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John Carreyrou on Breaking Open the Theranos Scandal · Masters in Business

• 0:02
  Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg
• 0:06
  Speaker 1: Radio this weekend. On the podcast, I have an extra
• 0:11
  Speaker 1: special guest. His name is John Carrie Row. He is
• 0:14
  Speaker 1: a two time Pulitzer Prize winning investigative reporter for The
• 0:17
  Speaker 1: Wall Street Journal and author of the book Bad Blood,
• 0:21
  Speaker 1: Secrets and Lies in a Silicon Valley Startup. I could
• 0:24
  Speaker 1: have spoken to John for another nine hours. I found
• 0:28
  Speaker 1: the book absolutely fascinating. I plowed through it on Labor
• 0:31
  Speaker 1: Day weekend and really really enjoyed it, not just because
• 0:35
  Speaker 1: of how revealing it is of what turned out to
• 0:38
  Speaker 1: be a giant pick pick the metaphor and Ron Bertie
• 0:43
  Speaker 1: made off whatever, a giant fraud, but it reads like
• 0:47
  Speaker 1: a thriller. It's a real page turner. There are some
• 0:51
  Speaker 1: giant surprises throughout the book. Lots of people see their
• 0:55
  Speaker 1: reputation damaged and destroyed. It's amazing, and as somebody who
• 1:00
  Speaker 1: is also an investor, I can't help but notice how
• 1:04
  Speaker 1: many times there's red flag after red flag after red
• 1:07
  Speaker 1: flag that are excused, rationalized, ignored, somehow put shunted aside,
• 1:14
  Speaker 1: instead of hey, that's a big, big red flag. Maybe
• 1:17
  Speaker 1: we shouldn't put a billion dollars into this nonsensical company
• 1:22
  Speaker 1: that doesn't do any of the things it promises it
• 1:25
  Speaker 1: can do. Anyway, I highly recommend the book. Whether you've
• 1:29
  Speaker 1: read the book or not, you're gonna find this conversation fascinating. So,
• 1:33
  Speaker 1: with no further ado, my conversation with John carry Rout.
• 1:41
  Speaker 1: My extra special guest this week is John Carrrew. He
• 1:45
  Speaker 1: began his career in journalism in after he graduated from Duke,
• 1:52
  Speaker 1: he joined the Dow Jones Newswires. Shortly after, he moved
• 1:56
  Speaker 1: to European version of the Wall Street Journal in Brussels,
• 1:59
  Speaker 1: event a sually going to Paris to cover French business, terrorism,
• 2:03
  Speaker 1: and everything in between. He was appointed deputy Bureau chief
• 2:07
  Speaker 1: for Southern Europe and OH three. Eventually he became the
• 2:11
  Speaker 1: Wall Street Journals Health and Science Bureau chief in New York.
• 2:15
  Speaker 1: He has won numerous awards in journalism, including the Pulitzer
• 2:20
  Speaker 1: Prize twice. If this sounds like the perfect background for
• 2:23
  Speaker 1: any writer curious about the blood testing start up, there no, nos, Well,
• 2:28
  Speaker 1: it turned out that is exactly right. Uh. The Unicorn
• 2:32
  Speaker 1: turned out to be a fraud, which was broken by
• 2:34
  Speaker 1: Carrirew in the pages of the Wall Street Journal. He
• 2:37
  Speaker 1: has written a best selling book, Bad Blood, Secrets and
• 2:42
  Speaker 1: Lies in Silicon Valley about the entire Elizabeth Holmes and
• 2:46
  Speaker 1: thearaph O saga. John Carrirew, Welcome to Bloomberg. Thank you
• 2:50
  Speaker 1: for having me my pleasure. I have to start out
• 2:53
  Speaker 1: by saying I love the book. It was on my
• 2:55
  Speaker 1: list of ten to read this summer and I just
• 2:58
  Speaker 1: plowed through it over Labor Day week. Again, there's so
• 3:01
  Speaker 1: much material to cover. It's such a fascinating story. Let's
• 3:05
  Speaker 1: just go back to the beginning. How does Sara nos
• 3:09
  Speaker 1: and Elizabeth Holmes out in Silicon Valley first come on
• 3:13
  Speaker 1: your radar? It was mid December two thousand fourteen, and
• 3:19
  Speaker 1: I was on the subway UH commuting back from UH
• 3:24
  Speaker 1: my office in Midtown Manhattan to Brooklyn where I live,
• 3:27
  Speaker 1: reading the New Yorker magazine, and in that issue was
• 3:31
  Speaker 1: a long profile of Elizabeth Holmes by Ken all Letta
• 3:35
  Speaker 1: and um, it was a color glowing It was mostly
• 3:40
  Speaker 1: mostly glowing, with some, I have to say, with some
• 3:42
  Speaker 1: skeptical passages that I immediately picked up on, and UM,
• 3:47
  Speaker 1: you know that it was. It was an entertaining read
• 3:50
  Speaker 1: and interesting that there were, as I just said some
• 3:53
  Speaker 1: some things that struck me as odd in that story. UM.
• 3:58
  Speaker 1: One of the ways she she described, you know, how
• 4:01
  Speaker 1: her blood testing technology work, or how she worked, how
• 4:05
  Speaker 1: she summed it up, UH, sounded to me like a
• 4:07
  Speaker 1: high school chemistry student as opposed to sophisticated you know
• 4:12
  Speaker 1: lab scientists slash inventor um. But more than any particular thing,
• 4:17
  Speaker 1: it was this notion that a college dropout, someone who
• 4:21
  Speaker 1: had had two semesters of chemical engineering, had dropped out
• 4:26
  Speaker 1: and then gone on and invented groundbreaking new science that
• 4:30
  Speaker 1: was going to revolutionize you know, lab testing. So let
• 4:34
  Speaker 1: me jump in right here. So she goes to Stanford, finishes,
• 4:38
  Speaker 1: drops out after her freshman year. She's got no medical training,
• 4:41
  Speaker 1: she's got no organic chemistry, biology, um, blood chemistry, none
• 4:46
  Speaker 1: of the things one would normally think would go into
• 4:50
  Speaker 1: complex medical device manufacturing. This isn't a software startup where
• 4:55
  Speaker 1: you could just hey, anybody could code, and whether you
• 4:58
  Speaker 1: have the academic credentials or not as irrelevant. This is
• 5:01
  Speaker 1: a serious science, isn't it right. She she had zero qualifications.
• 5:06
  Speaker 1: I mean she had had literally had two undergraduate UH
• 5:12
  Speaker 1: courses with the same professor Channing Robertson, who ended up
• 5:15
  Speaker 1: being you know, her first enabler. Uh, that's an interesting
• 5:19
  Speaker 1: choice of words. Why did you select enabler? Well, so
• 5:23
  Speaker 1: he was for those listening who aren't familiar with him,
• 5:26
  Speaker 1: Channing Robertson was a star, rock star star of this
• 5:30
  Speaker 1: of the Stanford Engineering School faculty. Had been an expert
• 5:34
  Speaker 1: witness in the late nineties for the state of Minnesota
• 5:37
  Speaker 1: and its tobacco litigation, and um, you know, also was
• 5:42
  Speaker 1: really popular with students. He had a way with students,
• 5:44
  Speaker 1: he connected with them, and um, she had taken to
• 5:48
  Speaker 1: two courses with him, and then you know, came back
• 5:51
  Speaker 1: with this cockamami patent in UM after her her summer
• 5:56
  Speaker 1: in Singapore working at a lab in Singapore. Uh. So
• 6:00
  Speaker 1: we're now in in the fall of two thousand three,
• 6:03
  Speaker 1: and the patent was for this device that she envisioned,
• 6:07
  Speaker 1: which was essentially a wrist band that would have micro
• 6:10
  Speaker 1: needles that would come out and insert themselves into your
• 6:15
  Speaker 1: wrist and draw micro amounts of blood and and then
• 6:20
  Speaker 1: uh diagnosed whatever ailed you and cure you simultaneously. Um.
• 6:26
  Speaker 1: And it was clear, I mean, this was science fiction
• 6:28
  Speaker 1: to anyone involved an engineer or a lab scientist clear
• 6:32
  Speaker 1: that it was not feasible and probably ever feasible, at
• 6:36
  Speaker 1: least not for for decades. And uh you know, he
• 6:40
  Speaker 1: he chose to um go along with it and and
• 6:45
  Speaker 1: encouraged her to drop out, or at least didn't discourage
• 6:48
  Speaker 1: her to drop out, and then accompanied her on pitches
• 6:51
  Speaker 1: to vcs and so he gave her credibility. At that point,
• 6:54
  Speaker 1: she's nineteen years old, um, and he's the star of
• 6:57
  Speaker 1: the Stanford faculty. And then he joins the board and
• 7:00
  Speaker 1: he stays on there with her, accompanies her for the
• 7:03
  Speaker 1: next twelve years. Uh you know, he is for sure
• 7:06
  Speaker 1: her her original enabler. So one of the questions I
• 7:10
  Speaker 1: was going to ask you, but you kind of hinted
• 7:12
  Speaker 1: at the answer. Ready, you know, when did you first
• 7:15
  Speaker 1: start to smell that something was amiss? But it's pretty
• 7:19
  Speaker 1: clear you're you're saying right from the beginning, Well, this
• 7:22
  Speaker 1: struck you as a little off, Yes, But to be honest,
• 7:27
  Speaker 1: I probably would not have done anything with my intuition
• 7:31
  Speaker 1: had I not gotten approached by his source, who was
• 7:35
  Speaker 1: a pathologist in the Midwest who had gotten to know
• 7:39
  Speaker 1: the year before he moonlighted as the writer of this
• 7:42
  Speaker 1: obscure blog called Pathology Blog, which he spelled b L
• 7:46
  Speaker 1: A w G. And I had gotten him a year
• 7:49
  Speaker 1: prior to explain to me some of the complexities of
• 7:52
  Speaker 1: lab billing for a series on Medicare Medicare fraud had
• 7:55
  Speaker 1: been doing at the time. And he had read the
• 7:57
  Speaker 1: New Yorker story about Elizabeth Holmes too, and had immediately
• 8:02
  Speaker 1: been dubious even more than me. Uh in that you know,
• 8:05
  Speaker 1: he was much more familiar with with the intricacies of
• 8:08
  Speaker 1: lab science than I was. And he wrote a skeptical
• 8:13
  Speaker 1: item on his block. And uh, this guy named Richard Fuse,
• 8:20
  Speaker 1: who's a pretty big character in my book, by the way,
• 8:23
  Speaker 1: had been a childhood neighbor of Elizabeth and her parents
• 8:27
  Speaker 1: immediately got in touch with the Pathology blogger and told him,
• 8:31
  Speaker 1: you're on the right track. I think the areness as
• 8:34
  Speaker 1: a scam. You should keep digging into this. And Fuse
• 8:38
  Speaker 1: had been involved in litigation with Elizabeth Holmes. He had
• 8:42
  Speaker 1: patented a part of her vision that had caused her
• 8:47
  Speaker 1: to sue him, and she had steamrolled him with David Boys.
• 8:52
  Speaker 1: David Boys had become her attorney and thereness attorney, and
• 8:55
  Speaker 1: and they really steamrolled Fuse in this litigation, and during
• 8:59
  Speaker 1: the course of the lime atient, Fuse had become convinced,
• 9:02
  Speaker 1: as a actually trained doctor and medical inventor that thereon
• 9:06
  Speaker 1: us was a scam. Hold that thought, we're gonna come
• 9:08
  Speaker 1: back to that. Let's talk about some of those secrets
• 9:11
  Speaker 1: and lies. The question that I still haven't come to
• 9:17
  Speaker 1: a solid answer was simply this with was this a
• 9:21
  Speaker 1: scam from day one or did this eventually morph into
• 9:26
  Speaker 1: a scam? What it was the latter it wasn't a
• 9:29
  Speaker 1: scam from day one, and that she didn't drop out
• 9:32
  Speaker 1: of Stanford at nineteen and late two thousand three premeditating
• 9:37
  Speaker 1: a long con that would defraud investors and eventually put
• 9:41
  Speaker 1: patients in harm's way. That that was not in her
• 9:44
  Speaker 1: thoughts back then. Even though she's never spoken to me, um,
• 9:48
  Speaker 1: I know that she dropped out wanting to become a
• 9:52
  Speaker 1: successful Silicon Valley entrepreneur. Her idol was Steve Jobs. She
• 9:56
  Speaker 1: worshiped Apple and she wanted to follow in his footsteps.
• 10:01
  Speaker 1: And she also had this, you know, this notion that
• 10:04
  Speaker 1: she should do good for society because her her father
• 10:08
  Speaker 1: had worked at the State Department and various other government
• 10:12
  Speaker 1: agencies and and uh provided um, you know, help and
• 10:16
  Speaker 1: and disaster torn areas, and there were photos of him
• 10:19
  Speaker 1: and and he had raised her, uh with this notion
• 10:22
  Speaker 1: that she should live a life of purpose and and
• 10:25
  Speaker 1: that she should make her mark and not just by
• 10:28
  Speaker 1: getting rich. And so biotechnology, in her mind, was was
• 10:32
  Speaker 1: the gateway to achieving both becoming rich like her ancestors,
• 10:37
  Speaker 1: the Fleishman's had once been, and also doing good. And
• 10:40
  Speaker 1: so that's the way in which she was different from
• 10:42
  Speaker 1: Steve's jobs. She wanted a product that would that would
• 10:45
  Speaker 1: do good for society. Um. And uh, you know, so
• 10:49
  Speaker 1: it wasn't it wasn't a fraud. From the beginning she
• 10:52
  Speaker 1: had she had good intentions. It became a fraud with
• 10:56
  Speaker 1: the years as she confronted uh, you know, failures and difficulties.
• 11:03
  Speaker 1: Because science is hard. Medicine is hard. Science is hard.
