditional Silicon Valley. And again, what I think of as the traditional Silicon Valley is the industry that grew out of the computer chip in the street and became, you know, the personal computer revolution and then the Internet boom. And now, it’s the smart phone. That’s the traditional Silicon Valley.

It’s is based on coding, computer programming.


CARREYROU: And it’s true that there’s been a lot of faking it until you make it. There’s been a lot of exaggerating, making exaggerated claims —

RITHOLTZ: Vaporware.

CARREYROU: Vaporware. To get the funding that you need to make the product happen.

And she, I think, because she modeled herself after Jobs and to a lesser extent, Larry Ellison, she thought, you know, this is the rulebook that everyone goes by in Silicon Valley, like it’s not a big deal if I go by it, too.

RITHOLTZ: Shocking. So, last question on her prepping for this. I watched a couple of videos and she always seems to speak like this in all of her videos. It’s this sort of weird baritone.

And I read a number of other articles that suggest that she faked this deep voice for reasons known apparently only to herself. What is the story with that? Is that her real voice? Is that fake? Is this trying to be a woman in a man’s world?

Like, what is – what is the deal with that?

CARREYROU: It’s not her real voice. And —

RITHOLTZ: How do we know that for sure?

CARREYROU: So, I’ll give you at least four data points. One is an anecdote that I tell in the book. I think it’s in Chapter 8 of the book where an employee who’s just been hired to – to work as an engineer on the miniLab meets with her in the early 2011 and the meeting is at the end of a long day.

She’s excited that he’s there and they’re making progress on building this machine and she closes the meeting by getting up and taking her coat off her chair. And as she goes toward, you know, to open the door of her office to see him out, she lapses out of her baritone, she forgets to put on the baritone and lapses into a much more natural sounding young woman’s voice.

And he’s totally startled at this point because he’s only heard her with the baritone and he realizes at that point that the voice is fake. He kind of turns it in his head over the next couple of days and realizes, you know, she must have decided this was necessary because Silicon Valley’s a man’s world and she dropped out as this young woman and that was so unusual. She must have felt along the way that it was necessary to get people’s attention.

Now, the other data points I have are one is that as the book makes clear, one of my sources for the book was Elizabeth’s best friend at Stanford, a young woman by the name of Chelsea Burket. And Chelsea says that Elizabeth’s voice was nothing like that at Stanford or even after Stanford. And so, Chelsea herself believes that the voice is fake.

A family member cooperated as well for the book and I’m not going to say of this person’s name, but that person believes and professes that he knows for a fact that the voice is fake.

And then, there’s probably the most conclusive proof is that there’s an interview that she gave to the show, “BioTech Nation” in May of 2005. It’s an NPR show and I have recording of it and at that point, she’s 18 months out of Stanford. She’s like 20 or 21 years old.

She gives this interview to Moira Gunn and she sounds nothing like the Elizabeth Holmes of later years. She sounds like this kid, almost, who’s speaking very fast, in a much more natural sounding young woman’s voice that’s a couple of pitches higher and you realize listening to that audio recording that she basically, at a certain point, after that decided to create a whole new persona for herself and changing her voice was part of that new persona that she fashioned.

RITHOLTZ: I always thought when you close your B round (ph), your voice changes and that – that could have something to do with it. But you’re saying nothing to do with that, whatsoever?

It was, for sure, a very – part of a very contrived attempt to project this, you know, female Steve Jobs aura.

RITHOLTZ: Right. Which other than the – other than the black turtle neck, there was just nothing in common or whatsoever.

But, hey, what are you going to do. That was – that was her attempt and just astonishing.

So, I only have you for a couple more minutes. Let me jump to my favorite questions that I ask all my guests.

Before I do that, I just have to say, we covered ton of stuff. Anything you want to bring up? Anything that I may have missed, you think, is noteworthy?

CARREYROU: A funny moment in this saga which is 48 hours after my first story is published, in October 2015, Elizabeth and Sunny lead this all-employee meeting and —

RITHOLTZ: (expletive), Carreyrou.

CARREYROU: Right. Right.

RITHOLTZ: You have that in the book. And that’s – it’s amazing that people just go along with that.

CARREYROU: Yes. And I was told, you know, at least half of the employees in the audience didn’t go along with it and couldn’t believe that this was actually happening.

But then you did have some employees, many employees who did go along with it. And I think it speaks to the culture of hubris, arrogance, you know, us versus them. We’re everything even though we haven’t really invented anything new.

And, you know, that that’s – it really speaks to how broken the culture of the company was.

RITHOLTZ: F you, Carreyrou is what Balwani and Holmes lead them on chanting —


RITHOLTZ: And how long does this go on?


