their own lives that actually allowed them to change and i realized i -- >> you were yearning for that in some way? >> i was, i was. i didn't think anything was broken in my life but as i heard the stories -- >> you wondered who you could be? >> yeah. and so that became a driving personal -- >> what

welcome to commonwealth club. >> thank you for having me. >> john was actually asking me a little bit about the commonwealth club and i was happy to brag about the fact that it is a place where people of all opinions and points of view and political persuasions come and we can hear what they have to say, and it's a rare forum in today's world, where you don't just hear one side of the story. right? i think we should all give ourselves a hand for the fact that the exists in the world a place like this organization. well, we're here tonight to principally talk about your brand new book, title is not one that would make you buy it in an

airport store but the secondary title "secrets and lies in a silicon valley startup" that would catch my attention. but it's a fascinating story about a circumstance that i suspect many of you are familiar with, because it happened right in our own backyard. in fact, i shouldn't use the past tense because it technically continues to happen. and so what i'm going to do is not assume everybody has such a tact of familiarity that we can just get into the subtle >> let start with the executive summary of what brought you to write this book. >> right. well, i guess first i'll explain the story of theranos. a young womped named elizabeth holmes dropped out of stanford university, when she was 19 years old in the middle of her

sophomore year because she had a vision for a technology that she wanted to create. she wanted to be a successful entrepreneur. she very much wanted to follow in the footsteps of steve jobs, who she admired, and the original vision was for a wrist band that would have these microneedles that would draw minute amounts of blood from your wrist and diagnose you with what ailedout and simultaneously inject you with the appropriate drug and curious. -- cure you. she called it the tetherapatch it and was more scientific than it was reality, and she and her cofounder, realized that after a

few months and pivotes to something that was more inspired by the portable glucose monitors that diabetes patients use to mon her to their blood sugar, except she wanted her portable device to be able to do every blood test from just the pin prick of blood. >> host: how much is this. >> guest: the full rang of laboratory tests, anywhere from several hundred to several thousands, and no one had been able to do that before, so it was an -- still -- wasn't a wrist band but still an ambitious endeavor, and she proceeded to build up this company over the next decade. went through several iterations of the technology, and by late 2013 fall of 2013, via a

partnership with walgreens, commercialized her fingertip test in wall green stores to blood draw centers in the palo alto area and another 40 or 45 in arizona and became a star and a celebrity here and even beyond silicon valley. she got a lot of press coverage. she graced the cover of "fortune" magazine in 2014, clad in steve jobbesque black turtle next with a very catchy headline "the ceo is out for blood," and made -- became a fixture on the tech conference, the health care conference circuit, was invited to the white house several times. won various awards, was invited to join the board of fell lows at harvard medical school, and was fêted as the world's

youngest self-made female billionaire because, by early 2014, theranos -- she was worth almost $5 billion at that opinion. so in a nutshell, that's the store of theranos. >> we're going to loop back, but one thing that is interesting is -- well two thing is thought of. it wasn't that these blood tests became available. they became available retail. >> guest: right. >> host: so you didn't need a doctor to go through. exactly. the first part of theranos' history, the business model had been different. she pitched pharmaceutical companies and the idea was that pharmaceutical companies would use those user-friend, fast, painless finger fingertip tests

and patients in the clinical trials would have the theranos blood testing device in anywhere home and would prick themselves several times a day some pharmaceutical companies could save billions billions of dollan clinical trials or so she claimed. and it was only later in -- starting in 2010 that she pivoted to a direct to consumer model, and the -- there were two retail partners she wooed and one in particular, walgreens, is the drug store chain through which she was able to commercialize the technology. >> host: the other point, just to get our fact base here, is her board of directors, who was that? >> guest: so, in 2011, she met

george schultz, and you know who george schultz is, a famous former secretary of state, crafted the reagan'd meteorologist's foreign policy, is credited by many with winning the cold war. in his 90s now but remains a revered figure and republican circles and he lives right off the stanford campus, has always been very passionate about science, and when he met elizabeth holmes he was impressed with what she told him about her technology, and he soon thereafter joined her board, and then introduced her to his buddies at the hoover institution, the think tank on the stanford campus and that's how she got to meet henry kissinger, and bell perry, the former secretary of defense under bill clinton.

