Theranos

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Introduction (Theranos)

The founder and Chief Executive Officer (CEO) of Theranos company, Elizabeth Holmes was born in Washington, D.C. on February 3, 1984. 

From an early age, she was interested in the medical industry. 

Ultimately she introduced the Edison machine which was regarded to be the easiest, quickest, and most accurate machine for blood tests. 

It was expected to perform blood tests, with a small amount of blood through a finger pinprick. 

It was difficult for Holmes to grow her device publicly and commercially so she sought the help of investors like; Oracle founder Larry Ellison and Tim Draper, the father of a childhood friend and the founder of prominent VC firm Draper Fisher Jurvetson. 

Elizabeth presented a demand to her investors that she would not disclose or reveal about the working mechanism of Theranos technology. 

After she made them accept her terms and conditions then only she took the money from the investors. 

At one point, in 2014, Holmes was the world's youngest self-made female billionaire with a net worth of around $4.5 billion. 

Holmes was also given the title of a female Steve Jobs. 

With the evolution of Theranos technology, she earned a lot of money and a reputation. 

The estimated value of Theranos was approximately around 9 billion dollars. 

After a certain period of time, the unreliability and inaccuracy in the outcome of the machine were exposed. 

For engaging in such massive fraud and cheating others she was penalized and charged and the company was forced to shut down its labs and testing centers. 

At present, Elizabeth Holmes is gearing up for a lawsuit or case beginning in the month of August, and if convicted then she must have to suffer up to 20 years in prison. 

Lately but undoubtedly, the CEO had to face great loss, suffering, and negative consequences because of her bad deed.

Background

Elizabeth Holmes, born on February 3, 1984, is a dropout of Stanford at 19. 

She began to develop and flourish Theranos globally in 2003. The company rose to a huge success as it was said by Holmes that the machine, Edison could perform a cost-effective blood test from a small drop of blood from a finger prick. 

In July 2010, In the Securities and Exchange Commission (SEC) filing, Theranos said that it had uplifted up to 45 million dollars by selling warrants, equity, and other securities. 

In September 2013, a Commercial partnership with Walgreens was declared. 

Similarly, in 2014, Theranos grew up to 400 million dollars from equity sales to stakeholders who successfully evaluated the company to 9 billion dollars. 

Moreover, in July 2015, after the Food and Drug Administration (FDA) approved the test for Theranos, it has not obtained any approval for continuing the further tests. 

In October 2015, The Wall Street Journal questioned the efficiency, accuracy, and working mechanism of the machine. 

In addition, on October 16, 2015, it was found not exercising the finger prick blood tests. 

Then on January 25, 2016, the Centers for Medicare and Medicaid Services (CMS) filed saying that Theranos has breached various medical norms. 

On April 18, SEC was found to be investing in the company. Immediately, after disclosing the truth about Theranos, Walgreens ended its relationship with Theranos and stopped all the testing and lab centers of the company on June 12. 

Finally, Theranos had to suffer and pay the consequences. On July 7, 2016, Theranos’s CEO and the founder, Elizabeth Holmes was penalized for prohibiting her from running and owning any medical or clinical lab for a minimum of 2 years. 

Legal Issues

Due to the fraud and unusual behavior of the founder and CEO of Theranos, Elizabeth Holmes, the United States (US) SEC charged them with commercial crimes. 

In addition, the governing body delivers that the blood-testing company accumulated furthermore than 700 million dollars from its investors by promising false and overemphasized statements regarding its technology and performance.

According to Consumer News and Business Channel (CNBC), the lawyers write that they have no expectations that Elizabeth will ever pay them. 

Similarly, Elizabeth Holmes along with her boyfriend Ramesh (Sunny) Balwani also has to face criminal charges where she has been charged with nine counts of wire fraud and two counts of conspiracy to commit wire fraud. 

They both had to face 20 years in prison if declared by the court. 

Holmes accumulated more than 700 million dollars by funding for her company i.e. Theranos, but in 2012 when she made an effort to pitch her invention to the US Department of Defense, her pitch was discarded because of the uncertain, doubtful, and unacceptable outcomes of the technology.

In 2015, a journal named “The Wall Street Journal” started inquiring and published a sequence of exposes of the fraud technology, Theranos. But the team tried to defend as much as they could. 

