Theranos trial: Holmes ‘targeted rich families as backers’ over investment firms

DeVos family investor offers inside look at how Holmes pitched handful of world’s wealthiest people on her idea

Elizabeth Holmes, the founder of the blood testing start-up Theranos, and her husband, Billy Evans, depart a federal courthouse in California. Photograph: Mike Kai Chen/The New York Times

Elizabeth Holmes, the founder of the blood testing start-up Theranos, and her husband, Billy Evans, depart a federal courthouse in California. Photograph: Mike Kai Chen/The New York Times

 

Elizabeth Holmes targeted ultra-wealthy families as early backers of Theranos Inc to avoid the potential pressure from larger investment firms to go public, according to an investor at the DeVos family office who kicked in $100 million (€85.7m) for the blood-testing startup.

Lisa Peterson, who helped manage the DeVos family fortune at RDV Corp, testified at Ms Holmes’s criminal fraud trial Tuesday that the smooth-talking entrepreneur courted the family with voluminous investment binders, private conversations, a lengthy tour of the company in Palo Alto, California, and a personalised on-site blood test.

The DeVos family, whose patriarch was a billionaire industrialist, gave its support to Theranos in 2014, by which time Theranos was one of Silicon Valley’s hottest companies and Ms Holmes was gracing magazine covers.

“She was hand-picking five or six private families to invest in her firm,” Ms Peterson told jurors in federal court in San Jose, California. “She was inviting us to participate in this opportunity,” she said, adding that the company projected revenue for 2015 of almost $1 billion. “They wanted to get to know us as much as we wanted to do due diligence on them.”

The testimony offered an inside look at how Ms Holmes pitched a handful of the world’s wealthiest people on her idea. Other families include Rupert Murdoch, Riley P. Bechtel and Alice Walton, heiress to the Walmart Inc. fortune.

Skepticism

Ms Peterson also described how her skepticism about Ms Holmes evolved when Theranos was besieged by media and regulatory scrutiny in 2015 and 2016.

Jurors were shown two television clips, the first from CNBC’s Mad Money in which Ms Holmes reacts to the first Wall Street Journal report in 2015 that revealed inaccuracies in Theranos blood tests. A segment from NBC’s “Today’ show a year and a half later features Holmes responding to the unraveling of the startup triggered by the Journal’s reporting and regulatory scrutiny.

In Ms Holmes’s Today interview with Maria Shriver, jurors learned for the first time how high and fast the entrepreneur rose – and how hard she fell. They saw and heard Ms Holmes describe herself as “devastated” by regulatory violations that ultimately resulted in her being banned from running a laboratory company for two years and requiring Theranos to retract or correct the results of tens of thousands of medical tests.

Ms Peterson said she confronted Ms Holmes in an April 2016 conversation.

The Theranos founder said the most damaging reporting was being done by a reporter who wanted to win a Pulitzer prize, Ms Peterson said. “We asked, ‘Is it true or is it not true?’ and she downplayed it,” Ms Peterson said.

Under cross-examination Ms Peterson got into a testy exchange with Lance Wade, a lawyer representing Ms Holmes. The attorney pressed Ms Peterson on whether anyone got in the way of her due diligence on Theranos and impeded a “full and accurate understanding of how the company was operating at the time.”

MsPeterson allowed that MsHolmes held a strong sway and admitted to “fear” of missing out if she passed up a chance to invest in the startup. Probing too deeply into the company’s commercial partnership with Walgreens might mean “we wouldn’t be invited back to invest,” she said. But Ms Peterson also resisted Wade’s insinuation that she didn’t do her homework on Theranos.

“We got answers we were satisfied with that were different than what came out later,” she said. “We were relying on what we were told.”

Ms Holmes faces as long as 20 years in prison if convicted of charges that she deceived investors and patients. – Bloomberg