Whistleblower Helped Dismantle Biotech Juggernaut Theranos in His Zero-Strategy Defense

11/01/2023 17:04 Whistleblower helped dismantle biotech juggernaut Theranos in his 'zero-strategy' defense
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COVER STORY | SEPTEMBER/OCTOBER 2019
Whistleblower helped dismantle biotech

juggernaut Theranos in his 'zero-strategy'
defense
An interview with Tyler Shultz
https://www.fraud-magazine.com/cover-article.aspx?id=4295006794 1/11
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By Emily Primeaux, CFE; Photos by Alison Yin / AP Images
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The company dominated news cycles from its inception in 2003 to its epic downfall beginning in 2015. Theranos, the blood-testing startup
once valued at $9 billion, fell from grace after allegations came to light that its technology was a fraud.
The Wall Street Journal (WSJ) reporter John Carreyrou detailed the events leading to the downfall of the company in his book, “Bad Blood:
Secrets and Lies in a Silicon Valley Startup.” And much of his inside knowledge came from whistleblowers like Tyler Shultz, a former
Theranos employee and the grandson of U.S. statesman George Shultz, who held four different Cabinet positions in three Republican
presidential administrations.
But Tyler Shultz, 28, didn’t even recognize that he was in a whistleblowing situation when he discovered fraud at the now-infamous blood-
testing company. “I had zero strategy,” Shultz says in a recent interview with Fraud Magazine at the 30th Annual ACFE Global Fraud
Conference. “I was just reacting to things.”
So, how did a young Stanford University graduate find himself surreptitiously speaking with Carreyrou on a burner phone about fraud at
Silicon Valley’s newest breakthrough technology company? It started with a chance meeting between Theranos’ blue-eyed founder,
Elizabeth Holmes, at the home of Shultz’s grandfather.
“I got a call from my grandfather and he said he had this brilliant woman coming over to his house to have a discussion, and he thought I
would be interested in sitting in to listen,” says Shultz. At that fated meeting in late 2011, Shultz says he fell in love with Holmes’ vision. “It
sounded like science fiction.”
But Shultz would eventually come to find that Theranos was making false claims about the technology and its ability to devise blood tests
that only needed very small amounts of blood. And though he was one of many to realize the problems, he’d be only one of a few to actually
speak up.
A wunderkind’s vision
Founded in 2003 by then-19-year-old Holmes, Theranos quickly rose to prominence after raising more than $900 million from venture
capitalists and private investors, resulting in a $9 billion valuation at its peak in 2013 and 2014. Holmes, the company’s CEO, claimed
Theranos’ technology would streamline blood-testing at a much lower cost than traditional analyses. (See The investors duped by the
Theranos fraud never asked for one important thing (http://tinyurl.com/y48pzjye), by Francine McKenna, MarketWatch, March 20, 2018.)
Theranos’ signature blood-testing machine, nicknamed “Edison” after the famous inventor, was about the size of a home breadmaker. “Think
about a central laboratory being compressed into a small box that you could take anywhere you wanted,” says Shultz. “The technology, or
what she said the technology was, kind of allowed your imagination to run wild with the different applications you could come up with. ... If
you had a technology that could do this, there were so many places you could put it, so many different potential products and ways to
improve people’s lives.”
(/fm-home.aspx) A patient supposedly would only have to give a few drops of blood via a finger prick stored in what Theranos coined a “nanotainer” — a vast
change from the usual multiple test tubes of blood drawn from patients’ arms. Theranos’ hype said that technicians could use the Edison to
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quickly, seamlessly and inexpensively analyze the blood drops. (See 2 new documentaries pinpoint the uniquely troubling grift of
Elizabeth Holmes and Theranos (http://tinyurl.com/y4zqxtme), by Alissa Wilkinson, Vox, March 15.)
Business magazines featured Holmes on their covers and included her on lists of top executives. According to the Vox article, Forbes once
dubbed her the youngest female self-made billionaire.
Holmes’ audacious claims and persuasive intensity attracted notable board of director members, such as George Shultz; Henry Kissinger,
former U.S. secretary of state; James Mattis, former commander of the U.S. Central Command and soon-to-be U.S. secretary of defense; Sam
Nunn, former U.S. senator; and Bill Frist, heart-transplant surgeon and former U.S. senator. Tyler Shultz says she never turned off her intense
Theranos pitch mode.
Barricades and locked doors