• 11:06
  Speaker 1: So let let me ask you about that. A number
• 11:09
  Speaker 1: of people that you write about in the book point
• 11:12
  Speaker 1: out that the reason we do venus drawing, the reason
• 11:15
  Speaker 1: we take blood from your arm and fill three big
• 11:18
  Speaker 1: vials is that's a clean sample of blood. When you
• 11:22
  Speaker 1: do a pin prick, you're damaging tissue. Even if you
• 11:25
  Speaker 1: clean the surface of the skin. It's not as clean
• 11:28
  Speaker 1: a sample of of blood. So it makes makes me
• 11:32
  Speaker 1: raise the question, isn't it kind of reckless to say, oh,
• 11:35
  Speaker 1: I could you know, I could run into medicine and
• 11:38
  Speaker 1: figure this out despite lacking a background. I mean, it's
• 11:42
  Speaker 1: hubris and arrogance. It's incredibly naive to think that people
• 11:47
  Speaker 1: hadn't tried capillary blood draws. They had, and and one
• 11:52
  Speaker 1: of the problems with them, The biggest problem is is
• 11:55
  Speaker 1: what you say, which is that the risk UH that
• 11:58
  Speaker 1: basically capillary drop capillary blood is not as pure as
• 12:02
  Speaker 1: venus blood. It's polluted by tissue from cells and and
• 12:07
  Speaker 1: from skin, and UH that that stuff interferes with the
• 12:12
  Speaker 1: blood tests and so UH one of the biggest problems
• 12:17
  Speaker 1: when you try to do a blood test. UH, the
• 12:20
  Speaker 1: biggest problem is the potassium blood test, because what happens
• 12:23
  Speaker 1: is when you milk blood from the finger, you cause
• 12:29
  Speaker 1: the red blood cells in the blood to burst, and
• 12:33
  Speaker 1: the bursting UH causes a release of potassium, and so
• 12:36
  Speaker 1: it increases the concentration of potassium in your sample. And
• 12:41
  Speaker 1: and the concentration of potassium becomes artificially high, and that
• 12:45
  Speaker 1: little blood sample and In fact, that is one of
• 12:48
  Speaker 1: the problems that UH the ants ran into when it
• 12:52
  Speaker 1: started going live with its blood tests and Walgreen stores
• 12:54
  Speaker 1: in late two thou thirteen, was this hemolysis problem. And
• 12:58
  Speaker 1: this is in hindsight bias that was well known for decades.
• 13:01
  Speaker 1: This is not a new discovery, right, I mean, the
• 13:06
  Speaker 1: problems with capillary blood draws were well known among lab
• 13:09
  Speaker 1: scientists for sure. And then there's another problem that you
• 13:13
  Speaker 1: haven't talked about, which doesn't have to do necessarily with
• 13:15
  Speaker 1: the fact that it was blood pricked from the finger
• 13:18
  Speaker 1: that her vision revolved around. It's it's the how small
• 13:21
  Speaker 1: the sample was. She she wanted, you know, to be
• 13:24
  Speaker 1: able to do hundreds of tests from a drop or
• 13:26
  Speaker 1: two of blood, and no one had figured out how
• 13:30
  Speaker 1: to do that many tests from that small sample. The
• 13:34
  Speaker 1: basic reason is that there are about half half a
• 13:37
  Speaker 1: dozen big classes of blood tests, and each one of
• 13:41
  Speaker 1: these classes blood tests requires completely different laboratory techniques and
• 13:46
  Speaker 1: laboratory instruments. And so once you've done a couple of
• 13:49
  Speaker 1: blood tests that are saying immuno assays, and you try
• 13:54
  Speaker 1: to do blood tests from a different category, such as
• 13:58
  Speaker 1: general assays or hematasergy tests. You no longer have any
• 14:01
  Speaker 1: blood left because you've used your small sample to do
• 14:06
  Speaker 1: the test, and then you need more blood because the
• 14:09
  Speaker 1: other tests required completely different methods and completely different instruments.
• 14:12
  Speaker 1: And so no one had been able to crack that nut.
• 14:15
  Speaker 1: They've been trying to do so for more than two
• 14:17
  Speaker 1: decades an industry and uh in universities, and she came
• 14:21
  Speaker 1: along and claimed that she had solved all these problems,
• 14:24
  Speaker 1: even though she hadn't solved a single one of these problems.
• 14:27
  Speaker 1: She just stated her intention to solve them, and money
• 14:30
  Speaker 1: flowed in. Is that is that a fair? Well? She not,
• 14:33
  Speaker 1: I mean it's not quite. I mean that that would
• 14:36
  Speaker 1: that would be more accurate than what she did. Had
• 14:38
  Speaker 1: had she stated her intention to solve them, she asserted
• 14:43
  Speaker 1: that she had solved them. She said, I have solved
• 14:46
  Speaker 1: this nut that no one on earth has solved until now.
• 14:50
  Speaker 1: I have cracked it. And it was it was completely untrue.
• 14:54
  Speaker 1: So back to the question about not a fraud From
• 14:58
  Speaker 1: the beginning, when did it become clear that none of
• 15:03
  Speaker 1: their products worked? And they started lying to partners, potential investors,
• 15:09
  Speaker 1: even employees that hey, we we got a dead parrot
• 15:13
  Speaker 1: on our hands here right, So the lying actually started
• 15:16
  Speaker 1: very early on. I mean the book opens the prologue
• 15:20
  Speaker 1: is a scene that takes place in late two thousand
• 15:22
  Speaker 1: and six, and it's the CFO, the chief financial officer
• 15:25
  Speaker 1: if there on us at the time, learning that these
• 15:27
  Speaker 1: demos that he's bringing, he's been bringing perspective investors around
• 15:32
  Speaker 1: four for about eight months, are not really real. There's
• 15:37
  Speaker 1: a fake machine, it spits out a fake piece of paper. Right.
• 15:40
  Speaker 1: Part of the demo is real, the micro fluid ix
• 15:42
  Speaker 1: part of the demo is real, but then the result
• 15:44
  Speaker 1: at the end as a prerecorded results, so it's essentially
• 15:47
  Speaker 1: not the result from the blood that you see flowing
• 15:49
  Speaker 1: through the cartridge. And so he goes to her and
• 15:51
  Speaker 1: he says, you know, we can't keep doing this. The
• 15:54
  Speaker 1: investors I'm bringing around are under the impression that this
• 15:56
  Speaker 1: is totally real, and it's not. It's half fake. So
• 16:00
  Speaker 1: you know, that's essentially securities fraud. That's lying to investors.
• 16:02
  Speaker 1: We have to stop. And she turns ice cold and
• 16:05
  Speaker 1: says to him, you know you're not a team player.
• 16:08
  Speaker 1: I think you should leave right now. And it's very
• 16:12
  Speaker 1: clear from her demeanor and from her tone of voice
• 16:14
  Speaker 1: that she doesn't just mean leave leave her office, she
• 16:16
  Speaker 1: means leave the company. And he's just been fired, and
• 16:19
  Speaker 1: and so the the the unethical behavior, and the line
• 16:24
  Speaker 1: goes back as far as easily two thousand six, meaning
• 16:28
  Speaker 1: you know, less than two years into the life of
• 16:30
  Speaker 1: the company. And just to to elaborate a little bit
• 16:33
  Speaker 1: the technology, there were three iterations of the technology. There
• 16:37
  Speaker 1: was a real attempt at micro using micro fluid ix,
• 16:40
  Speaker 1: which is uh the repurposing of the micro fabrication techniques
• 16:44
  Speaker 1: that the computer computer chip industry pioneered. Lab scientists realized
• 16:49
  Speaker 1: they could use those microfabrication techniques to create tiny channels
• 16:53
  Speaker 1: through which you could put minute amounts of liquids. She
• 16:56
  Speaker 1: she made a real effort in the early years of
• 16:58
  Speaker 1: her company at doing a my micro fluidic device and
• 17:02
  Speaker 1: hit a wall. They just needed many more years, and
• 17:05
  Speaker 1: she didn't have the patients, and she was probably under
• 17:07
  Speaker 1: pressure from investors, and so they stopped that effort about
• 17:11
  Speaker 1: a year after that scene where she fires the CFO
• 17:14
  Speaker 1: and pivoted to the second iteration of the technology, which
• 17:17
  Speaker 1: was a converted glue dispensing robot. It was it was
• 17:21
  Speaker 1: a glue dispensing robot that a Theranos engineer had had
• 17:24
  Speaker 1: purchased from a company called piston Or in New Jersey
• 17:26
  Speaker 1: and essentially repurposed to be a blood testing machine. He
• 17:30
  Speaker 1: affixed a pipette to the robotic arm which had three
• 17:33
  Speaker 1: degrees of motion, and then he reprogrammed it to to
• 17:38
  Speaker 1: mimic what a lab scientist would do to test blood
• 17:41
  Speaker 1: at the bench. And she disguised it with the sleek
• 17:44
  Speaker 1: black and white case that she got a well known
• 17:48
  Speaker 1: industrial engineer to design, and that was called She called
• 17:51
  Speaker 1: it the Edison, named it after Thomas Edison, and um
• 17:55
  Speaker 1: the instrumentation basically the techniques of the editor and were
• 18:00
  Speaker 1: there was nothing new. It was something you know, uh
• 18:04
  Speaker 1: kemmy Luminescent immuno essays was a lab testing technique that
• 18:09
  Speaker 1: had been pioneered in the early eighties and that was
• 18:11
  Speaker 1: what the Edison did. And the third generation so the
• 18:15
  Speaker 1: Edison could only do immuno essays, which are this one
• 18:17
  Speaker 1: class of blood test. And of course, you know, she
• 18:21
  Speaker 1: wanted something because she was beginning to claim that she
• 18:23
  Speaker 1: had something that could do all the blood tests, so
• 18:26
  Speaker 1: she needed a machine that could do more than just
• 18:28
  Speaker 1: one class of blood tests. So the work on what
• 18:30
  Speaker 1: she called the Mini Lab, began in late two thousand ten,
• 18:33
  Speaker 1: and that work, you know, continued until recently. Um and
• 18:38
  Speaker 1: they've never gotten the mini lab to work. It's it's
• 18:40
  Speaker 1: a bigger machine than the Edison, and it's an attempt
• 18:43
  Speaker 1: to miniaturize all these laboratory instruments that are used to
• 18:46
  Speaker 1: do these different classes of blood tests. And they've not
• 18:49
  Speaker 1: never gotten it to work. What about the commercial stuff?
• 18:52
  Speaker 1: They were buying the commercial machines and then deluding the
• 18:56
  Speaker 1: full blood samp And so that became necessary because think
• 19:00
  Speaker 1: normal people if they haven't gotten their device to work
• 19:04
  Speaker 1: yet or will wait until they get it to work
• 19:07
  Speaker 1: to commercialize it. Right when you agree that that most
• 19:10
  Speaker 1: most people would do that, especially especially in the realm
• 19:13
  Speaker 1: of medicine where where your product actually you know, has
• 19:16
  Speaker 1: an impact on people's lives. Well, she didn't do that.
• 19:19
  Speaker 1: She went live with her vaunted fingerstick blood tests in
• 19:24
  Speaker 1: the fall of two thirteen in Walgreen stores in northern
• 19:28
  Speaker 1: California and Arizona. And because the mini Lab was just
• 19:31
  Speaker 1: a prototype that didn't work at the time, what she did,
• 19:34
  Speaker 1: what she and her boyfriend ordered Thereness employees to do,
• 19:38
  Speaker 1: was her boyfriend, her number two executives. They ordered people
• 19:45
  Speaker 1: in the lab to to hack machines made by the
• 19:48
  Speaker 1: German company siemens Um and UH to adapt them to
• 19:53
  Speaker 1: small fingerstick samples. And one of the steps that was
• 19:56
  Speaker 1: needed to to do this hacking was to dilute the
• 20:00
  Speaker 1: tiny fingerstick samples to create more volume in the cup.
• 20:03
  Speaker 1: Because these regular machines from from good old Seamans could
• 20:07
  Speaker 1: only test a normal sized sample of blood, and so
• 20:12
  Speaker 1: you need a lot more sample for the machine to work.
• 20:15
  Speaker 1: And so they diluted the fingerstick blood to create more volume,
• 20:19
  Speaker 1: which itself caused all sorts of problems. Let's talk a
• 20:23
  Speaker 1: little bit about the process that it took to get
• 20:26
  Speaker 1: people to speak to you, and the threats of litigation
• 20:29
  Speaker 1: and everything against the journal. Um. How challenging was it
• 20:34
  Speaker 1: to bring this story to light and ultimately to get
• 20:37
  Speaker 1: it in print at the Wall Street Journal? By far
• 20:41
  Speaker 1: the toughest story that I've ever done in twenty years,
• 20:43
  Speaker 1: twenty plus years of reporting. Um that the challenge was twofold.
• 20:48
  Speaker 1: It was getting sources to trust me and to talk
• 20:52
  Speaker 1: to me, Um, which was was very hard because uh,
• 20:57
  Speaker 1: uh Elizabeth Holmes. Uh, they knew that Elizabeth Holmes and
• 21:01
  Speaker 1: her company were very litigious, and they knew that the
• 21:04
  Speaker 1: company's outside council was was David Boys, America's premier litigated.
• 21:09
  Speaker 1: And and when you say litigious, not just you know,
• 21:13
  Speaker 1: everybody knows people who litigious. These people were seemed to
• 21:16
  Speaker 1: be extremely aggressive and used all sorts of questionable approaches. Right.
• 21:23
  Speaker 1: Elizabeth Holmes had sued former employees early on in two
• 21:26
  Speaker 1: as far back as two thousand seven for supposedly stealing
• 21:30
  Speaker 1: trade secrets. And then she had sued her childhood neighbor,
• 21:34
  Speaker 1: Richard Fuse, who had patented a part of her vision
• 21:38
  Speaker 1: um that and that infuriated her, so she came up
• 21:41
  Speaker 1: with a story that he and his son had had
• 21:44
  Speaker 1: basically colluded to steal proprietary thereinos patent information from a
• 21:50
  Speaker 1: law firm where where the Sun was working. But there
• 21:53
  Speaker 1: was never any proof whatsoever uh that that that ever happened.
• 21:57
  Speaker 1: And and personally, based on all my report, I believe
• 22:00
  Speaker 1: that it never did happen and that those were false accusations.
• 22:03
  Speaker 1: When you mentioned trade secrets, what trade secrets that they
• 22:07
  Speaker 1: had nothing? No, technically was what were there any trade secrets?
• 22:10
  Speaker 1: And by the way, I'm relying primarily on your book.
