Professional investor tells of being duped by Theranos founder Elizabeth Holmes

Brian Grossman’s fund bought $96m of shares in doomed startup

As part of his research into whether he should invest in Theranos, Brian Grossman went to a Walgreens store to get his blood tested – and deliberately didn't tell the startup he was doing it.

Mr Grossman, a hedge fund manager at PFM Health Sciences, spent hours on Tuesday telling the jury in the fraud trial of Theranos founder Elizabeth Holmes that she and Theranos president Ramesh "Sunny" Balwani had answers for many of his questions, but that he still wanted to see for himself how well their product worked.

The fund manager said he was surprised that his 2014 blood test relied on a conventional venous draw and not the smaller finger-stick method he had been led to believe was central to the company’s revolutionary model. The results also took more than four hours to get back, much longer than what Theranos had told him.

In the end, the fund made the fateful decision to buy $96 million (€85 million) of private shares in Theranos on behalf of institutional investors, pension funds and a “friends and family fund” for less wealthy individuals. The startup collapsed in 2018, the same year that Ms Holmes and Mr Balwani were charged with lying to investors about the capability of their technology to raise more than $700 million for the company.


Mr Grossman is hardly the first investor to testify at the trial, now in its 10th week, that he was misled by Ms Holmes and Mr Balwani. But he was called by prosecutors to show that even the most sophisticated investor, who relied on a team of experts to do due diligence, were duped by the pair. Unlike previous investor witnesses, Mr Grossman demonstrated an understanding and fluency in the worlds of both finance and healthcare.

The fund manager said he interviewed a professor at Stanford University who helped Ms Holmes start Theranos. He toured the company's blood-testing laboratory and its East Bay manufacturing facility where he learned about how the analysers were assembled and distributed.

Determined effort

His testimony revealed a determined effort to figure out if Theranos might gain and hold a technological advantage over blood-testing companies Quest Diagnostics and Lab Corp. "Ms Holmes was very clear that they could match every test" the competitors offered, Mr Grossman testified.

Mr Grossman recalled that Ms Holmes had also told him Theranos could perform more than a thousand blood tests with precision – a claim squarely at odds with evidence shown earlier in the trial that the company could execute only about a dozen such tests relying only on its own analysers.

Jurors were shown dozens of detailed questions Mr Grossman’s team put to Ms Holmes and Mr Balwani at two separate meetings. In some instances Mr Grossman tried to phrase the same query as many different ways as possible so there was “no ambiguity, no confusion about what the technology was capable of doing,” he testified. “The answer was that there were no limitations.”

Mr Grossman said Mr Balwani rejected his efforts to talk to United Healthcare, an insurance company whose interest in Theranos the fund manager found especially influential. Mr Grossman said he was also discouraged by the Theranos president from talking to Walgreens.

“He said he was very uncomfortable with that,” Mr Grossman testified. Mr Balwani told him “it wouldn’t look good” for investors to be inquiring about Theranos, he said.

Mr Grossman said after he got his unannounced blood test, he asked about the discrepancies between his experience and the company’s marketing materials – and Mr Balwani had an answer for that, too.

‘Unusual test’

Mr Balwani “told me that one of the tests my physician ordered was a highly unusual test,” and that “at that point in time” the company wasn’t offering that particular test for a finger-stick draw, he testified.

The Wall Street Journal previously reported that PFM became so concerned after the newspaper published stories in 2015 and 2016 exposing problems at Theranos that the hedge fund hired a private detective – who ended up confirming many of the details in the news stories. PFM sued Theranos in a securities lawsuit that produced much of the evidence jurors are seeing at trial.

Mr Balwani faces a separate trial next year and has pleaded not guilty. – Bloomberg