After graduation, Shultz joined Theranos in 2013 in its protein engineering lab, which developed antibodies or reagents that technicians
would be using in tests. About four days later, he and his team members received an email telling them to scrap all their tests because the
company was moving them to “assay validation.” (Assay validation is the evaluation, assessment or analysis of a test method to determine its
fitness for a particular use.)
The assay validation team was supposed to have placed assays through a series of examinations to ensure they were performing to high
standards so that technicians eventually could comfortably test real patients. Shultz says that assays included tests like precision testing in
which they’d run one sample several times and calculate the amount of variation, finger-stick versus venous studies to ensure that blood
drawn from fingers was indicative of what was in veins, and calculation of sensitivity and specificity.
According to Shultz, many of these tests weren’t going well. And he encountered a much different culture than what Holmes was touting to
investors, his grandfather and the world. “Morale was very low when I started and very low when I left,” says Shultz. “The one thing that was
really apparent was the culture of secrecy.”
(/fm-home.aspx) Shultz explains that barricades blocked areas of the Theranos’ buildings and many locked doors. Some employees who’d worked years for
the company had never seen any of its blood-testing devices.
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When he first joined the company, the product manager gave him a list of words he wasn’t allowed to say when describing his job to
ostensibly protect trade secrets. “What they really didn’t want is the [company] scientists being able to see what was going on in all the labs
and connecting the dots,” he says.
If the company had granted scientists access to the devices, they would’ve found Edison boxes that didn’t perform quite the way Holmes
was marketing them. “In my senior year I took a class called Biochips in Nanomedicine, and a lot of what was taught was really innovative
diagnostic technologies using magnetics, nanowires and microfluidics — really cool stuff,” he says. “I thought I was going to see something
even cooler than that at Theranos. I got there and it was just a pipette in a box.”
Employees worked with two versions of the Edison — the 3.0 and the 3.5 — and Shultz says they were “pieces of crap.” The six pipette tips
on the mechanical pipette constantly fell off in the middle of tests and got stuck in the gears, and the gears would jam. Or, tips wouldn’t eject,
so they’d stack up in subsequent tests. Then they’d use coat hangers to fish tips out of the gears.
The assays, which were sensitive to temperature, would give an alert if they got too hot or too cold. If they got too hot, Shultz would open the
door of the device and wave his hand over the workings. But then it would cool off too much, so he’d close the door and put a blanket over
the device to warm it up.
If a door broke on a device, an engineer would try to fix it with their bare hands. The scientists warned them that they needed to wear gloves
because reagents would’ve been everywhere inside the device. One of their tests used potassium cyanide, which is highly toxic. “I was told
when I was working with it to be extremely careful because it was what Hitler used to kill himself,” Shultz says. “And then an engineer goes
and reaches in with his bare hands, and you’re just like, ‘No!’ ”
Each cartridge that contained a blood sample contained a barcode sticker that communicated to the device the test it was to run. But the
scanner often wouldn’t work. So, Shultz would peel the sticker off the cartridge, put it on a pair of scissors and wave it in the device until it
scanned.
Meanwhile, Holmes was telling companies and investors that Theranos had removed all potential for human error because everything was
automated. But operator efficiency varied wildly.
Shultz also was troubled by data runs on the Edisons because they weren’t achieving low enough “coefficient of variation” (CVs) — how
much each test varied from others. The experiments were simply discarded and repeated until the desired number was achieved.
Every day assay validation team members would meet with the head of the assay validation team to review data they’d collected in the
previous 24 hours to decide what they needed to do in the next 24 hours. He says those meetings became sessions to decide which data to
discard. “Aruna [Ayer, Shultz’s manager] started calling this the ‘repeat and delete’ methodology,” says Shultz. “That’s really what we did. We’d
run experiments, we’d see what didn’t look good, we’d delete it, we’d replace it with new data.”
In hindsight, he says it seems stupid that they kept repeating these experiments thinking that eventually something would start working. But
Shultz was holding out hope for a 4.0 version they’d heard about, which never came. Shultz says Ayer, who was extremely unhappy with
Theranos, would occasionally remind him that this wasn’t how science is supposed to work.
(/fm-home.aspx) “It felt like you were on a sinking ship, constantly,” says Shultz. “Everyone was bailing out water trying to get these things to work.”
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Syphilis test that changed everything