• 22:13
  Speaker 1: When I say I don't see any trade secrets here,
• 22:16
  Speaker 1: am I rong? No? There were There weren't really any
• 22:20
  Speaker 1: trade trade secrets. Was is a technical definition of that
• 22:24
  Speaker 1: is it was basically a way to to say, you know, a,
• 22:29
  Speaker 1: we can't tell you what we have because if we
• 22:31
  Speaker 1: tell you about it, our big competitors, Quest and lap
• 22:35
  Speaker 1: Corps are going to copy us um and and be uh,
• 22:39
  Speaker 1: you know, you all of your reporting. You have to
• 22:42
  Speaker 1: either destroy it or or return it to us. Uh,
• 22:47
  Speaker 1: you know, because it's sensitive and it could do us
• 22:49
  Speaker 1: great harm. These were the arguments that that Saronis and
• 22:52
  Speaker 1: David Boys used to try to get us to kill
• 22:55
  Speaker 1: my reporting and to not publish the story. Well, they
• 22:58
  Speaker 1: were right, it was sense of and it could do
• 23:01
  Speaker 1: them great harm. However, there were no It doesn't seem
• 23:05
  Speaker 1: like there was anything other than the bad behavior and
• 23:08
  Speaker 1: fraud in the company that you revealed, right, And so
• 23:12
  Speaker 1: it gave rise to a surreal five hour showdown at
• 23:15
  Speaker 1: one point in in June of two fifteen at the
• 23:18
  Speaker 1: journal's offices in a conference room, uh pitting me and
• 23:23
  Speaker 1: my editor of mix A Canolfi and and our lawyer
• 23:26
  Speaker 1: Jake Conty on one side of the table, and David
• 23:28
  Speaker 1: Boys and two of his associates, and and his former
• 23:32
  Speaker 1: boys Schiller partner Heather King, who had become the General
• 23:34
  Speaker 1: council of Theonis, And we went around in circles for
• 23:38
  Speaker 1: hours because um, you know, I had sent them a
• 23:41
  Speaker 1: list of questions ahead of time, and I was trying
• 23:43
  Speaker 1: to get answers to these questions, and they would say, well,
• 23:46
  Speaker 1: we can't answer that question because it's a trade secret,
• 23:48
  Speaker 1: covers trade secrets, and and of course, uh, my questions
• 23:54
  Speaker 1: went to the essence of weather THEONIS really had technology
• 23:57
  Speaker 1: and really was using proprietary technology to do it's blood
• 24:00
  Speaker 1: tests based on my sources, my confidential sources, it wasn't.
• 24:04
  Speaker 1: So I would ask things like, how many of the
• 24:08
  Speaker 1: blood tests on your menu are you doing right now
• 24:12
  Speaker 1: with para nos proprietary technology? And they would say, we
• 24:16
  Speaker 1: can't answer that. That's a trade secret. And I said, well,
• 24:20
  Speaker 1: are you and using any third party machines by the
• 24:23
  Speaker 1: likes of Semens to do any of these tests? We
• 24:26
  Speaker 1: can't answer that, that's a trade secret. And it got
• 24:29
  Speaker 1: to a point where I said, well, you know, how
• 24:32
  Speaker 1: can how can you using a third party machine made
• 24:36
  Speaker 1: by another company? And modifying it be a trade secret.
• 24:40
  Speaker 1: That's not inventing anything, that's not doing anything new. And again,
• 24:45
  Speaker 1: you know, we'd go around in circles. I described the
• 24:47
  Speaker 1: scene in the book, and I think it's chapter twenty one,
• 24:50
  Speaker 1: and I felt like I was watching a performance of
• 24:53
  Speaker 1: the theater of the absurd um And and towards the
• 24:56
  Speaker 1: end of that meeting, Boys let us know that that
• 24:59
  Speaker 1: he'll he would be sending us correspondence written correspondence. Oh,
• 25:03
  Speaker 1: I've gotten written a correspondence from him. Let me share
• 25:05
  Speaker 1: a quick story. So I write a review of the book,
• 25:08
  Speaker 1: and I talked about all the red flags for investors,
• 25:11
  Speaker 1: not really concerned so much about um the details of
• 25:18
  Speaker 1: the litigation. Now, I do say that some people's reputation shafferd.
• 25:22
  Speaker 1: I mentioned George Schultz, I mentioned David Boyce. We get
• 25:25
  Speaker 1: a nasty graham from Boys and his legal um firm.
• 25:30
  Speaker 1: And I have to tell you, I was genuinely shocked
• 25:34
  Speaker 1: that my opinion column based on your book, uh, generated
• 25:39
  Speaker 1: this intellectually disingenuous thing full of like you made all
• 25:44
  Speaker 1: that stuff up. I had to go through your book
• 25:46
  Speaker 1: page by page. This is page to seventy eight. This
• 25:49
  Speaker 1: is page to sixty three is a page. It was
• 25:52
  Speaker 1: a very bizarre experience. What was the rest of your experiences?
• 25:56
  Speaker 1: Like fighting boys. He's got a reputation as literally the
• 26:01
  Speaker 1: premier litigator in the country, right. And so after that
• 26:05
  Speaker 1: five hours showdown, we got a first letter that hinted
• 26:09
  Speaker 1: at litigation threats if we didn't immediately return or destroy
• 26:13
  Speaker 1: the supposed trade secrets that I had obtained through my reporting.
• 26:17
  Speaker 1: And then a few days later a I believe it
• 26:21
  Speaker 1: was a twenty six page letter that was just this
• 26:27
  Speaker 1: this assault on my journalistic integrity and this attempt to
• 26:31
  Speaker 1: portray me as a rogue reporter, that that the journal
• 26:35
  Speaker 1: should disown and um. And at the end of that letter,
• 26:39
  Speaker 1: it was very explicit that if we continued to proceed
• 26:42
  Speaker 1: with my reporting that the journal would be sued. And
• 26:47
  Speaker 1: even as these increasingly threatening letters land, um, some of
• 26:53
  Speaker 1: my sources start either going dark or calling me petrified
• 26:58
  Speaker 1: because they tell me they're being followed um and they're
• 27:01
  Speaker 1: being threatened as well. One of my sources, it has
• 27:04
  Speaker 1: since emerged, was Tyler Schultz, a young man who was
• 27:08
  Speaker 1: the grandson of the former Secretary of State George Schultz,
• 27:12
  Speaker 1: who was a member of the theraness board. Tyler is
• 27:15
  Speaker 1: essentially the hero of He's a hero. I wouldn't say
• 27:18
  Speaker 1: he's the only hero, Okay, I would I would say
• 27:20
  Speaker 1: another guy whom I referred to as Alan Beam in
• 27:23
  Speaker 1: the book, who's the ex lab director. That's a pseudonym.
• 27:27
  Speaker 1: I would say he's arguably the bigger hero because he
• 27:30
  Speaker 1: was the first to to talk to me and to
• 27:32
  Speaker 1: and to launch my investigation. But Tyler is absolutely a
• 27:35
  Speaker 1: hero in this. And Tyler had worked at the company
• 27:39
  Speaker 1: for eight months, become convinced during his stint there, based
• 27:43
  Speaker 1: on what he saw, seen and heard, that the company
• 27:46
  Speaker 1: was a fraud, tried to alert his grandfather, tried to
• 27:49
  Speaker 1: talk sense into him, hadn't been able to and then
• 27:51
  Speaker 1: had had had to keep that all bottled up for
• 27:54
  Speaker 1: a year until I came along and made contact with him,
• 27:57
  Speaker 1: and then he became croberating source. And after that five
• 28:00
  Speaker 1: hour meeting um or in fact it was, it was
• 28:03
  Speaker 1: a little bit before even but unbeknownst to me, uh,
• 28:07
  Speaker 1: two boys Schiller attorneys ambushed Tyler at his grandfather, George's
• 28:13
  Speaker 1: house off the Stanford campus and tried to get him
• 28:16
  Speaker 1: to sign documents. Essentially, uh, you know, acknowledging that he
• 28:21
  Speaker 1: had been a source for the journal and naming other
• 28:25
  Speaker 1: journal sources. And at that point began a a three
• 28:29
  Speaker 1: or four month campaign of threats and intimidation against Tyler Um.
• 28:34
  Speaker 1: He had to hire his own counsel up him. They
• 28:39
  Speaker 1: at one point, a a lawyer for boys Schiller named
• 28:43
  Speaker 1: Mike Brill, threatened to uh bankrupt Tyler Schultz's entire family
• 28:49
  Speaker 1: if he didn't sign the documents that Sarons wanted him
• 28:52
  Speaker 1: to sign. And the documents were an affidavit where he
• 28:56
  Speaker 1: basically acknowledged having talked to me and and and said
• 29:01
  Speaker 1: it was an essentially essentially a recanting of everything he
• 29:04
  Speaker 1: told me. And then they also wanted him to to
• 29:06
  Speaker 1: name my sources. And and Tyler never signed any of
• 29:09
  Speaker 1: these documents despite these these outrageous threats uh that were made,
• 29:15
  Speaker 1: and uh, you know, stood firm and in large part
• 29:17
  Speaker 1: thanks to him, I was able to go to print
• 29:19
  Speaker 1: months later with my first story which broke the scandal
• 29:22
  Speaker 1: open that Yet, let's continue discussing the fall. So you
• 29:29
  Speaker 1: have a couple of people who were insiders, Um, George
• 29:32
  Speaker 1: Schultz's grandson Tyler. There was a woman who worked with
• 29:36
  Speaker 1: him who worked in the lab. Chung who who apparently
• 29:39
  Speaker 1: was scared out of her mind? Right, what what happened
• 29:42
  Speaker 1: with her? What did she do? What was she sharing
• 29:45
  Speaker 1: with you? And what happened? Why? What were the intimidation attempts?
• 29:49
  Speaker 1: So boys and his henchmen came to the Journal's offices.
• 29:54
  Speaker 1: I think I believe it was on Tuesday in late June,
• 29:57
  Speaker 1: and that Friday, three days later, h Erica was working
• 30:01
  Speaker 1: at her new employer. She had left the as she
• 30:03
  Speaker 1: had left Aaroness in fact, the day after Tyler had
• 30:05
  Speaker 1: left Theariness a year prior, and she was now working
• 30:07
  Speaker 1: at a new company. So it's a year after she quit, right,
• 30:10
  Speaker 1: and she's working late at this new company, and I
• 30:13
  Speaker 1: think it was Sunny Veil, California, and one of her
• 30:16
  Speaker 1: colleagues taps around the shoulder and says, you know, there's
• 30:18
  Speaker 1: a man who's been waiting outside for a long time,
• 30:21
  Speaker 1: saying he wants to talk to you. And so her
• 30:24
  Speaker 1: sort of alarm bell start ringing in her head because
• 30:27
  Speaker 1: the the head of human resources at UH, Saraonis Uh,
• 30:31
  Speaker 1: this woman Mona, who was uh you know, part of
• 30:35
  Speaker 1: the inner circle UH with with Elizabeth Holmes and Sunny
• 30:39
  Speaker 1: Bowani had been trying to reach her and leaving increasingly
• 30:43
  Speaker 1: frantic messages that day, and so immediately Erica was on
• 30:47
  Speaker 1: her guards, and so she asked the colleague who had
• 30:50
  Speaker 1: tapped her on the shoulder, to accompany her to her
• 30:52
  Speaker 1: car as she left the office, which the colleague did,
• 30:56
  Speaker 1: and when they walked out of the building, a young
• 30:59
  Speaker 1: man came out of a black suv and made a
• 31:02
  Speaker 1: beeline toward them and handed to Erica an envelope uh
• 31:07
  Speaker 1: and the envelope contained a letter, very aggressive letter assigned
• 31:12
  Speaker 1: by David Boys, threatening to sue her for disclosing trade
• 31:15
  Speaker 1: secrets and giving her an ultimatum, which is that she
• 31:18
  Speaker 1: had to meet with him and his boy scheller associates
• 31:22
  Speaker 1: by a certain day and a certain time or she
• 31:24
  Speaker 1: would be sued. But before she even got to the letter,
• 31:27
  Speaker 1: what freaked her out the most was that the envelope
• 31:29
  Speaker 1: had her name and an addressed typed on it, and
• 31:35
  Speaker 1: the address was a house in East Palo Alto of
• 31:39
  Speaker 1: a colleague at her new company that she had been
• 31:43
  Speaker 1: staying at for less than two weeks. Because Erica had
• 31:46
  Speaker 1: planned on moving to China and so she had given
• 31:49
  Speaker 1: up the lease on her place in Oakland just a
• 31:53
  Speaker 1: couple of weeks prior, and started staying with a colleague,
• 31:56
  Speaker 1: basically shocking at a colleague's house. UH and niece Palo Alto,
• 32:00
  Speaker 1: and no one knew she was staying there except for
• 32:03
  Speaker 1: the colleague. Her mother didn't even know she was staying there,
• 32:06
  Speaker 1: so there was absolutely no way to have known this
• 32:09
  Speaker 1: were this was her new address without having followed her.
• 32:13
  Speaker 1: And so so she goes home that that evening Friday
• 32:17
  Speaker 1: evening petrified and stays inside this this house in East
• 32:20
  Speaker 1: Palo Alta with the blind closed all weekend, doesn't dare
• 32:23
  Speaker 1: go out. And then first thing on Monday morning, she
• 32:25
  Speaker 1: calls me and she's terrified, and she tells me what
• 32:29
  Speaker 1: has happened, And UM, I'm in my car at that point,
• 32:32
  Speaker 1: double parked on a street in Brooklyn, waiting for the
• 32:36
  Speaker 1: street sweeping truck to go by. That's one of the
• 32:39
  Speaker 1: better aspects of UH living in New York City. Uh,
• 32:44
  Speaker 1: I'm being ironic. Um, And uh so I answered the
• 32:48
  Speaker 1: phone and it's her and we talk and I realized
• 32:51
  Speaker 1: that she's right. There's no way. I try to run
• 32:53
  Speaker 1: through the scenarios and the permutations, there's no way anyone
• 32:56
  Speaker 1: could have known that was her address without having her followed.