They intended to make these journals fake and inaccurate but the truth cannot be hidden so it was facing a lot of legal challenges from the investors, medical authorities, and five federal agencies by June of 2016.

Moreover, in April 2017, the Centers for Medical and Medicaid Services (CMS) permitted Theranos and appealed for its clinical laboratory testing certificate by glancing at these documents Walgreens come to the point to end the partnership with Theranos, filed a lawsuit claiming continuous breaches of contract and also sued Theranos of worth 140 million dollars. 

Theranos device was found not regulated as per the regulations of FDA. 

Before making the Theranos commercialized, FDA’s inspection reports from 2014 and 2015 found it to be violating the title 21 regulations of FDA by this device. 

Holmes was suggested by their potential partners and also from the employees of the US FDA that they need to make an approval from US pharmaceutical regulators but even after being informed by the FDA, she deceived her investors by making them not worry about the approval as the company’s quest for FDA approval was voluntary. 

As per the violation of FDA’s title 21 regulations, they accused the wire fraud lawsuit the company in which the company had to pay a huge fine penalty along with the ban. 

In March 2018, because of such a massive fraud, Holmes and Sunny were charged by the SEC. 

Despite all these, Theranos, Holmes, and Sunny neither admitted nor denied the claim in the SEC’s complaint. 

.On June 15, 2018, the US Attorney for the Northern District of California declared them on wire fraud and conspiracy charges. 

Ms. Holmes had to return millions of shares to the privately held company and must pay around 500,000 dollars in a penalty fine. 

Additionally, she was banned from assisting as an officer or a director of a public company for a decade. 

US District Judge Edward Davila announced that the charges or trials against Theranos will start with the jury selection on July 28, 2020, in San Jose federal court.

Social Issues

a) Morality Problem 

One of the worst things that Elizabeth Holmes did at Theranos was using the Edison machine which produces an inaccurate result in real life. 

She was well known for the inaccuracy in her inventions but was misleading others. 

As the CEO and the founder of a company she needs to have the greatest responsibility but in this scenario, she was found moving beyond her morality and ethics. 

When a major drug company made a deal with Theranos in 2008 to test its technology for a study on stage 3 and 4 cancer patients, Elizabeth explained to her employees that her machine would not have a negative effect on the patients but some of the employees knew that whatever she explained was a lie. 

Holmes never gave any chance to anyone to speak against her. If she found employees against her, then she immediately consults them and says to them that either they must follow the company order or they may resign from the post. 

In the search for the success of her invention and to gain fame and money, she lost her morality.

b) Health Problem 

The major concern regarding the Theranos is its accuracy and effectiveness. 

As per the concern, the health of a person is the most valuable. So people are much more concerned when it comes to their health issues. 

Similarly, there was an issue regarding the accuracy and effectiveness of Theranos technology. 

Theranos has reportedly failed to prove to the people that its low-cost blood testing technology is both effective and accurate. 

Due to the carelessness of this technology regarding health, many individuals had to suffer. 

A detailed letter from the CMS claims that Theranos lab in Newark, California, exercises the inaccuracy of the test and delivers risk to the patients. 

All 240 tests that needed to be done by Edison were not carried out; instead, they were found to be done by hiring a third-party machine. 

In this way, Theranos cheated regarding the health of the public. 

c) Economical Problem 

Since Elizabeth Holmes lied and did fraud with her investors which ultimately resulted in financial issues. 

Theranos clearly deceived its investors and those investors had to suffer the consequences. 

Since these investors have invested in this technology with the hope of more profit and benefit in the upcoming future but these were all in vain as they identified that Holmes clearly lied and did fraud with them. 

Some of the employees even have to quit their jobs which might result in financial problems. 

Because of the problem with the development of the technology that does not run accurately, the investors who funded the machine development were also ruined. 

d) Fraud to the Investors, Employees, and US public 

Knowingly or unknowingly, the personalities like; doctors, employees, workers, etc. related to the Theranos had to cooperate with the founder of the company. 

Some employees were known about the inaccuracy of the machine and the fraud behaviors of the CEO but they can do nothing at that point because they were ordered that either follow the code of the company or you may resign. 