RITHOLTZ: And how many people told you about it?

CARREYROU: It was just a couple of times, two or three chants. And it had been proceeded – there had been a precedent three months prior after Theranos had received FDA approval for one of its fingerstick test.


CARREYROU: It turned out the only fingerstick test that ever got approval for was a test to detect herpes which is actually a pretty easy test to do because it’s just a test that says yes or no, do you have the disease.


CARREYROU: So, those tests were much – much easier than most lab tests which are quantitative tests.

Anyways, Theranos had gotten this approval from the FDA and was very, very proud. And Sunny had led employees in the cafeteria in a (expletive) chant which I actually have on tape because I have footage of that meeting. And, yes, he had the whole company yelling (expletive).

And at that point, the chant was directed at Theranos’ rivals, Quest and LabCorp who are the two 900-pound gorillas in the lab industry.

RITHOLTZ: Who never, for a second, thought this little pissant company with a fake technology was a – that’s the most amazing thing is they think these are their rivals and these two companies couldn’t possibly care less about them.

CARREYROU: Well, I mean, by the time she became famous, they certainly knew who she was and I think it didn’t escape them that the valuation of Theranos first disclosed in “Fortune” magazine in June 2014 was 9 billion which was essentially that the same, you know, market capitalization that Quest and LabCorp had so that had to get their attention and I know it did.

But yes, the amount that the degree to which Elizabeth and Sunny were obsessed with Quest and LabCorp is exponentially greater than, you know, then how concerned Quest and LabCorp were with Theranos.

But anyways, that first (expletive) chant was directed at Quest and LabCorp. And then three months later, when my story came out, at the end of this meeting in which Elizabeth and Sunny had both been very defiant about how my reporting was false and about how they would take the fight to the Journal and to the journalist, a senior software engineer asked Sunny if he would lead them in a chant.

And no one, you know, had to ask what the chant was, everyone knew based on what happened three months prior. And so, Sonny was, of course, very happy to oblige and led the company for second time in the chant. And this time added my name after the FU which was convenient because it rhymed.

RITHOLTZ: Amazing. John Carreyrou, you’re fake news. Let’s — that’s what he should have said. I think the book is not fake news and it’s absolutely fascinating.

Let’s jump to our favorite questions and I’m going to skip around a little bit because I know we’re tight on time. Tell us about some of your early mentors.

CARREYROU: So, I would cite a few people. One of them would be my investigative team colleague Mark Maremont. He’s still at “The Wall Street Journal” to this day and still does great work for “The Wall Street Journal.”

RITHOLTZ: Was he on one of the Pulitzer Prize winning teams that you–

CARREYROU: Yes. He was actually. He lead-wrote one of the stories that was in a package on corporate scandals in 2002 that won the Pulitzer Prize for explanatory reporting and I lead-wrote another one of those stories.

But he had been a mentor several years prior on my first ever investigative work which was unmasking a Belgian speech recognition software company called Lernout & Hauspie–


CARREYROU: –which was the pride of Flanders back then and I was based in Brussels and Mark and another journal colleague named Jesse Eisinger had smelled a rat and started writing about this company and they needed to help from a reporter on the ground in Belgium and sought out my help.

And then we ended up, you know, spending close to a year unraveling the fraud of this company, and I learned a ton for those who’s got two guys especially for Mark Maremont. And so, he was a mentor.

And then I’m going to namecheck, another former colleague, Mike Williams who’s now the investigative editor at Reuters and who’s a long-time “Wall Street Journal” reporter and editor. He was my bureau chief in Paris for several years and he was later the Page 1 editor of the Journal. And then, of course, Mike Siconolfi who’s my current editor on the investigative team.

RITHOLTZ: I would mention that Eisinger went on to win the first online Pulitzer for his work at ProPublica.

CARREYROU: That’s right. Yes.

RITHOLTZ: So, lots of Pulitzer Prize winning journalists came out of the shop. So, who — let’s talk about your favorite books. “Bad Blood” is your first book. What do you read, who do you really enjoy, fiction, nonfiction, right, blood related or not?

CARREYROU: So, I love nonfiction and I love page-turning nonfiction. One of my favorite books of all time is “A Civil Action” which I read in the late ’90s. I think it’s — the name of the author is Jonathan Harr. I think he worked on that book for seven years.


CARREYROU: Another deeply reported book that I love is “Black Hawk Down” by Mark Bowden. An amazing feat of reporting, reconstructing what those soldiers went through in Somalia. It’s just an unbelievable book.