• 33:00
  Speaker 1: How many people in the book felt like they were
• 33:02
  Speaker 1: being followed? How many participants in the book or that
• 33:05
  Speaker 1: you didn't might not have printed? At least three? Alan Beam,
• 33:09
  Speaker 1: the ex lab director Again that's a pseudonym. Uh, Tyler,
• 33:13
  Speaker 1: Schultz and Erica all either got word that they were
• 33:16
  Speaker 1: being followed or strongly suspected they were being followed, or
• 33:19
  Speaker 1: had evidence or had reason to believe that they were
• 33:22
  Speaker 1: being followed. And what about the fuses did was there
• 33:24
  Speaker 1: any any suspicions? Right? The Fuses had been had come
• 33:28
  Speaker 1: to the conclusion that they were being followed by p
• 33:31
  Speaker 1: I s. But that was several years prior, during the
• 33:35
  Speaker 1: patent litigation that had pitted them against their nos. So
• 33:39
  Speaker 1: something interesting that was brought up from that boys won
• 33:43
  Speaker 1: the patent litigation and was paid not in cash but
• 33:47
  Speaker 1: in pharan no stock. I was very surprised by that.
• 33:50
  Speaker 1: Is that common in legal circles or Silicon I know
• 33:54
  Speaker 1: in Silicon Valley it's not unusual, but in patent litigation
• 33:59
  Speaker 1: how how common or common is that? I mean, I
• 34:01
  Speaker 1: don't think it's very common. Um and uh for me
• 34:06
  Speaker 1: when I learned about it. I learned about it. I
• 34:09
  Speaker 1: think it was in the in the winter of two
• 34:12
  Speaker 1: thousand sixteen, a couple of months after my first story
• 34:15
  Speaker 1: was published. I thought it was a huge conflict of
• 34:17
  Speaker 1: interest because here you had a lawyer and his law
• 34:21
  Speaker 1: firm that owned almost five million shares, you know, a
• 34:26
  Speaker 1: five million dollars worth of shares UM, and so he
• 34:31
  Speaker 1: was no longer just the legal advocate of Pharaos. He
• 34:36
  Speaker 1: also um had skin in the game financially, and I
• 34:41
  Speaker 1: felt self interest, not mere advocacy on behalf of client,
• 34:44
  Speaker 1: and and uh, you know, I I strongly felt that
• 34:47
  Speaker 1: that was a conflict of interest. And I wonder if
• 34:51
  Speaker 1: that I wonder if that clouds a lawyer's judgment in
• 34:53
  Speaker 1: some of the things you described, if people do that
• 34:57
  Speaker 1: when they're representing clients as opposed to I don't see.
• 35:00
  Speaker 1: I don't see how can they can say that it
• 35:01
  Speaker 1: doesn't And I don't see how it doesn't it it
• 35:04
  Speaker 1: has to. I mean, you're you're protecting a pile of
• 35:09
  Speaker 1: five million dollars that, by the way, you accepted in
• 35:13
  Speaker 1: lieu of of regular compensation because you expected that pile
• 35:16
  Speaker 1: to grow as the stock and the evaluation of the
• 35:19
  Speaker 1: company grew to to hear them if they come out
• 35:22
  Speaker 1: and say so, um, you know, say that that this
• 35:26
  Speaker 1: didn't influence how they behaved and and and how they
• 35:30
  Speaker 1: worked for Thearonis, I think I would maintain as hawkwash.
• 35:33
  Speaker 1: So here let's talk to put some flesh on on
• 35:36
  Speaker 1: the bones about the dollar value of Tharonis and what
• 35:40
  Speaker 1: people why people thought it could go to the moon?
• 35:43
  Speaker 1: Um at its peak, what was the most of the
• 35:46
  Speaker 1: company was worth ten billion dollars? And how much money
• 35:50
  Speaker 1: had investors put into it. So if you count the
• 35:53
  Speaker 1: the money that was loaned by the private equity firm
• 35:57
  Speaker 1: Fortress Investment Group eight last year to keep their US afloat,
• 36:01
  Speaker 1: that was million dollars. If you count that cash injection,
• 36:06
  Speaker 1: almost a billion dollars. And so that's a you immediately
• 36:10
  Speaker 1: you're talking about a ten x return if it if
• 36:13
  Speaker 1: it keeps going. The thing that keeps coming up as
• 36:17
  Speaker 1: I was working my way through the book was there's
• 36:20
  Speaker 1: no there there there's there's really there was this initial
• 36:23
  Speaker 1: idea and then there was no new science developed, There
• 36:27
  Speaker 1: was no new technology developed. It was shocking. At what
• 36:32
  Speaker 1: point did the outside world before your columns start to think, hey,
• 36:38
  Speaker 1: there's a fraud here. Where where did the red flags
• 36:41
  Speaker 1: start appearing outside of the John Carrrews, No, there were
• 36:47
  Speaker 1: grumblings among people in the laboratory science profession. In fact,
• 36:53
  Speaker 1: one of the early voices was a guy at Stanford
• 36:58
  Speaker 1: UM UH John Ionitus UH Laboratory UH Medicine UM professor
• 37:06
  Speaker 1: at at Stanford. And in fact, he and I recently
• 37:08
  Speaker 1: had a test the exchange by email because he was
• 37:11
  Speaker 1: angry that I hadn't mentioned him in my book um
• 37:15
  Speaker 1: and and I told him that that I apologize for
• 37:18
  Speaker 1: the omission, but I said, at the same time, you
• 37:20
  Speaker 1: know he he had essentially written an opinion piece in
• 37:24
  Speaker 1: the journal of the Association for the American Medicine Medical
• 37:30
  Speaker 1: Association JAMMA UM and I believe it was in February
• 37:34
  Speaker 1: or March of two thousand fifteen. Um and I had
• 37:38
  Speaker 1: become aware of it about a month into my reporting
• 37:40
  Speaker 1: on the company. And really what he does in this
• 37:43
  Speaker 1: piece is is UH he raises the question of whether
• 37:46
  Speaker 1: theariness should be allowed to do what he termed stealth
• 37:50
  Speaker 1: research UH and and UH and he posed hard questions
• 37:55
  Speaker 1: about UH this trend toward companies in Silicon Valley Uh,
• 38:00
  Speaker 1: bypassing the traditional system of peer reviewed publication, which was
• 38:06
  Speaker 1: totally valid. And and you know, he put his finger
• 38:09
  Speaker 1: on something. But what I did respond to him was,
• 38:13
  Speaker 1: you know, it's one thing to raise some of these questions,
• 38:15
  Speaker 1: another thing to prove that the company was a fraud.
• 38:18
  Speaker 1: And I think he he could agree that. Um that
• 38:21
  Speaker 1: you know, I did the heavy lifting to to to
• 38:23
  Speaker 1: prove that. The two biggest red flags that leapt out
• 38:26
  Speaker 1: to me from the book the initial board of directors
• 38:29
  Speaker 1: nobody from medicine, blood sciences lab. It's all, it's two
• 38:34
  Speaker 1: Secretary of States, it's people from the defense. But it's
• 38:38
  Speaker 1: like a run of crazy things. Nobody from medicine, right, Um.
• 38:42
  Speaker 1: And eventually they had somebody years later. But there were
• 38:45
  Speaker 1: there were two out of I think twelve old men,
• 38:48
  Speaker 1: old white men on the board. Uh. There were two
• 38:52
  Speaker 1: had some connection to medicine. One was Bill Frist, who
• 38:55
  Speaker 1: had once been a transplant surgeon before becoming a politician.
• 38:59
  Speaker 1: Not from the beginning, right, wasn't he a later addition? No? No, no,
• 39:01
  Speaker 1: he was there from the beginning. Not from the beginning.
• 39:04
  Speaker 1: But the board changed over the years, and the last
• 39:07
  Speaker 1: iteration of the board essentially dated back to uh two
• 39:10
  Speaker 1: thousand eleven, two thousand twelve, so almost a decade after
• 39:14
  Speaker 1: they started. It's like she she acquired this new board
• 39:19
  Speaker 1: UM because she felt that it would help her. It
• 39:23
  Speaker 1: was sort of an exercise and reputational laundering, you know.
• 39:27
  Speaker 1: She attracted these larger than life figures with fantastic resumes.
• 39:30
  Speaker 1: And then the other thing that was a giant red
• 39:32
  Speaker 1: flag was all of the healthcare, medical sciences, medical device
• 39:37
  Speaker 1: venture capitalists. Every one of them took a pass. Not
• 39:41
  Speaker 1: a one put any money in this right because either
• 39:43
  Speaker 1: because either she wouldn't meet with them or when she
• 39:46
  Speaker 1: did accept meetings, and and some of these people started
• 39:50
  Speaker 1: asking hard questions. UM, her interest in continuing to meet uh,
• 39:56
  Speaker 1: you know, waned and and basically evaporated. We're speaking to
• 40:00
  Speaker 1: John Carrirew. He is the author of Bad Blood, Secrets
• 40:03
  Speaker 1: and Lies in a Silicon Valley Startup. If you enjoy
• 40:07
  Speaker 1: this conversation, well be sure and come back for the
• 40:09
  Speaker 1: podcast Astras, where we keep the tape rolling and continue
• 40:13
  Speaker 1: to discuss all things fraudulent at saranos. You can find
• 40:18
  Speaker 1: that wherever your final podcasts are sold Apple, iTunes, Stitcher, Overcast,
• 40:23
  Speaker 1: and of course Bloomberg dot com. Be sure and check
• 40:26
  Speaker 1: out my daily column. You can find that on Bloomberg
• 40:28
  Speaker 1: dot com. Follow me on Twitter at Rich Halts. I'm
• 40:31
  Speaker 1: Barry Rihults. You're listening to Masters in Business on Bloomberg Radio.
• 40:49
  Speaker 1: Welcome to the podcast, John, Thank you so much for
• 40:51
  Speaker 1: doing this. I have to tell you I really enjoyed
• 40:55
  Speaker 1: reading the book. It retreats like a thriller as you're
• 40:59
  Speaker 1: going through it. It's just what that that's just astounding.
• 41:04
  Speaker 1: It's mind blowing. Um. I'll come back to some of
• 41:07
  Speaker 1: the red flags. I have a ton of other questions,
• 41:10
  Speaker 1: but I have to ask you how much fun was
• 41:12
  Speaker 1: this to write? You know, it was a lot of fun.
• 41:16
  Speaker 1: It was the most fulfilling thing I've ever done in
• 41:19
  Speaker 1: my life, uh, professionally or or probably otherwise. Um, it
• 41:24
  Speaker 1: was nerve racking at the very beginning because you know,
• 41:28
  Speaker 1: I had a book deal and a movie deal to wait.
• 41:32
  Speaker 1: When did the movie deal before the book was written? Right?
• 41:35
  Speaker 1: Because the I reached my deal with Knopp to do
• 41:38
  Speaker 1: the book, I think it was in March, uh late
• 41:41
  Speaker 1: March of two thousand sixteen, and then the movie deal
• 41:43
  Speaker 1: came less than three months later, and I only went
• 41:46
  Speaker 1: on book leave and started writing the book and around
• 41:48
  Speaker 1: October of two thousand sixteen. So I had this pressure
• 41:53
  Speaker 1: from these two deals and from the fact that I
• 41:55
  Speaker 1: had never written a book before. And uh, you know
• 41:58
  Speaker 1: that's easy. You just keep going. You've had a column,
• 42:00
  Speaker 1: but you don't stop till you got a hundred words. Yeah.
• 42:03
  Speaker 1: So anyways, it wasn't easy staring at a blank word
• 42:07
  Speaker 1: document at first. But once I got a couple of
• 42:09
  Speaker 1: chapters in UM and I got the I felt like
• 42:12
  Speaker 1: I was in a rhythm and I was immersed. Uh.
• 42:14
  Speaker 1: And by the way, I was continuing to do a
• 42:16
  Speaker 1: lot of reporting, because the first three quarters of the
• 42:18
  Speaker 1: book are told in the third person and or the
• 42:22
  Speaker 1: what happens at the company until I come along, and
• 42:24
  Speaker 1: I had to re report a lot of that. Uh.
• 42:27
  Speaker 1: Tons of new material came out of that reporting process.
• 42:30
  Speaker 1: So I was really reporting and writing at the same time.
• 42:33
  Speaker 1: And it was just uh so fun and fulfilling. And
• 42:39
  Speaker 1: and I'm glad that to hear you say that it
• 42:41
  Speaker 1: read like a thriller, because I tried to to make
• 42:43
  Speaker 1: it read, uh like a page turner. I'm I'm a
• 42:47
  Speaker 1: big fan of Agatha Christie and UM Uh you know,
• 42:52
  Speaker 1: I I also uh read people like Michael Crichton and
• 42:56
  Speaker 1: and Dan Brown, um, and uh you know, I've picked
• 43:00
  Speaker 1: up on some of their some of their techniques to
• 43:03
  Speaker 1: to to keep the reader interested, and I channeled some
• 43:06
  Speaker 1: of that as I was writing this book, no doubt
• 43:07
  Speaker 1: about it. The um I got more questions I want
• 43:10
  Speaker 1: to circle back to, but I have to get into
• 43:15
  Speaker 1: the whole back and forth with the Wall Street Journals
• 43:18
  Speaker 1: editors and the threats of litigation and then the last
• 43:22
  Speaker 1: minute hail Mary Elizabeth Holmes polled with Rupert Murdoch of
• 43:26
  Speaker 1: all of old people, who who owns the Wall Street Journal.
• 43:29
  Speaker 1: So so let's talk a little about that. Your editors
• 43:32
  Speaker 1: sound like they're great. They seemed really stand up and
• 43:36
  Speaker 1: there was never any Carrie, what the hell are you
• 43:39
  Speaker 1: doing to us? You're gonna get a suit? Come on,
• 43:41
  Speaker 1: this is crazy. Tell us what the process was like
• 43:44
  Speaker 1: in the newsroom. Right. So my editor is a guy
• 43:47
  Speaker 1: named Mike Sikonolfi, who who's been old school, right, Yeah,
• 43:51
  Speaker 1: he's been at the Wall Street Journal since I think
• 43:53
  Speaker 1: the eighteen hundreds. I'm kidding, I didn't start till the
• 43:58
  Speaker 1: can't tease him a lot about how long he's been
• 44:01
  Speaker 1: at the journal. I think he actually joined the Wall
• 44:02
  Speaker 1: stret Journal in nur UM. But he's a legend at
• 44:06
  Speaker 1: the journal, and he is loved and admired UM. And
• 44:10
  Speaker 1: it's for good reason. He's a real journalist. UH loves
• 44:16
  Speaker 1: to do hard hitting stories and to back reporters who
• 44:20
  Speaker 1: are onto hard hitting stories. UM. And he's also great
• 44:24
  Speaker 1: in the sense that he knows, uh to to let
• 44:28
  Speaker 1: you have a long leash and to follow your knows.