Some intended to resign and some unwantedly had to shut their mouth. After a long report in the Wall Street Journal exposed the history of Theranos. 

Everyone gets notified about the inaccuracy of the machine. 

The Wall Street Journal reported on the trail of agonized patients who got blood test results from Theranos not being sufficiently accurate. 

Patients had to suffer such inaccurate results. 

Along with them, the investors who funded the technology development had to face a great financial loss. 

Moreover, this technology also becomes successful in doing fraud to its locals i.e. US citizens. 

e) Lacks in satisfying employees & provides false hopes to the public 

As Elizabeth Holmes was a dropout student. She did not have much experience in the field of healthcare and medical science. 

She along with her rumored boyfriend Sunny Balwani did not have any kind of training in medical or biological science. 

So they were lacking in the management system in the company. 

They were unable to satisfy the employees. 

Holmes used to behave cruelly and harshly toward their employees. 

They also provided false and fake hopes and expectations to its consumers which is also considered an issue of the Theranos scandal.

Ethical Issues 

The decision made by Elizabeth Holmes regarding Theranos is found to be majorly focused on a financial rather than an ethical approach. 

Because of this, she intended to violate ethical norms and values.

Due to Theranos, many ethical issues were raised based on the three different approaches which include; the Deontological, Utilitarianism, and Individualism approaches.

a) Deontological Approach 

Deontology is an ethical concept established by Immanuel Kant, and it states that an act that is not good morally can lead to something good. 

Deontologists believe and suggest that it is always wrong and unethical to lie and cheat others. 

This approach deals with the things that we might have to do even though we found them wrong. The approach also fits in the Theranos scandal. 

In the context of Theranos, the founder or CEO, Elizabeth Holmes cheated and lied to her employees, investors, and US citizens which resulted in the immoral behavior from the point of a deontological approach. 

Holmes made the employees of her company sign a non-disclosure agreement before joining the company. 

This agreement comprises that whatever activities are held inside the company’s premises must not be disclosed to others. The data must be kept confidential. If found disclosed, then they may have to suffer the consequences. This personnel was unknown about the dark side of the company and its founder.

Even though she was cheating and lying to them, they kept on working on her side, and patients were compelled to use Edison for their tests as this technology was advertised as the quickest, most effective, and most accurate machine for blood tests in the medical field history. 

Holmes misused the trust of her consumers and employees. 

She even cheated her investors who funded her in building the machine. 

The decision made by Elizabeth Holmes was not found to be the right decision. 

b) Utilitarianism 

Utilitarianism theory is based on one’s ability to predict the consequences of an action. 

It is the idea proposed by John Stewart Mill that promotes the greatest amount of happiness and pleasure to the greatest number of individuals. 

Utilitarianism can be analyzed in the Theranos scandal by the involvement of the employees, public, workers, etc. 

After exposing the truth of the company, all the employees and other personnel related to Theranos were found to be felt with unfairness and unhappy as they were found to be cheated and lied to by their founder. 

Patients would feel sad about the fact that the machines they were using for their health benefits were not found to be reliable and accurate. 

Moreover, the employees would feel disappointed because their prestige was harmed and some even had to quit their jobs as they were also associated with the company. 

An overall company along with the founder and CEO was found to be in a miserable condition since their company’s prestige has been affected and now they have to compensate for all the damage that they have done. 

Utilitarianism suggests the preservation of the greatest happiness for the greatest number of people but in this scenario, it is not found in practice as many individuals have to suffer because of this company. 

Thus, according to the Utilitarianism approach, it is found unfair and unethical so we can say that this scandal has violated the Utilitarianism approach.

c) Individualism Approach 

Individualism perspective focuses on two of the major ideas i.e. one is staying within the law and another is maximizing the profit. 

Before the truth disclosure, the valuation of Theranos was around 9 billion dollars. 

Originally they were not investigated by FDA and The Clinical Laboratory Improvement Amendments (CLIA) as they were pretending like they were working without violating the law but after investigation, they failed to create FDA approval. 

Theranos was even unable to meet the second idea of maximizing profit. 

At one time, Holmes was worth 4.5 billion dollars, then after the scandal, according to Forbes, it turned out to be zero dollars. 