Shultz was alarmed about the poor results from Edison precision testing — repeatedly running the same blood samples and calculating the
variations.
(/fm-home.aspx) For example, they’d run a syphilis test in which he saw an extremely high 43% coefficient variation, which was a significant enough difference
to change a diagnosis.
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Other team members ran a clinical study in which they tested samples known to be positive for syphilis. The first time they ran the test they
only got 65% correct. In one of their discard-data meetings they said, “Okay, let’s do that again. So, repeat and delete,” Shultz says. He says
they tried again and got 80% correct.
They then conducted a finger-stick versus venous study in which they collected samples from employees at Theranos, including Shultz. “An
alarming number of our coworkers tested positive for syphilis,” says Shultz. “And I remember a member of the assay validation team saying,
‘it’s not impossible.’ Sure, I guess it’s not impossible, but if we think it’s possible, we should probably send out a company-wide email.” But no
one sent out an email because they knew the tests weren’t accurate.
Instead, they sent the data to the head of the statistics team because they thought they’d send back a failed result. Amazingly, the
statisticians validated it. Soon the company would run syphilis tests on actual patient samples.
Shultz opened the syphilis validation report and saw that the sensitivity was logged at 95%. “This is saying if 100 people with syphilis got
tested, we’d correctly tell 95 of them that they had syphilis and the other five that they did not,” he says. “So, this is where there are, again,
multiple layers of massaging data.” He decided to approach Holmes with his concerns.
“I said we advertise that we have a coefficient of variation less than 10%. But I’m the person that’s running the tests to calculate that, and I
never see that,” Shultz says. He also said the numbers differed in the validation reports that came from the statistics lab to what they actually
saw in the lab.
Holmes pulled up the Theranos website and showed the line that claimed “CV less than 10%,” but then in smaller print underneath it said
“vitamin D.” Holmes told Shultz it was meant to only apply to vitamin D and not assay performance as a whole. She promised to set him up
with a meeting with Daniel Young, the head of Theranos’ statistics team, to discuss the statistics numbers. Shultz was satisfied with her
answer and returned to his desk. But when he opened the report for vitamin D, he saw that the CV was 19% not “less than 10%” — the line on
the Theranos website. He also didn’t have productive conversations with Young after multiple meetings with him.
“I asked him, ‘Do you believe this syphilis test is more accurate than tests that already exist?’ And he said, ‘Theranos has never claimed to be
more accurate than other tests,’ ” Shultz says. Yet Theranos prided itself for being cheaper and faster plus more accurate and reliable than
conventional methods, according to the U.S. Department of Justice public notification. (See U.S. v. Elizabeth Holmes, et al
(http://tinyurl.com/yyxs8kn9).)
Shultz takes his first step in whistleblower shoes