• 44:31
  Speaker 1: He doesn't try to micromanage you. And UH, early in
• 44:35
  Speaker 1: two thousand fifteen, I think it was February one or
• 44:37
  Speaker 1: second week, I had gotten the tip from the pathology
• 44:41
  Speaker 1: blogger UH, coming on top of the New Yorker story
• 44:44
  Speaker 1: that had raised questions in my mind. I went to
• 44:46
  Speaker 1: Mike and I said, I think potentially there's a story here,
• 44:50
  Speaker 1: and I think potentially it could be a really sexy,
• 44:52
  Speaker 1: big story. And he sort of listened to me summarize, UM,
• 44:56
  Speaker 1: what I thought the story might be, and he was like, ahead,
• 45:00
  Speaker 1: you know, try it for a couple of weeks, and
• 45:02
  Speaker 1: then just give me an update in a couple of weeks.
• 45:05
  Speaker 1: And and and that's how the process started. And and UH,
• 45:07
  Speaker 1: you know, When I gave him the next update, it
• 45:09
  Speaker 1: was probably two or three weeks later, and I hadn't
• 45:11
  Speaker 1: made uh some headway, and so then he was like,
• 45:14
  Speaker 1: well keep going, and uh yeah, so he's a great
• 45:17
  Speaker 1: editor for sure. What what about when the nasty graham
• 45:20
  Speaker 1: start to show up? I have to tell you when
• 45:22
  Speaker 1: I got mine, and it's nothing like what you're my.
• 45:26
  Speaker 1: I wrote a book review. Someone didn't like my book review.
• 45:28
  Speaker 1: I got a h three page letter. But my immediate
• 45:32
  Speaker 1: reaction is, oh my god, I totally screwed up. What
• 45:35
  Speaker 1: did I do? And then I started reading through and
• 45:37
  Speaker 1: I'm like, wait, wait a second, that that's not that's
• 45:39
  Speaker 1: not true. Everything I wrote in there, you said henchman,
• 45:43
  Speaker 1: I used the word thug, But more or less everything
• 45:46
  Speaker 1: in there in my review came right for your book.
• 45:49
  Speaker 1: In fact, normally I don't do that. When I do,
• 45:52
  Speaker 1: might hear the ten books I'm gonna read this summer
• 45:54
  Speaker 1: or this winter. And I read a book and I'm like, oh,
• 45:56
  Speaker 1: that's interesting, and I put it aside, but I so
• 46:00
  Speaker 1: totally enjoyed the story. I'm like, there are red flags everywhere,
• 46:03
  Speaker 1: there are lessons for investors. I'm gonna write something like that.
• 46:07
  Speaker 1: Not my usual approach, and I wrote it never in
• 46:10
  Speaker 1: a million years expecting we're going to get a letter.
• 46:13
  Speaker 1: But you get the email and it shakes you. You're like,
• 46:17
  Speaker 1: holy cow, what did I do? And for a micro second,
• 46:20
  Speaker 1: it's I really I screwed the pooch. I really did
• 46:23
  Speaker 1: something terrible here. And then it took about ten seconds
• 46:27
  Speaker 1: before wait no, I literally shut the book and started
• 46:31
  Speaker 1: dictating on my iPhone because I was on the beach
• 46:34
  Speaker 1: and the Hampton's got home, wrote it up that night,
• 46:37
  Speaker 1: polished it the next morning. Off it went. It was
• 46:40
  Speaker 1: literally the book could not have been more fresh in
• 46:42
  Speaker 1: my mind before that, before that column. And so after
• 46:47
  Speaker 1: the letter came after I finally like took a deep breath,
• 46:53
  Speaker 1: figured out all the page citations that were being complained about.
• 46:57
  Speaker 1: You made the stuff up? No, I didn't. It's right
• 46:59
  Speaker 1: from the book. Look, I stopped and I said, what
• 47:02
  Speaker 1: was it like when carry my nothing little book review.
• 47:07
  Speaker 1: You're breaking major news stories. You're breaking stories that ultimately
• 47:12
  Speaker 1: leads to the revealing of fraud. So we have we
• 47:16
  Speaker 1: haven't even talked about the SEC and the other litigation
• 47:18
  Speaker 1: that's going on, but you basically brought down a company
• 47:22
  Speaker 1: that A was a fraud. B was putting people's life
• 47:25
  Speaker 1: and safety at risk. If you get a false positive,
• 47:29
  Speaker 1: well you it scares the hell to you. But there's
• 47:31
  Speaker 1: no danger if you get a false negative. If they
• 47:34
  Speaker 1: miss something because say this thing doesn't work, people die.
• 47:38
  Speaker 1: So what was it like when these letters started coming in,
• 47:42
  Speaker 1: these nasty graham start coming in. I can't imagine the
• 47:45
  Speaker 1: process you went through, right, It was stressful. I mean,
• 47:50
  Speaker 1: some of your colleagues have interviewed me about the Book
• 47:52
  Speaker 1: of asked whether there was any moment where I felt
• 47:55
  Speaker 1: in physical danger. And I don't think there was any
• 47:58
  Speaker 1: moment that I felt in physical ange. I mean there
• 48:00
  Speaker 1: were moments when I'd come out of my apartment building
• 48:03
  Speaker 1: in Brooklyn and I'd look left and right to see
• 48:05
  Speaker 1: if I could spot anyone UH following me. Do you
• 48:09
  Speaker 1: think you would follow? I don't know. I don't. I
• 48:12
  Speaker 1: don't know the assumption as they do a full online
• 48:15
  Speaker 1: search if they have, if they had someone following me,
• 48:18
  Speaker 1: and that comes out, I will not be surprised. But
• 48:21
  Speaker 1: I can't say one way or another whether they did
• 48:24
  Speaker 1: or not. I just don't know. I didn't I didn't
• 48:27
  Speaker 1: feel physically threatened. My biggest source of stress was that
• 48:31
  Speaker 1: this scorched earth campaign to intimidate my sources and turn
• 48:36
  Speaker 1: them and to also intimidate the paper that it would
• 48:39
  Speaker 1: be fruitful and that they would succeed in destroying the
• 48:43
  Speaker 1: scaffolding of reporting upon which I had built this story,
• 48:46
  Speaker 1: and that ultimately, uh, you know, the story wouldn't come out.
• 48:50
  Speaker 1: That was for me, that was the big source of stress.
• 48:53
  Speaker 1: And I finally, you know, breathed a sigh of relief
• 48:56
  Speaker 1: when the story was in the paper. I think it
• 48:58
  Speaker 1: was October, uh, two thousand fifteen, and then I didn't
• 49:03
  Speaker 1: really have time to basket it very long because then
• 49:05
  Speaker 1: I immediately you know, on to the next one. I
• 49:08
  Speaker 1: was on to the to the to the first follow
• 49:10
  Speaker 1: up story, which we published that very night. Um, and uh,
• 49:14
  Speaker 1: you know, from there it was months and months of
• 49:18
  Speaker 1: more follow up reporting, and I think, uh, with each
• 49:22
  Speaker 1: week that passed and with each regulatory inspection and finding,
• 49:26
  Speaker 1: we were vindicated more and more until recently, you know,
• 49:29
  Speaker 1: the criminal charges that were filed by the Justice Department,
• 49:34
  Speaker 1: the wire fraud fraud charges filed against Elizabeth Holmes and
• 49:37
  Speaker 1: Sunny Baliwani by the Justice Department. Really, you know, we're
• 49:40
  Speaker 1: the ultimate of vindication that my reporting was correct and
• 49:44
  Speaker 1: I had been right all along. What about the state
• 49:46
  Speaker 1: of California. Did they do any criminal investigations and it
• 49:50
  Speaker 1: all took place primarily in California? Are they getting a
• 49:54
  Speaker 1: pass by the state. Well, if you depends. If you
• 49:58
  Speaker 1: count the the U. S. Attorney's Office in San Francisco
• 50:03
  Speaker 1: as a federal it's not stage okay. So then if
• 50:05
  Speaker 1: you don't count them, California did nothing, that's shocking. I mean,
• 50:11
  Speaker 1: this is a serious fraud. It's a billion dollars and
• 50:14
  Speaker 1: investor money, not counting um, not counting the Fortress stuff
• 50:19
  Speaker 1: after the fact. So it's almost a billion dollars and
• 50:23
  Speaker 1: the risk to individuals. You know, one of in the
• 50:28
  Speaker 1: book you describe the Paraos people and I don't remember.
• 50:31
  Speaker 1: I was the lawyers or others intimidating some of the
• 50:34
  Speaker 1: doctors who had had used that. That was Sunny Bow.
• 50:37
  Speaker 1: That was the number two executive the company, the president
• 50:40
  Speaker 1: of the company, who was the boyfriend of the founder,
• 50:43
  Speaker 1: secret boyfriend of the secret boyfriend of the founder. She
• 50:46
  Speaker 1: was hiding it from everyone, including her own board, flewed
• 50:49
  Speaker 1: out to Phoenix and proceeded to intimidate and threaten all
• 50:53
  Speaker 1: the doctors who had spoken to me on the record,
• 50:55
  Speaker 1: And how did they know the names of those doctors
• 50:57
  Speaker 1: because they had asked that we a of them information
• 51:02
  Speaker 1: about the doctors and patients and their blood test results
• 51:04
  Speaker 1: so that they could rebut them and respond to them,
• 51:07
  Speaker 1: which is natural. I mean we you know, you have
• 51:09
  Speaker 1: you have to have the the party that you're investigating
• 51:11
  Speaker 1: and writing about has to have the opportunity to respond.
• 51:13
  Speaker 1: And so we did that. And what did they do?
• 51:16
  Speaker 1: Rather than responding, they went and they used the information
• 51:19
  Speaker 1: to find the people and threaten them, and didn't one
• 51:21
  Speaker 1: of the doctors pretty much tell them to go jump.
• 51:23
  Speaker 1: I thought one of the doctors was real stand up.
• 51:25
  Speaker 1: In the book, there were a couple of doctors who
• 51:27
  Speaker 1: either refused to meet with them or or told him, uh,
• 51:31
  Speaker 1: you know one and one comes to mind Dr Adrian Stewart,
• 51:34
  Speaker 1: who who too had two colleagues who had buckled under
• 51:39
  Speaker 1: pressure and signed these uh statements essentially recanting what they
• 51:43
  Speaker 1: told me. Uh. She wasn't there when her two Stewarts,
• 51:47
  Speaker 1: when her two colleagues uh were presented with those statements
• 51:51
  Speaker 1: and chickened out, And she came back a week later
• 51:54
  Speaker 1: by which time I hadn't managed to reach her, and
• 51:56
  Speaker 1: so she was prepared to be say, which she was
• 52:00
  Speaker 1: as soon as she got back by Sunny Bowani, and
• 52:03
  Speaker 1: she stood, you know. She she refused to sign the
• 52:07
  Speaker 1: document that he put to her, even though he told her,
• 52:10
  Speaker 1: if your name appears saying anything about the Ainos in
• 52:14
  Speaker 1: a Wall Street Journal story, we will drag your reputation
• 52:17
  Speaker 1: through the mud. Nice guy. Good for her. She she's
• 52:20
  Speaker 1: another one of the heroes in the book. So I
• 52:24
  Speaker 1: have to bring up the hail Mary that Elizabeth Holmes
• 52:28
  Speaker 1: pulled with Rupert Murdoch, who owner of Fox News, of
• 52:32
  Speaker 1: which Wall Street Journal was part of all the one
• 52:35
  Speaker 1: way I have to correct you now it's been split
• 52:38
  Speaker 1: blah blah. Webster Journals part of News Corps, which is
• 52:40
  Speaker 1: a separate company. Fox is part of Century Fix. Right,
• 52:44
  Speaker 1: So this is at the time it was a single entity.
• 52:47
  Speaker 1: This is pre split, right, this was post split split
• 52:50
  Speaker 1: was really alright? So part of news Corp, an investor
• 52:56
  Speaker 1: in Paraos. And the day before are publication was it October?
• 53:05
  Speaker 1: So it's two weeks before publication. She and she had
• 53:08
  Speaker 1: already done this once a month or two prior, when
• 53:11
  Speaker 1: she had invited Murdoch to come to Theonos offices in Paloazza,
• 53:15
  Speaker 1: and she'd raised my story with him and told him
• 53:18
  Speaker 1: I had gathered all this information that was false, uh, misleading,
• 53:22
  Speaker 1: and that would do great damage to the company if
• 53:25
  Speaker 1: it was published. And she had read about that the
• 53:27
  Speaker 1: last one, the latter she invited him to kill it,
• 53:30
  Speaker 1: and he the mirrored, told her that, you know, he
• 53:33
  Speaker 1: trusted the journal's editors to do the right thing. I
• 53:36
  Speaker 1: didn't want to involve himself. And then she came again
• 53:40
  Speaker 1: late September, I think it was September, two weeks before
• 53:44
  Speaker 1: my first story was published. She met with him in
• 53:46
  Speaker 1: his eighth floor office in News Corp Building on fifth floor,
• 53:51
  Speaker 1: so three floors, three floors above me. She was there,
• 53:54
  Speaker 1: meeting with him one on one, raising my story with
• 53:57
  Speaker 1: him urgently, again hoping that he would volunteer to kill it,
• 54:02
  Speaker 1: and uh, he did no such thing, despite having a
• 54:06
  Speaker 1: hundred twenty five million reasons to do. Soon dollar investment
• 54:10
  Speaker 1: in the Eventually Murdoch to his credit, so the story
• 54:15
  Speaker 1: publishes some years later. Murdoch sells his interest back to
• 54:19
  Speaker 1: the company for a dollar, so he gets the tax
• 54:22
  Speaker 1: right off a year and a half later, approximately sells
• 54:28
  Speaker 1: his stake back in the company to the to the
• 54:30
  Speaker 1: company for a symbolic dollar, so that he can use
• 54:33
  Speaker 1: that huge loss to write off taxes on other earnings.