As Theranos was unable to meet the ideas of Individualism therefore it is considered to be unethical. 

d) Violation of the stakeholder's or investor's right 

The scandal of the Theranos company also violated the rights of the investors or stakeholders. 

Theranos was cheating its investors. 

As investors trusted Holmes so she was taking the advantage in the wrong way. 

Holmes committed around 700 million dollars to defraud its investors. 

She lied about the present state of the development of her announced latest technology. 

If stakeholders knew about the truth of the technology, they would have penalized and punished the company so knowingly she was hiding the truth in front of her investors. 

She did not allow investors to research and investigate the technology. She strictly warned the investors not to ask about Theranos. 

By not saying the actual truth about Theranos to investors, they were violating the rights of the investors.

Professional Issues 

The main motto of the founder or CEO of Theranos company, Elizabeth Holmes was to create a great involution in medical history. 

She wanted the development of Edison machines which would change the concept of the medical industry forever. 

She desired to design an Edison machine that would test numerous blood tests quickly by taking only a small amount of blood from a pricked finger rather than multiple vials from a vein. This would have been the quickest, easiest, and most convenient blood test ever in the medical sector.

As the founder of Theranos Elizabeth Holmes, who dropped out of school to found the company lacked the experience in the health care background and medical sector. Due to this, she was unsuccessful in developing an accurate machine that would change the medical industry. Because of this inappropriate development of the machine, led to trouble in the medical field. 

The U.S. Attorney’s office for the Northern District of California cites a specific interview in which Elizabeth told the media that Theranos is capable of running many numbers of blood tests from a single drop of a blood sample which ultimately resulted in fraud. 

A Federal Bureau of Investigation (FBI) agent who investigated charged Theranos with misleading patients and employees and endangering their health and lives by providing inaccurate test results. This machine did fraud with the health of its patients and citizens. 

Theranos had been regarded to be the greatest threat to the medical industry as misleading to their consumer’s health. 

Finally, a code of conduct of the British Computer Society (BCS) i.e. public interest states that as being a computer-related technological organization, you must have due regard for public health privacy, security, and wellbeing of others and the surrounding. But it seems that this code of conduct was violated by Theranos. 

As they were not concerned about the health of the public. 

In the absence of a properly approved and successful software, they were performing the blood tests of the patients and gathering their data which resulted in the violation of public health and privacy. 

Elizabeth Holmes, being such responsible personnel of the nation her duty is to serve the citizens of the country. 

Working for the betterment and development of the country must be her number one priority but instead, she is misleading her talent by encouraging it in the bad deeds. 

She created great harm to one of the most essential sectors i.e. medical sector. 

By exercising fraud, cheating, and lying behavior, she played with the health of the patients. 

Because of such a misdeed activity, the one who desires to work and contribute in this particular field might feel embarrassed. 

He/she might not be able to gain the trust of the people. People might not take this matter seriously which leads to their failure. 

We can conclude that, even though being one of the responsible personalities, she violated professional ethics through the development of Theranos which resulted in massive fraud.

Conclusion 

The major purpose of the development of the Edison machine Elizabeth is for performing the quickest, most efficient, and most effective blood test by using tiny drops of blood from a finger prick. But all these expectations took a different turn. 

She began to lie and fraud to her investors and the public. 

It acknowledges us the lesson that we should not be too selfish. Being successful and rich by hampering others is not good. 

We need to understand that these actions might create a huge case in the future like in Theranos. 

Everyone must perform their task and duty by being under the government’s laws. 

In order to minimize the damage of the Theranos scandal, the company would have applied these steps: 

a) After the development of the machine, it should have been taken to the concerned authority for approval. 

b) Before joining Theranos, employees should have known the mentality and understood the code of conduct of the company. 

c) Holmes must not have lied and used a third-party technology for blood tests, instead she would have spoken out the truth and apologized for her deeds. 

d) If any misdeed occurred inside a company’s premises, then immediately a message must have been conveyed to the higher authority otherwise the situation might get worse. 

e) Employees should have disclosed the actual truth of the company earlier which may result in less degradation to the public health issues. 

f) Holmes should not be so cruel to its employees and workers and lying, cheating, and fraud to its investors and stakeholders also should not be done by them. 

g) Providing false hopes and expectations regarding the blood tests to the public also created mental tension in the public which should not have been in practice by Holmes.