At that time, Theranos participated in a proficiency-testing program that the New York State Department of Health conducted. The
department routinely sends blood samples, such as those from Theranos, to other U.S. laboratories that are supposed to test the samples
using the same methods in which they would test a patient sample in the lab and send them back to New York. The N.Y. department can
compare all the results and then work with the U.S. labs that have incorrect results to improve their practices and quality controls.
Shultz says that Theranos ran its proficiency testing patient samples of blood on its devices and then on third-party equipment that it had
purchased from Siemens. Sometimes, the results would differ by more than 300%.
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"One thing I learned far too late was that any

information you bring to the SEC or to the
government is protected. Theranos couldn't even
threaten to sue me for something I told to the
United States government."
“That was concerning to me because we actually developed tests on the Theranos devices to match the Siemens’ device,” he says. “What
was also scary was that we didn’t report the results from the Theranos devices. We only gave the New York State Department of Health
results from the third-party equipment. Which didn’t make sense because we ran the patient samples on the Theranos devices.”
In 2014, Shultz contacted the New York State Department of Health. He didn’t yet want to expose Theranos, so he didn’t supply the
company’s name or the tests it ran, but vaguely described the testing process and asked the department if the procedures were proper. The
N.Y. department said that the company had violated state and federal regulations, and its practices were a form of proficiency testing
cheating. The New York State Department of Health asked for the name of the company and his name, but Shultz feared Theranos’ wrath if
he violated the nondisclosure and confidentiality agreements he’d signed when he was hired.
The New York State Department of Health directed him to its laboratory investigative unit. Using a fake email account and name, Shultz gave
Theranos’ name, the tests that were run and their dates. Apparently, his complaint ended up in the bottom of an inbox, and he never heard
back.
A year later, Shultz had left Theranos. Aruna, who’d also quit Theranos, recruited him to a DNA-sequencing company, Genia (which Roche
acquired when Shultz joined). While in a meeting at Genia, Aruna turned her laptop toward Shultz to show him a LinkedIn message from
Carreyrou.
“She said, ‘Wow, look. This guy’s a real reporter,’ ” Shultz says. He looked at Carreyrou’s LinkedIn profile and suspected that he was asking
hard questions and seeking truth.
(/fm-home.aspx) In 2015, Carreyrou saw that Shultz had viewed his profile and sent him an email. Shultz bought a burner phone with cash and called
Carreyrou. He later sent Carreyrou an email exchange he’d had with Holmes and Theranos’ former president and COO, Ramesh “Sunny”
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Balwani. In April 2014, Shultz had emailed Holmes to point out poor scientific processes and quality control failures. After several days, he
received a response from Balwani, which began: “We saw your email to Elizabeth. Before I get into specifics, let me share with you that had
this email come from anyone else in the company, I would have already held them accountable for the arrogant and patronizing tone and
reckless comments.” (See Theranos Whistleblower Shook the Company—and His Family (http://tinyurl.com/y27ky48f), by John Carreyrou,
The WSJ, Nov. 18, 2016.)
A family matter
About a month after speaking with Carreyrou, Shultz had dinner at his parents’ home where his father asked him if he’d spoken with a WSJ
reporter. Shultz’s grandfather — who now held a seat on Theranos’ board — had called and said Theranos’ lawyers wanted to meet with the
younger Shultz the next day.
Shultz called his grandfather and asked if they could meet without lawyers that evening. The elder Shultz agreed, but wanted him to sign a
one-page confidentiality agreement to give to Theranos. Shultz says that after he agreed, two lawyers — who’d been waiting in another room
— appeared with an application for a temporary restraining order, a notice to appear in court and a letter signed by famed lawyer, David
Boies, alleging that Shultz had leaked Theranos trade secrets.
Elder Shultz finally protested to the lawyers that this wasn’t what he and Holmes had agreed to and asked the lawyers to leave.
Shultz says his grandfather called Holmes to complain, and they agreed on a compromise — the one-page non-disclosure Shultz had
originally agreed to and another meeting with a new set of lawyers. However, when he arrived at his grandfather’s home the next day, the
same lawyers appeared, this time with an affidavit stating that he’d never spoken to the WSJ and a pledge to name every current and former
employee he suspected of having done so.
Shultz’s step-grandmother, who had witnessed the entirety of the exchanges, passed the phone number for their longtime lawyer to her
grandson when elder Shultz and the lawyers stepped out of the room. After meeting with his grandfather’s lawyer, Shultz decided not to sign
anything.
Though his grandfather never agreed with the way his grandson had been treated by the lawyers, he still believed the Theranos technology
worked, which led to some very uncomfortable family functions. His grandfather even continued to invite Holmes to lunches. “We were just
existing in completely different realities,” Shultz says.
Justice for all