• 54:38
  Speaker 1: But um, there wasn't addendum to that buyback deal, which
• 54:42
  Speaker 1: was that if Fairness settled any litigation with Huh, an
• 54:47
  Speaker 1: investor who felt they had been defrauded for more than
• 54:50
  Speaker 1: forty million dollars, then Murdoch would be entitled to another
• 54:53
  Speaker 1: payment of four million dollars. And so that that he
• 54:56
  Speaker 1: did get that additional four million dollars later because there
• 54:59
  Speaker 1: no settled with the San Francisco Hedge Fund partner fund
• 55:02
  Speaker 1: that had invested a hundred million uh Sarrens settled with
• 55:05
  Speaker 1: them for forty three million in the in the spring
• 55:08
  Speaker 1: of two thousand seventeen, and so that entitled Murdoch to
• 55:11
  Speaker 1: another four million. So he got four million plus one dollar.
• 55:14
  Speaker 1: He's still in other words, he's still lost one million dollars. Amazing. Um,
• 55:19
  Speaker 1: there's a couple of other selmans. I wanted to ask
• 55:22
  Speaker 1: this safe way in Walgreens, these companies had such a
• 55:26
  Speaker 1: bad case of Foamo. They spent a ton of money
• 55:29
  Speaker 1: because they were afraid their competitors would get in over
• 55:33
  Speaker 1: them despite never seeing the machine, never getting the technology
• 55:38
  Speaker 1: of the science. Well, they saw the machine, but she
• 55:40
  Speaker 1: would do these these fake demos again. So the real
• 55:43
  Speaker 1: machine they saw, no, they saw, they saw the real machine.
• 55:46
  Speaker 1: But there was a what they called this secret demo
• 55:48
  Speaker 1: protocol where the Walgreens or the safe Way representative, or
• 55:52
  Speaker 1: sometimes the board member or even the journalist came and
• 55:56
  Speaker 1: had you know, saw the mini lab which was this
• 55:59
  Speaker 1: big black box with a digital UH interface, and they'd
• 56:04
  Speaker 1: have their finger pricked and the small fingerstick sample would
• 56:08
  Speaker 1: be put in this cartridge which itself would be slotted
• 56:10
  Speaker 1: into the mini lab machine. The Mini lab machine would
• 56:14
  Speaker 1: be turned on and the testing what you'd hear the
• 56:17
  Speaker 1: worrying of the machine. And so you think the testing
• 56:19
  Speaker 1: has started, and they'd say this is gonna take a while.
• 56:22
  Speaker 1: Why don't you go out for lunch or visit the
• 56:24
  Speaker 1: rest of the building, or meet with Elizabeth in her
• 56:27
  Speaker 1: office and then we'll get you your test result. And
• 56:31
  Speaker 1: so the person Walgreen, Safeway or board member would leave
• 56:35
  Speaker 1: the room and then when they were out of sight,
• 56:39
  Speaker 1: a THEONIS employee would stop the Theoronis Mini Lab UH
• 56:44
  Speaker 1: take the cartridge out, take the blood sample out of
• 56:46
  Speaker 1: the cartridge, and bring it to the Theonis lab where
• 56:50
  Speaker 1: they would either test it manually at the bench or
• 56:54
  Speaker 1: run it on one of the hacked Semens analyzers. So
• 56:57
  Speaker 1: if someone says, no, I'm fine, I got my phone,
• 56:59
  Speaker 1: I'm gonna just day busy, I just want to watch
• 57:01
  Speaker 1: this machine work, nothing would have happened. Well, they yeah,
• 57:06
  Speaker 1: you would have been pretty much without saying so, calling
• 57:09
  Speaker 1: their bluff, and I'm sure they would have come up with,
• 57:12
  Speaker 1: you know, some um excuse to get you out of
• 57:16
  Speaker 1: the room at some point so that they could pull
• 57:18
  Speaker 1: off their sliders cans. So this is this has been
• 57:21
  Speaker 1: a deep fraud from let's call it oh six oh seven.
• 57:25
  Speaker 1: Is that about right? Yeah? I mean you you could
• 57:27
  Speaker 1: argue that the fraud didn't matter as much until two
• 57:31
  Speaker 1: thirteen as long as the company remained in R and
• 57:33
  Speaker 1: D mode and never went live with the technology. Right.
• 57:38
  Speaker 1: But the second you commercialize the technology and you start
• 57:41
  Speaker 1: offering it to the public, which is what started happening
• 57:43
  Speaker 1: in the fall two thirteen, then it becomes a gigantic
• 57:46
  Speaker 1: fraud because it's not just investors who are being defrauded,
• 57:50
  Speaker 1: but it's the public that's being put in harm's away
• 57:53
  Speaker 1: and that and that's really you know, I think that's
• 57:56
  Speaker 1: what elevates this scandal, uh and puts it in in
• 58:00
  Speaker 1: antheon of of you know, modern financial scandals. Let's let's
• 58:04
  Speaker 1: talk about the army and Lieutenant Colonel Shoemaker, a no
• 58:08
  Speaker 1: nonsense guy with a medical background, was to approve all
• 58:11
  Speaker 1: of these um experimental R and D s. Holmes but
• 58:18
  Speaker 1: or whoever it was bumps into him when trying to
• 58:21
  Speaker 1: get this approved for the army. And this guy doesn't
• 58:24
  Speaker 1: take any bs, sees right through it practically from the beginning, well,
• 58:29
  Speaker 1: he didn't. He didn't necessarily think that the technology didn't work.
• 58:33
  Speaker 1: He didn't know whether it worked or not. Um, But
• 58:37
  Speaker 1: what he felt strongly about was that this device needed
• 58:42
  Speaker 1: to be approved by the FDA. It's a medical device
• 58:45
  Speaker 1: for testing blood. How couldn't it be right? And and
• 58:48
  Speaker 1: and the f d A approves all laboratory testing equipment
• 58:52
  Speaker 1: that laughs by and so he felt that the Thermis
• 58:55
  Speaker 1: device was no exception. And so what he really had
• 58:58
  Speaker 1: a problem with was this regular to strategy that Elizabeth
• 59:01
  Speaker 1: Holmes head um, you know, presented him with in in
• 59:05
  Speaker 1: two thousand eleven, a couple of months after she had
• 59:08
  Speaker 1: met Maddis and wrapped Manis around her finger and gotten
• 59:11
  Speaker 1: Maddis to back this notion that the Themis technology would
• 59:14
  Speaker 1: be used in the field in Afghanistan. And for that
• 59:17
  Speaker 1: to happen, it had to go through Lieutenant Colonel Shoemaker
• 59:20
  Speaker 1: at Fort Detrick UH in Maryland because he was the
• 59:24
  Speaker 1: guy who had to approve such experiments. So this lieutenant
• 59:27
  Speaker 1: colonel gets a phone call from a four star general,
• 59:30
  Speaker 1: Is that right? Right? And so yeah, later, you know,
• 59:33
  Speaker 1: he had has these these clash diplomatic clashes with Elizabeth
• 59:37
  Speaker 1: and it becomes clear, uh to her that she's not
• 59:41
  Speaker 1: gonna be able to steamroll him. And but so she
• 59:44
  Speaker 1: appeals to to Maddis and she emails him and at
• 59:48
  Speaker 1: that point he's actually in the war theater in Afghanistan
• 59:51
  Speaker 1: and uh she uh because what what's happened by then
• 59:54
  Speaker 1: is that Shoemaker has not only resisted what she wants
• 59:58
  Speaker 1: to do, he has passed on what's he what he's
• 1:00:03
  Speaker 1: learned about the Theoranis regulatory approach to the f d
• 1:00:05
  Speaker 1: A and two CMS, the Centers for Medicare and Medicaid Services,
• 1:00:09
  Speaker 1: and CMS has dispatched an inspector to do a surprise visit.
• 1:00:13
  Speaker 1: And Elizabeth is furious about this, and so she writes Madis,
• 1:00:17
  Speaker 1: who's an Afghanistan, and Mannis gets her email. He's furious.
• 1:00:21
  Speaker 1: And so in August of two thousand twelve, Shoemaker has
• 1:00:25
  Speaker 1: to fly down with an FDA official to Tampa, Florida,
• 1:00:30
  Speaker 1: which is, you know, the headquarters of the Central Command,
• 1:00:32
  Speaker 1: because Maddis at that point was the head of the
• 1:00:34
  Speaker 1: Central Command. And he has to meet with Mannis and
• 1:00:37
  Speaker 1: explain to this legendary journal general, I'm sorry, uh that
• 1:00:44
  Speaker 1: uh you know that that he can't say yes to
• 1:00:47
  Speaker 1: what this uh general wants uh and and here's why.
• 1:00:51
  Speaker 1: And so he and this um FDA official named Alberto
• 1:00:54
  Speaker 1: Gutierrez go in brief Maddis um and they reach a compromise,
• 1:00:59
  Speaker 1: which is that Theoronis can the Thearoness experiment can proceed
• 1:01:03
  Speaker 1: only if it's using after the fact, left over de
• 1:01:09
  Speaker 1: identified samples from wounded soldiers wounded or healthy for that matter,
• 1:01:14
  Speaker 1: and um and so that they could feed it into
• 1:01:16
  Speaker 1: it if they want a big sample of blood to
• 1:01:19
  Speaker 1: run tests. But nobody in the field is relying on
• 1:01:22
  Speaker 1: this for medical exactly exactly and so, but that you know,
• 1:01:25
  Speaker 1: that opens a window for for Theoroness to do this,
• 1:01:28
  Speaker 1: and inexplicably, over the ensuing months, Theonis can never seem
• 1:01:32
  Speaker 1: to get its act together to to get the study
• 1:01:36
  Speaker 1: protocol written and ready, um and and and then you know,
• 1:01:41
  Speaker 1: everyone retires, Mannis retires, his uh aid de camp retires,
• 1:01:47
  Speaker 1: Shoemaker ends up retiring mid two thirteen. Um. The live
• 1:01:51
  Speaker 1: experiment in the field in Afghanistan, and that Elizabeth wanted
• 1:01:55
  Speaker 1: never ends up happening. And then wait, wait, wait, wait
• 1:01:57
  Speaker 1: wait why would she want to live? Is she still
• 1:02:01
  Speaker 1: under the illusion this damn thing works? Like how delusional
• 1:02:05
  Speaker 1: is she? She thinks that it's sort of works. And
• 1:02:09
  Speaker 1: then in the end, just a few tweaks right that
• 1:02:12
  Speaker 1: you know, will iterate and uh and and basically what
• 1:02:17
  Speaker 1: she has her eyes on is two things. She has
• 1:02:20
  Speaker 1: her eyes on the potentially huge new revenue stream that
• 1:02:25
  Speaker 1: a contract with the Pentagon, of course would bring. And
• 1:02:29
  Speaker 1: she has her eyes on the validation of fairness that
• 1:02:33
  Speaker 1: she would get by by virtue of being a supplier
• 1:02:38
  Speaker 1: of this technology to the Pentagon. And what year is this?
• 1:02:41
  Speaker 1: This is two thoen So when did the Safe Way
• 1:02:45
  Speaker 1: and the Walgreens deals fall apart. So the Walgreens deal
• 1:02:49
  Speaker 1: only fell apart after my revelations, and it took not
• 1:02:54
  Speaker 1: even two sixteen. Really, I mean it fell apart in steps.
• 1:02:58
  Speaker 1: But they really, uh you know, ended the whole thing
• 1:03:01
  Speaker 1: in two thousand sixty. And I think it was the
• 1:03:03
  Speaker 1: summer of two thousands, just a big three hundred million
• 1:03:05
  Speaker 1: dollar right off or whatever it was. It was a
• 1:03:07
  Speaker 1: d forty million that Walreens put in therapis. But I mean,
• 1:03:10
  Speaker 1: but what about the renovator who did the big renovation
• 1:03:14
  Speaker 1: was safe Way safe Weight loaned there, no thirty million,
• 1:03:16
  Speaker 1: but on on the side, in addition to that loaned
• 1:03:19
  Speaker 1: it renovated, uh, these these clinics inside its supermarkets and
• 1:03:24
  Speaker 1: and about eight hundred of its supermarkets, Uh, in anticipation
• 1:03:28
  Speaker 1: of you know, having the Theonis technology offered there. And
• 1:03:32
  Speaker 1: that renovation cost three million dollars. So at least they
• 1:03:37
  Speaker 1: got new painting carpet is amazing. Um. The other two
• 1:03:42
  Speaker 1: before I get to my standard questions, the other two
• 1:03:45
  Speaker 1: um sort of frauds that that stood out that was surprising.
• 1:03:50
  Speaker 1: One was the Johns Hopkins letter the right explain the
• 1:03:56
  Speaker 1: faux endorsement. Right, So uh, she goes to uh, Walgreen's
• 1:04:03
  Speaker 1: has hired Johns Hopkins as sort of a consultant as
• 1:04:08
  Speaker 1: it's beginning to set up this partnership with Sanis and
• 1:04:12
  Speaker 1: so in I believe it's May of two thousand ten,
• 1:04:16
  Speaker 1: Elizabeth and her boyfriend's Sonny go to the Johns Hopkins
• 1:04:20
  Speaker 1: campus to meet with several Hopkins officials, among them laboratory scientists.
• 1:04:25
  Speaker 1: And they come with what is then the Edison, the
• 1:04:27
  Speaker 1: black and white device, and they come with binders full
• 1:04:31
  Speaker 1: of data, um, and they explain, you know, what the
• 1:04:35
  Speaker 1: device does, and they show these binders with these graphs
• 1:04:40
  Speaker 1: that show, you know, it's basically a diagonal line that
• 1:04:43
  Speaker 1: shows a very tight correlation between the data from the
• 1:04:47
  Speaker 1: Tharanis tests and regular technology with you know, regular Venus draws.
• 1:04:52
  Speaker 1: And that was a scam also, And that was a scam.