sam nunn, bill frist, and some former military commanders like admiral roughhead, and they all eventually joined the board, and so by the time, 2013-2014 came around, she had this unbelievable board of ex states american and retired military commanders who had incredible resumes. >> host: and general mattis. >> guest: yes. the current secretary of defense. >> host: they are all really smart, successful people, but what did they know about biochemistry. >> guest: that's right. not much. >> host: not much. >> guest: if you thought -- i think a lot of people were impressed with this board and few people stopped to think, what does george schultz and hen henry kissinger and sam nunn and jim mattis know but medicine and

lab testing in particular. i think there were 12 men on the theranos board and only two of them had any connection to medicine whatsoever, and none of them had any expertise whatsoever in diagnostics. and so if you thought about that for a second, that was major red flag. >> host: it was either a tell or it was a great reason to invest. >> guest: right. right. and there's this hedge fund based in san francisco, called partner fund management, that met with elizabeth and sonny, her number two executive who happened to secretly be her boyfriend in 2013 and 2014 and tried to do due diligence and were lied to about many things including revenue projects and binds over data that weren't

real, and so on and soing for. one thing that sold them on theranos was the board of directors. they were really impressed by the credentials of these people, and it didn't occur to them that a startup with aboard that was that impressive could be up to no good, not to mention that the lawyer keeping watch on the shop was david boyce. >> host: of bush v gore. >> guest: right. >> host: so let's loop back because a lot of your book is about cultures of the company from where it -- how it started originally and how it evolved, particularly when the walgreens and safeway situation. give us some insight into some of the anecdotal examples, for example, of the way the company work.

>> guest: so from early on, the culture of theranos was run of secrecy see and paranoia and elizabeth liked to compartmentalize information and to keep the overall picture of the devices' development to herself, and communications between, say, the engineers and the chemists wasn't necessarily encourage he. she also fired a lot of people during the early years. there was constant turnover. i would say this culture really went into overdrive when her boyfriend, sonny, who was 19 years older, whom she had met when she was just a teenager, before even starting her undergraduate studies -- >> host: his software -- >> guest: came from a software background and had gotten wealthy at the very top of the internet bubble when he had

joined a tiny startup a few months be the tech bubble popped, and a couple months before it got acquired for some $250 million and he walked away with more than $40 million, and so when elizabeth first met him, coming out of high school, she saw him as this successful older silicon valley entrepreneur and she wanted to become successful and wealthy, and he became her sort of adviser, the guy who would teach her about business and silicon valley. and eventually they became couple, and he divorced the artist he had been married to and moved to palo alto, bought a condo, she moved in with him in 2005, and for the first five, six years of the company, he was her adviser behind the scenes

but didn't actually work at the company. and he -- that changed in late 2009, at that point theranos has burned through $47 million it had raised in three rounds, and was on the verge of bankruptcy and he stepped in and agreed to guarantee a bank credit line that the company took out to stay afloat. at that point he joined the company as a number two executive, the president and chief operating officer, and then that early culture of paranoia and secrecy really went to overdrive with him. he had a very short temper, and the firing, if anything, increased to point that a new expression was coined inside theranos which was to disappear someone when colleagues no longer showed up at the office.