In October 2015, Carreyrou published his first Theranos article. Holmes took a break from attending Harvard Medical School’s board of
fellows meeting as a new member to go on CNBC’s “Mad Money” to dispute Carreyrou’s reporting. (See The rise and fall of Theranos ...
(http://tinyurl.com/y2klyhvl) by Lydia Ramsey, Business Insider, April 11.)
According to Business Insider, by November, a partnership between Theranos and Safeway had fallen through. By early 2016, more
regulators were finding problems with Theranos. In April 2016, the U.S. Securities and Exchange Commission (SEC) started its investigation
into the company. By June 2016, Walgreens had ended its partnership with Theranos and in July, CMS banned Holmes from the lab-testing
industry for two years.
(/fm-home.aspx) In March 2017, the SEC charged Holmes, Balwani and the company with “massive fraud.” Theranos and Holmes settled. As part of the
resolution, Holmes paid a fine and can’t be a director or officer of a publicly traded company for 10 years. In June 2018, the U.S. Department
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of Justice charged Holmes and Balwani with wire fraud, and Holmes stepped down as CEO of Theranos. The WSJ reported in September
2018 that the company told its shareholders that it planned to formally shut down.
Holmes now will face trial in federal court in August 2020. She faces up to 20 years in prison and millions of dollars in fines. (See Theranos
founder Elizabeth Holmes to stand trial in 2020 (http://tinyurl.com/yxfdcuzy), by Kate Clark, TechCrunch.) Two years after Forbes named
Holmes the youngest female self-made billionaire, the magazine had downgraded its estimate of her net worth from $4.5 billion to zero.
Meanwhile, Shultz has started his own company, Flux Biosciences, that looks to provide personalized medical diagnostics for in-home use.
(See the sidebar.) Though he’s moved on from Theranos, because of Holmes’ looming trial he’ll probably be stuck in the whistleblowing
spotlight for a little while longer.
“It wasn’t until I saw the word whistleblower literally written in the newspaper that I even thought about the word,” Shultz says. He now
advises other potential whistleblowers. “If I’d recognized that I was actually in a whistleblowing situation, I would have started documenting
things. I would’ve contacted a lawyer who could tell me what I should document and what I could bring out of Theranos in a safe way,” he
says “One thing I learned far too late was that any information you bring to the SEC or to the government is protected. Theranos couldn’t
even threaten to sue me for something I told to the United States government. The government protects people. I had no idea about that. I
was just reacting to situations.”
Whether he knew it at the time or not, Shultz’s whistleblowing set in motion a series of events that captured the attention of the world,
brought down a fraud and potentially saved lives.
Emily Primeaux, CFE, is associate editor of Fraud Magazine. Contact her at eprimeaux@ACFE.com (mailto:eprimeaux@ACFE.com).
Read more
Creating a culture of healthy disagreement at Flux Biosciences
Shultz joins former Theranos employee to found nonprofit
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Whistleblower Helped Dismantle Biotech Juggernaut Theranos in His Zero-Strategy Defense

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11/01/2023 17:04 Whistleblower helped dismantle biotech juggernaut Theranos in his 'zero-strategy' defense

COVER STORY | SEPTEMBER/OCTOBER 2019

Whistleblower helped dismantle biotech

Barricades and locked doors

Syphilis test that changed everything

Shultz takes his first step in whistleblower shoes

"One thing I learned far too late was that any

Justice for all

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