• 1:04:54
  Speaker 1: Those were fake, fake graphs and fake data. Um. But
• 1:04:58
  Speaker 1: they meant for a couple of hours, and you know,
• 1:05:00
  Speaker 1: the meeting, at theirness's request, gave rise to a two
• 1:05:04
  Speaker 1: page letter, not even two pages, a page and a half,
• 1:05:07
  Speaker 1: which was essentially a summary of the meeting, minutes from
• 1:05:09
  Speaker 1: the meeting, saying this meeting happened, and you know what
• 1:05:13
  Speaker 1: the airiness has described sounds interesting. And by the way,
• 1:05:16
  Speaker 1: there's like small boilerplate uh at the end of the
• 1:05:19
  Speaker 1: second letter saying you know, this is in no way
• 1:05:21
  Speaker 1: an endorsement by Johns Hopkins of any uh Thereness technology.
• 1:05:27
  Speaker 1: And she then uses this over the ensuing two or
• 1:05:29
  Speaker 1: three years to claim that UH tharoness Is technology has
• 1:05:35
  Speaker 1: been independently verified and validated by the Johns Hopkins School
• 1:05:40
  Speaker 1: of Medicine, and everyone falls for it. Nobody calls up
• 1:05:44
  Speaker 1: Johns Hopkins and says it seems that this is a
• 1:05:46
  Speaker 1: stunning thing. Right time and time and time again, there
• 1:05:49
  Speaker 1: are these statements made, these claims made. Nobody does due diligence.
• 1:05:53
  Speaker 1: Nobody sees the technology, nobody sees the actual Well, open
• 1:05:57
  Speaker 1: up the machine. I can't like I would. It's one
• 1:06:00
  Speaker 1: of your Why the vcs walked because you have to
• 1:06:03
  Speaker 1: show us this and we can't give you money. This
• 1:06:05
  Speaker 1: is not this isn't a negotiating tactic. It's it's show
• 1:06:09
  Speaker 1: it us or we're out, because that's how we run. Yeah.
• 1:06:13
  Speaker 1: That the one of the Hopkins Lab scientists who attended
• 1:06:15
  Speaker 1: that this meeting back in the spring of two thousand
• 1:06:18
  Speaker 1: and ten at the end of the meeting, said to Elizabeth,
• 1:06:20
  Speaker 1: you know this is all well and good, but you know,
• 1:06:23
  Speaker 1: for us to really do a rigorous verification, you would
• 1:06:27
  Speaker 1: need to send us one of your devices. Either you
• 1:06:30
  Speaker 1: could leave this one or ship another one of them
• 1:06:32
  Speaker 1: to us. And then I'll want to have it in
• 1:06:34
  Speaker 1: my lab for several months and put it, you know,
• 1:06:39
  Speaker 1: pointed through its paces and compare it with the diagnostic
• 1:06:42
  Speaker 1: equipment that I have in my lab. And so he
• 1:06:44
  Speaker 1: encouraged her to do that, and she said she would.
• 1:06:46
  Speaker 1: And of course she promised a lot of stuff. It
• 1:06:49
  Speaker 1: never happened, never never happened. She promised data, she never delivered.
• 1:06:52
  Speaker 1: She promised documentation, never delivered. But we know why because
• 1:06:56
  Speaker 1: this thing was a fraud for years and years before.
• 1:07:02
  Speaker 1: How do you live like that? How does somebody not
• 1:07:04
  Speaker 1: expect to get caught? You know? Again, in her mind
• 1:07:08
  Speaker 1: goes back to the way that she channeled the traditional
• 1:07:11
  Speaker 1: Silicon Valley, and again that what I think it was.
• 1:07:14
  Speaker 1: The traditional Silicon Valley is the industry that grew out
• 1:07:17
  Speaker 1: of the computer chip industry, then became you know, the
• 1:07:20
  Speaker 1: personal computer revolution, and then the Internet boom, and now
• 1:07:23
  Speaker 1: it's the smartphone that's the traditional Silicon Valley. It's based
• 1:07:27
  Speaker 1: on coding, computer programming. And it's true that there's been
• 1:07:30
  Speaker 1: a lot of faking it until you make it. There's
• 1:07:33
  Speaker 1: been a lot of exaggerating, making exaggerated vae vaporware to
• 1:07:38
  Speaker 1: get the funding that you need to to make the
• 1:07:40
  Speaker 1: product happen. And she I think because she modeled herself
• 1:07:44
  Speaker 1: after jobs and to a lesser extent, Larry Ellison, she thought,
• 1:07:48
  Speaker 1: you know, this is the rule book that everyone goes
• 1:07:51
  Speaker 1: by in Silicon Valley, Like, it's not a big deal
• 1:07:54
  Speaker 1: if I go by it too. So, last question on
• 1:07:57
  Speaker 1: her prepping for this. I watched a couple of videos.
• 1:08:02
  Speaker 1: She always seems to speak like this in all of
• 1:08:04
  Speaker 1: our videos. It's this sort of weird baritone. And I
• 1:08:08
  Speaker 1: read a number of other articles that suggest that she
• 1:08:12
  Speaker 1: faked this deep voice for reasons known apparently only to herself.
• 1:08:18
  Speaker 1: What is the story with that? Is that her real
• 1:08:21
  Speaker 1: voice is that fake? Is this trying to be a
• 1:08:23
  Speaker 1: woman in a man's world? Like, what is what is
• 1:08:26
  Speaker 1: the deal with that it's not her real voice? Um?
• 1:08:29
  Speaker 1: And how do we know that for sure? So I'll
• 1:08:31
  Speaker 1: give you at least four data points. One is an
• 1:08:34
  Speaker 1: anecdote that I tell in the book. I think it's
• 1:08:37
  Speaker 1: in chapter eight of the book where an employee who
• 1:08:41
  Speaker 1: has just been hired to as an injury to work
• 1:08:44
  Speaker 1: as an engineer on the mini lab meets with her
• 1:08:47
  Speaker 1: in early two thousand eleven, and the meeting is at
• 1:08:49
  Speaker 1: the end of a long day. She's excited that he's
• 1:08:52
  Speaker 1: there and they're making progress on building this machine. And
• 1:08:55
  Speaker 1: she closes the meeting by getting up and and taking
• 1:08:58
  Speaker 1: her coat off her chair, and as she goes towards,
• 1:09:01
  Speaker 1: you know, to open the door of her office to
• 1:09:04
  Speaker 1: see him out, she lapses out of her baritone. She
• 1:09:08
  Speaker 1: forgets to put on the baritone and lapses into a
• 1:09:11
  Speaker 1: much more natural sounding young woman's voice. And he's totally
• 1:09:15
  Speaker 1: startled at this point because he's only heard her with
• 1:09:18
  Speaker 1: the baritone, and he he realizes at that point that
• 1:09:21
  Speaker 1: the voice is fake. He kind of turns it in
• 1:09:24
  Speaker 1: his head over the next couple of days and realizes,
• 1:09:27
  Speaker 1: you know, she must have decided this was necessary because, uh,
• 1:09:31
  Speaker 1: Silicon valleys a man's world, and she dropped out as
• 1:09:35
  Speaker 1: this young woman and that was so unusual. She must
• 1:09:38
  Speaker 1: have felt along the way that it was necessary to
• 1:09:40
  Speaker 1: get people's attention. Now, the other data points I have
• 1:09:43
  Speaker 1: are one is that um, as the book makes clear,
• 1:09:47
  Speaker 1: one of my sources for the book was Elizabeth's best
• 1:09:50
  Speaker 1: friend at Stanford, a young woman by the name of
• 1:09:53
  Speaker 1: Chelsea Burquette UM. And Chelsea says that Elizabeth's voice was
• 1:09:57
  Speaker 1: nothing like that at Stanford or even after Stanford. UM.
• 1:10:02
  Speaker 1: And so Chelsea herself believes that the voice is fake. UM.
• 1:10:06
  Speaker 1: A family member UM uh cooperated as well for the book.
• 1:10:11
  Speaker 1: And I'm not going to say this person's name, but
• 1:10:14
  Speaker 1: that person believes and and uh professes that he knows
• 1:10:18
  Speaker 1: for a fact that the voice is fake. And then
• 1:10:21
  Speaker 1: there's probably the most conclusive proof is that there's an
• 1:10:24
  Speaker 1: interview that she gave to the show Biotech Nation in
• 1:10:29
  Speaker 1: May of two thousand five. It's an NPR show. UM
• 1:10:32
  Speaker 1: and I have a recording of it. And at that point,
• 1:10:34
  Speaker 1: she's eighteen months out of Stanford. She's like twenty or
• 1:10:37
  Speaker 1: twenty one years old. Uh. She gives this interview to
• 1:10:40
  Speaker 1: Morrow Gunn and um Uh she sounds nothing like uh
• 1:10:45
  Speaker 1: the Elizabeth Holmes of later years. She sounds like this, uh,
• 1:10:51
  Speaker 1: this this kid almost who's speaking very fast, uh, in
• 1:10:56
  Speaker 1: a much more natural sounding young woman's voice, that's a
• 1:11:00
  Speaker 1: couple of pitches higher and uh, and you realize listening
• 1:11:05
  Speaker 1: to that audio recording that she basically at a certain
• 1:11:10
  Speaker 1: point after that decided to create a whole new persona
• 1:11:14
  Speaker 1: for herself, and and that changing her voice was part
• 1:11:16
  Speaker 1: of that new persona fashion. I always thought when you
• 1:11:19
  Speaker 1: close your b around, your voice changes, and that that
• 1:11:22
  Speaker 1: could have something to do with it. But you're saying
• 1:11:24
  Speaker 1: nothing to do with that whatsoever. It was for sure
• 1:11:28
  Speaker 1: a very part of a very contrived attempt to project
• 1:11:34
  Speaker 1: this uh you know, female Steve jobs Aura, which which
• 1:11:40
  Speaker 1: other than the other than the the black turtleneck. There
• 1:11:46
  Speaker 1: was just nothing in common whatsoever. But um, hey, what
• 1:11:51
  Speaker 1: are you gonna do that? That's was That was um
• 1:11:54
  Speaker 1: attempt and uh, just just astonishing. So I only have
• 1:11:59
  Speaker 1: you for a couple of more minutes. Let me jump
• 1:12:01
  Speaker 1: to my favorite questions that I ask all my guests.
• 1:12:05
  Speaker 1: Before I do that, I just have to say, we
• 1:12:07
  Speaker 1: covered a ton of stuff. Anything you want to bring up,
• 1:12:10
  Speaker 1: anything I might have missed you think is noteworthy. A
• 1:12:14
  Speaker 1: funny moment in this saga, which is uh, forty eight
• 1:12:19
  Speaker 1: hours after my first story is published in October two fifteen, Um,
• 1:12:24
  Speaker 1: Elizabeth and Sonny lead this all employee meeting. You have
• 1:12:28
  Speaker 1: that in the book, and that's it's amazing that people
• 1:12:31
  Speaker 1: just go along with that. Yeah. And I was told that,
• 1:12:35
  Speaker 1: you know, at least half of the employees in the audience,
• 1:12:38
  Speaker 1: uh didn't go along with it. And and uh, I
• 1:12:41
  Speaker 1: couldn't believe that this was actually happening. But then you
• 1:12:45
  Speaker 1: you did have some employees, many employees, who did go
• 1:12:48
  Speaker 1: along with it. And I think it speaks to the
• 1:12:50
  Speaker 1: culture of hubris arrogance. Uh. You know, us versus them,
• 1:12:57
  Speaker 1: we're above everything, Uh, even though we haven't really invented
• 1:13:01
  Speaker 1: anything new. Um. And and you know that that's it
• 1:13:05
  Speaker 1: really speaks to how broken the culture of that company was.
• 1:13:09
  Speaker 1: F you, Carrie row is what Bawani and Holmes lead
• 1:13:15
  Speaker 1: them on chanting? And how long does this go on?
• 1:13:18
  Speaker 1: And I think people told you about it was it
• 1:13:20
  Speaker 1: was just a couple of times, two or three chants, um.
• 1:13:25
  Speaker 1: And it had been preceded. There had been a precedent
• 1:13:28
  Speaker 1: three months prior after Aaroness had received FDA approval for
• 1:13:33
  Speaker 1: one of its fingerstick tests. One turned out the only
• 1:13:36
  Speaker 1: fingerstick tests that ever got approval for was a test
• 1:13:39
  Speaker 1: to detect HERPS, which is actually a pretty easy test
• 1:13:42
  Speaker 1: to do because it's just a test that says yes
• 1:13:44
  Speaker 1: or no, do you have the disease um. So those
• 1:13:47
  Speaker 1: tests are much much easier than than most lab tests,
• 1:13:50
  Speaker 1: which are quantitative tests. Anyways, Aarons had gotten this approval
• 1:13:54
  Speaker 1: from the f d A and was very very proud,
• 1:13:57
  Speaker 1: and Sonny had led employees in the Uteria in a
• 1:14:02
  Speaker 1: chant which I actually have on tape because I have
• 1:14:04
  Speaker 1: footage of that meeting, and he yeah, he had the
• 1:14:07
  Speaker 1: whole company yelling, and at that point the chant was
• 1:14:11
  Speaker 1: directed at Aronos's rivals Quest and Lab Corps, where the
• 1:14:16
  Speaker 1: two nine pound guerrillas in the in the lab never
• 1:14:19
  Speaker 1: for a second thought this little pissent company with a
• 1:14:22
  Speaker 1: fake technology was That's the most amazing thing is they
• 1:14:26
  Speaker 1: think these are their rivals. And these two companies couldn't
• 1:14:30
  Speaker 1: possibly care less about that. Well, I mean, by the
• 1:14:32
  Speaker 1: time she became famous, they certainly knew who she was.