I love the sort of definitive nonfiction book about Wall Street in the ’80s, “Barbarians at the Gate.”


CARREYROU: Which was written by guys who at that time worked for “The Wall Street Journal” Bryan Burrough and John Helyar. They’ve long since moved on. I am a big fan of the former “Wall Street Journal” reporter and known best-selling author Erik Larson. Among his books, “Devil in the White City.”


CARREYROU: The latest that I read by him is about Lusitania. He’s just a terrific writer and I would say an influence in terms of writing nonfiction. Probably my biggest influence.

RITHOLTZ: So, what has changed since you became a journalist 20 years ago? How do you see — we know the industry, the business of journalism has changed. What do you see as different in the actual reporting?

CARREYROU: The one obvious thing is the rise of social media. It’s there wherever you turn. You know, people you investigate are on social media or use social media.

I used LinkedIn to make contact with ex-Theranos employees, one of them, Tyler Shultz. And, yes, I think it’s a reporting tool but it’s also a disinformation tool as we see, hint, hint, with the current administration.

It’s sort of a propaganda tool, thinking of Twitter in particular, and it’s got other sort of effects on our craft which — some which aren’t so great which is that journalists spend a lot of time on Twitter, probably too much time on Twitter instead of actually doing work.

RITHOLTZ: Research, it’s research.

CARREYROU: Right. And sometimes they opine on Twitter in a way that compromises their objectivity or presumed objectivity.

RITHOLTZ: Fair enough. Totally fair enough.

CARREYROU: So, yes, social media has been a game changer I think for our profession if I had to point to something.

RITHOLTZ: So, tell us about a time you failed and what you learned from the experience.

CARREYROU: So, when I was a brand-new reporter at “The Wall Street Journal Europe” in Brussels back in I think it was 1999 and “The Wall Street Journal Europe” back then was separate from the mothership.

We had these European and Asian editions that were run separately. So, I wasn’t a full-fledged “Wall Street Journal” reporter. I was a “Wall Street Journal Europe” reporter. And with respect to this incident, it was a good thing.

A colleague and I wrote a story about a business deal that we thought, you know, we had learned about that was basically turned out to be complete fiction and it was like a comedy of errors. It was a merger or so we thought between several post offices in Europe.

And, you know, we had these sources who were — who just, you know, these pseudo-sources who were several times removed from actual information but who, you know, told us that they thought they knew what they couldn’t have known because it wasn’t true.

And so, we wrote this completely absurd story that was completely wrong–


CARREYROU: –and erroneous.

RITHOLTZ: What was the takeaway?

CARREYROU: What’s that?

RITHOLTZ: What was your takeaway?

CARREYROU: No, my takeaway was that, you know, you can’t — you got to verify. I’m reading Sy Hersh’s autobiography right now and he has an expression for it that he learned at City News in Chicago where he started out his career which is check it out.

You know, check it out and we didn’t do any checking. We just went with what, you know, the first person we got on the phone told us and the story was completely wrong. It was embarrassing and frankly I just still don’t understand why I wasn’t fired for it.

RITHOLTZ: And what is it that you know about investigative reporting today that you wish you knew 20 years ago?

CARREYROU: I mean, I think earlier in my career I think that I thought investigative reporting was a glamorous craft. You know, this may sound corny but one of the things that contributed to inspiring me to become a newspaper reporter was reading “All the President’s Men” after college.


CARREYROU: I graduated in ’94 and that was one of the first books I read after college and, you know, I think it made investigative journalism and reporting seem glamorous to me.

And what I would caution, you know, young people getting into this line of work is that 99 percent to 100 percent of the time it’s not glamorous. It’s digging, you know, behind the scenes in the dark, in semi or complete obscurity and, you know, hopefully, you publish some good stories but oftentimes the stories won’t have as much impact as you would hope they would have.

And, you know, it can be thankless work and I would argue that it’s also can be very rewarding work. But you got to stick with it and it’s work that requires persistence and perseverance. I don’t know if I necessarily knew all those things when I started that.

RITHOLTZ: Just fascinating. Thank you, John, for being so generous with your time. We have been speaking with John Carreyrou, author of “Bad Blood: Secrets and Lies in a Silicon Valley Startup.”

If you enjoyed this conversation, well, then look up an inch or down an inch on Apple iTunes, Overcast, Stitcher or wherever you find our podcasts are sold and you can see any of our prior 200 plus conversations. We love your comments, feedback and suggestions. Write to us at

I would be remiss if I did not thank my crack staff that helps to put together this conversation each week. Medina Parwana is our audio engineer/producer, Taylor Riggs is our booker and producer and Michael Batnick is our head of research. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

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