• 1:14:37
  Speaker 1: And I think it, uh, it didn't escape them that
• 1:14:40
  Speaker 1: the valuation of Paris first disclosed and Fortune magazine in
• 1:14:45
  Speaker 1: June two fourteen was nine billion, which was essentially the
• 1:14:49
  Speaker 1: same you know, market capitalization that Quest and Labcorp had
• 1:14:54
  Speaker 1: so um that had to get their their attention, and
• 1:14:56
  Speaker 1: I know it did. But yeah, the the the amount
• 1:15:01
  Speaker 1: that the degree to which Elizabeth and Sonny were obsessed
• 1:15:05
  Speaker 1: with Quest and Lab Corp uh is uh exponentially greater
• 1:15:11
  Speaker 1: than uh, you know, than how concerned Question and lap
• 1:15:14
  Speaker 1: Court were with Paras. But anyways, that first chant was
• 1:15:19
  Speaker 1: directed at Quest and Lab Corps. And then three months later,
• 1:15:22
  Speaker 1: when my story came out, at the end of this
• 1:15:25
  Speaker 1: meeting in which Elizabeth and Sonny had both been very
• 1:15:28
  Speaker 1: defiant about how my reporting was false and about how
• 1:15:32
  Speaker 1: they would take the fight to the journal and to
• 1:15:35
  Speaker 1: the journalist, a senior software engineer asked Sonny if he
• 1:15:41
  Speaker 1: would lead them in a chant, and Uh, no, one
• 1:15:45
  Speaker 1: you know had to ask what the chant was. Everyone
• 1:15:48
  Speaker 1: knew based on what had happened three months prior, and
• 1:15:51
  Speaker 1: so Sonny was of course very happy to oblige and
• 1:15:56
  Speaker 1: lead the company for a second time in a chant. Uh.
• 1:16:00
  Speaker 1: And this time added my name after the F you,
• 1:16:03
  Speaker 1: which was convenient because it rhymed amazing, John carry row
• 1:16:07
  Speaker 1: your fake news. Let's um that's what he should have said. Um,
• 1:16:12
  Speaker 1: I think the book is not fake news, and it's
• 1:16:14
  Speaker 1: absolutely fascinating. Let's let's jump to to our favorite questions,
• 1:16:19
  Speaker 1: and I'm I'm going to skip around a little bit
• 1:16:21
  Speaker 1: because I know we're tied on time. Tell us about
• 1:16:24
  Speaker 1: some of your early mentors, so, uh, I would cite
• 1:16:30
  Speaker 1: a few people. One of them would be uh my
• 1:16:33
  Speaker 1: investigative team colleague Mark Merrimont. He's still at the Wall
• 1:16:37
  Speaker 1: Street Journal to this day and still does great work
• 1:16:41
  Speaker 1: for the Wall Street Journal. Um was he on one
• 1:16:43
  Speaker 1: of the Pulitzer Prize winning teams that you uh yeah,
• 1:16:46
  Speaker 1: he was actually uh he he uh lead wrote one
• 1:16:50
  Speaker 1: of the stories that was in a package on corporate
• 1:16:53
  Speaker 1: scandals in two thousand two that won the Pulitzer Prize
• 1:16:57
  Speaker 1: for Explanatory Reporting, and I lead wrote another one of
• 1:17:02
  Speaker 1: those stories. Um, but he he had been a mentor,
• 1:17:06
  Speaker 1: uh several years prior on my first ever uh investigative work,
• 1:17:11
  Speaker 1: which was unmasking a Belgian a speech recognition software company
• 1:17:16
  Speaker 1: called learn out in Hospital, which was the pride of
• 1:17:19
  Speaker 1: Flanders back then. And I was based in Brussels, and
• 1:17:22
  Speaker 1: and Mark and another journal colleague named uh jesse Eisener
• 1:17:26
  Speaker 1: had um uh smelled a rat and and started writing
• 1:17:31
  Speaker 1: about this company and they needed help from a reporter
• 1:17:33
  Speaker 1: on the ground in Belgium and sought out my help
• 1:17:36
  Speaker 1: and then we we ended up, you know, spending close
• 1:17:39
  Speaker 1: to a year unraveling the fraud of this company. And
• 1:17:42
  Speaker 1: I learned a ton from those twho's got two guys,
• 1:17:45
  Speaker 1: especially from Mark Merrimont and uh so he was a mentor.
• 1:17:49
  Speaker 1: And then, UM, I'm gonna name check another former colleague,
• 1:17:53
  Speaker 1: Mike Williams, who's now the UH investigative editor at UM
• 1:17:58
  Speaker 1: at UH Reuters and who's a long time Wall Street
• 1:18:02
  Speaker 1: Journal reporter and editor. He was my bureau chief in
• 1:18:06
  Speaker 1: Paris for several years and he was later the Page
• 1:18:09
  Speaker 1: one editor of the journal. And then of course Mike Sikonolfie,
• 1:18:12
  Speaker 1: who was my current editor on the Investor investigative team.
• 1:18:15
  Speaker 1: I would mention that Eisener went on to win the
• 1:18:18
  Speaker 1: first online Pulitzer for his work at a pro public
• 1:18:23
  Speaker 1: That's right. So um, a lot lots of Pulitzer Prize
• 1:18:27
  Speaker 1: UH winning journalists came out of out of his shop.
• 1:18:30
  Speaker 1: So who, um, let's talk about your favorite books. Bad
• 1:18:33
  Speaker 1: Blood is your first book? What do you read? Who
• 1:18:36
  Speaker 1: do you really enjoy? Fiction? Nonfiction? Right Blood related or not? So? Um,
• 1:18:43
  Speaker 1: I love nonfiction and I love UH page turning nonfiction.
• 1:18:50
  Speaker 1: One of my favorite books of all time is a
• 1:18:52
  Speaker 1: Civil Action, which I read in the in the late nineties. UH.
• 1:18:58
  Speaker 1: I think it's uh. The name of the author is
• 1:19:00
  Speaker 1: Jonathan Harror. I think he worked on that book for
• 1:19:02
  Speaker 1: seven years. UM. Another deeply reported book that I love
• 1:19:08
  Speaker 1: is Black Hawk Down by Mark Bowden. Uh an amazing
• 1:19:12
  Speaker 1: feat of reporting uh reconstructing uh what those soldiers went
• 1:19:18
  Speaker 1: through in Somalia. Uh. Just an unbelievable book. UM. I
• 1:19:24
  Speaker 1: I loved the the sort of definitive UH nonfiction book
• 1:19:30
  Speaker 1: about Wall Street and the eighties Barbarians at the Gate,
• 1:19:34
  Speaker 1: which was written by UH guys who at the time
• 1:19:39
  Speaker 1: worked for the Wall Street Journal, Brian Burrow and John Helliar.
• 1:19:42
  Speaker 1: They've long since moved on. UM. I am a big
• 1:19:48
  Speaker 1: fan of the former Wall Street Journal reporter and now
• 1:19:54
  Speaker 1: best selling author Eric Larson. UM. Among his books H
• 1:19:58
  Speaker 1: Devil in the White City were um. Uh. The latest
• 1:20:03
  Speaker 1: that I lead that I read by him is about
• 1:20:06
  Speaker 1: the Lusitania. UM. He's just a terrific writer. UM. And
• 1:20:11
  Speaker 1: I would say, UH an influence in terms of writing
• 1:20:15
  Speaker 1: UH non nonfiction probably my my biggest influence. So what
• 1:20:20
  Speaker 1: has changed since you became a journalist twenty years ago.
• 1:20:24
  Speaker 1: How do you how do you see the we know,
• 1:20:26
  Speaker 1: the industry, the business of journalisms have changed. What do
• 1:20:29
  Speaker 1: you see as different in the actual reporting? Well, the
• 1:20:34
  Speaker 1: one obvious thing is the rise of social media. Um uh,
• 1:20:40
  Speaker 1: it's it's there everywhere you turn, you know. Uh. Um.
• 1:20:45
  Speaker 1: People you investigate are on social media or use social media.
• 1:20:49
  Speaker 1: I used LinkedIn to make contact with ex Theoris employees,
• 1:20:54
  Speaker 1: one of them Tyler Schultz. Um and uh yeah, I
• 1:20:59
  Speaker 1: think that it's it's it's both a reporting tool, but
• 1:21:02
  Speaker 1: it's also a disinformation tool, as we see hint, hint
• 1:21:07
  Speaker 1: with the current administration, it's sort of a propaganda tool. Um.
• 1:21:12
  Speaker 1: Thinking of Twitter in particular, um uh and uh it's
• 1:21:17
  Speaker 1: got other sort of um effects on our craft, uh,
• 1:21:24
  Speaker 1: which some of which aren't so great, which is that
• 1:21:26
  Speaker 1: journalists spend a lot of time on Twitter, probably too
• 1:21:28
  Speaker 1: much time on Twitter instead of actually doing work. Um right,
• 1:21:34
  Speaker 1: and sometimes they appine on Twitter in a way that
• 1:21:38
  Speaker 1: that compromises their objectivity or person objectivity. Um. So yeah,
• 1:21:44
  Speaker 1: social media has been a game changer, I think for
• 1:21:46
  Speaker 1: for our profession. If I had to point to something,
• 1:21:50
  Speaker 1: so tell us about a time you failed and what
• 1:21:52
  Speaker 1: you learned from the experience. So when I was a
• 1:21:55
  Speaker 1: brand new reporter at the Wall Street Journal Europe and
• 1:22:00
  Speaker 1: uscles back in I think it was UM and the
• 1:22:04
  Speaker 1: Wall Street Journal Europe back then was separate from the
• 1:22:07
  Speaker 1: mother ship. UM. We had these these European and Asian
• 1:22:10
  Speaker 1: editions that were run separately. So I wasn't a full
• 1:22:13
  Speaker 1: fledged Wall Street Journal reporter. I was a Wall Street
• 1:22:15
  Speaker 1: Journal Europe reporter. And uh, with respect to this incident,
• 1:22:20
  Speaker 1: it was a good thing. I M a colleague and
• 1:22:23
  Speaker 1: I wrote a story about a business deal that we thought, um,
• 1:22:30
  Speaker 1: you know, we had learned about that that was basically
• 1:22:33
  Speaker 1: turned out to be complete fiction. Uh. And it was
• 1:22:36
  Speaker 1: like a comedy of errors. It was a a merger
• 1:22:41
  Speaker 1: or so we thought, between several post offices in Europe,
• 1:22:46
  Speaker 1: and um, you know, we had these sources who were
• 1:22:50
  Speaker 1: who were just you know, these pseudios, sources who were
• 1:22:53
  Speaker 1: several times removed from actual information, but who uh you know,
• 1:22:57
  Speaker 1: told us that they thought they knew what they couldn't
• 1:23:01
  Speaker 1: have known because it wasn't true. And so we we
• 1:23:04
  Speaker 1: wrote this this completely absurd story that was completely wrong
• 1:23:09
  Speaker 1: and erroneous. What was the take um was that what
• 1:23:13
  Speaker 1: was your takeaway? No, my takeaway was that, um, you
• 1:23:16
  Speaker 1: know you can't you you got to verify. I'm reading
• 1:23:20
  Speaker 1: Cy Hirsch's um Um autobiography right now, and he has
• 1:23:25
  Speaker 1: an expression for it that he learned at City News
• 1:23:28
  Speaker 1: in Chicago, where he started out his career, uh, which
• 1:23:32
  Speaker 1: is uh check it out. You know, he check it out.
• 1:23:36
  Speaker 1: And we didn't do any checking. We just went with
• 1:23:39
  Speaker 1: what you know, the first person we got on the
• 1:23:41
  Speaker 1: phone told us and the story was completely wrong. It
• 1:23:44
  Speaker 1: was embarrassing, and frankly, I just I still don't understand
• 1:23:46
  Speaker 1: why I wasn't fired for it. And what is it
• 1:23:49
  Speaker 1: that you know about investigative reporting today that you wish
• 1:23:52
  Speaker 1: you knew twenty years ago? I mean, I think earlier
• 1:23:57
  Speaker 1: in my career, I think that I thought investigative reporting
• 1:24:03
  Speaker 1: was a glamorous craft. You know this may sound um corny,
• 1:24:09
  Speaker 1: but um. One of the things that contributed to inspiring
• 1:24:12
  Speaker 1: me to become a newspaper reporter was reading All the
• 1:24:15
  Speaker 1: President's Men after college graduated in ninety four, and that
• 1:24:19
  Speaker 1: was one of the first books I read after college,
• 1:24:22
  Speaker 1: and uh, you know, I think it made uh investigative
• 1:24:26
  Speaker 1: journalism and reporting seemed glamorous to me. And what I
• 1:24:30
  Speaker 1: would caution you know, young people getting into this line
• 1:24:34
  Speaker 1: of work is that uh of the time, it's not glamorous.
• 1:24:39
  Speaker 1: It's digging. Uh you know, behind the scenes and the
• 1:24:43
  Speaker 1: dark in semi or complete obscurity. And um, you know,
• 1:24:50
  Speaker 1: hopefully you you you published some some good stories, but
• 1:24:53
  Speaker 1: oftentimes the stories won't have as much impact as you
• 1:24:58
  Speaker 1: would hope they would have. And you know, it can
• 1:25:02
  Speaker 1: be thankless work, and um, I would argue that it's
• 1:25:05
  Speaker 1: also also can be very rewarding work, but you gotta
• 1:25:09
  Speaker 1: stick with it, and it's uh work that requires persistence
• 1:25:13
  Speaker 1: and perseverance. UM. I don't know if I necessarily knew
• 1:25:17
  Speaker 1: all those things when it started out, just just fascinating.
• 1:25:20
  Speaker 1: Thank you, John for being so generous with your time.
• 1:25:23
  Speaker 1: We have been speaking with John Carrirew, author of Bad Blood,
• 1:25:28
  Speaker 1: Secrets and Lies in a Silicon Valley start up. If
• 1:25:31
  Speaker 1: you enjoyed this conversation, well then look up and intro
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• 1:25:40
  Speaker 1: of our prior two hundred plus conversations. We love your
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  Speaker 1: comments feedback and suggestions right to us at m IB
• 1:25:50
  Speaker 1: podcast at Bloomberg dot net. I would be remiss if
• 1:25:53
  Speaker 1: I did not thank my crack staff that helps to
• 1:25:55
  Speaker 1: put together this conversation each week. Medina Parwana is our
• 1:26:00
  Speaker 1: you engineer slash producer, Taylor Riggs is our booker and producer,
• 1:26:04
  Speaker 1: and Michael Batnick is our head of research. I'm Barry Retolts.
• 1:26:08
  Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.