their former colleagues would say, well, sonny disappeared him or her. and as i recount in the book, it was just a constant stream of firings. also people, quite a few employees, who left of their own volition because they had developed qualms, and they didn't want to be a party to what was going on knee. but really an unhealthy culture, and i was at kepler's becomes doing a talk and a become signing in men low park -- menlo park and there war quite a few ex-theranos employees who came, and then a lot of them got in the line, the book-signing line, and some of them didn't know one another because they had work at the company during different eras, and they called themselves

theranos survivors and i heard them you the term in the line. so there is want aspect of working at largely working at theranos was not a pleasant experience because of the culture. >> host: the reason this is important is not because of the anecdotal nature of it but because you expect exactly the opposite in this uniform startup companies, particularly those who are intending to be disruptive in the industry. you think it would be open space. everybody talking to each other. the ceo sits with everybody else and talks and there's chatting and cross-talk. that's how ideas percolate up. right? >> guest: right. at a certain point -- theranos is the story of a young startup founder who had a habit of overpromising to raise money, and with the years the

overpromising got worse and worse and the gap between where her technology was and what she had promised became enormous, to the point that when they went live with the blood tests in walgreens stores in the fall of 2013, the gap was so huge that they had to cheat and they had to hack commercial machines to try to uphold thissing my that they had actually created new technology. part of the siloing and the secrecy and the paranoia became to hide the shenanigans, and when i finally published my first story in october of 2015, a lot of moneyees weren't even aware -- employees weren't even ray ware of what they had done in the lab and weren't aware that only the few of the blood tests were done waiver their nose device and most of them

were done with these hacked machines because there was a fingerprint scanner to get in the lab and if your finger had not been scanned and preapproved, you couldn't get in there and didn't know what was going on. so, the culture became about hiding not just what they were doing from the out but also hiding from many employees on the inside what was going on. >> host: that's in a sense the board was a tell. that in sense a sense is another tell. if you were really committed and felt you could do it, you operate 180 degrees different. let's go back to the first -- maybe what in my mind at least what's first encounter with underperformance, the novartis tests. >> guest: the prologue is about -- the book is the chief financial officer at the time, sees elizabeth holmes in several

of her colleagues -- this takes place in november of 2006 -- come back from a demonstration at the device in sitter waned at novartis, one of the biggest pharmaceutical companies in the world, and she is excited and happy go lucky, the way she usually is, but the employees who went with her are not and look like something has gone wrong. accomplish so he wanders downstairs and tries to fishing out what happened, and he approaches sean roy, elizabeth's cofounder, and she -- he wasn't sure what happened in switzerland but he gleans that actually the demos they have been dog -- doing for investors noter real because the blood test results at the end of the demos are prerecorded and not in real-time. and the yfo who has been there

eight months -- the cfo is stunned because he is the one who has been bringing around all these investors. >> and making projections. >> guest: yes. under the impression the demos are real and they're certainly under the impression they're real, and he learns they're not. and so he decided to confront elizabeth and goes to her office, meets with her, and tells her that this is a line that they can't cross. it's okay to be aspirational as a startup founder but you can't essentially lie and mislead investors. that's securities fraud. and she sort of switches flipped and goes from happy go lucky to ice cold and she looks at him and says, you know, you're not a team player. i think you should get out of here right now. and it's clear that she doesn't just mean out of her office. she means from the company.

she means her is -- he is fired. used that scene as a prologue because it was a good way to hook readers, and make them turn the page, but i also thought that it was emblematic of the fact that at this company, the unethical behavior isn't something that suddenly happened late in the game, where suddenly they were painted into a corner and crossed -- and cut co-ers. it was -- cut corners. actually started very early on and that scene flakes schaeffer founds the company, she's 22 years old, and shows that the unethical behavior was part of the dna of the company. >> host: then the tennessee tests. >> guest: right. then when they were still -- there were three it racings of the theranos technology and the first was a microfluidic system

which refers to the field that has repurposed the microfabrication techniques that were pioneers by the computer chip industry to move tiny quantities of fluids, and that field was just coming up when elizabeth holmes launched her startup and there was a lot of excitement about it, and they made a real effort to build a microfluid fluidic must testing system but it wasn't walking and she lost patience and she was probably under pressure because she had made all these promises to investors and she pivoted away from it but in 2007 she already started a pilot study with pfizer where the system has been installed the home's terminal cancer patients in

tennessee, who are in clinical trials getting antitumor drugs, drugs that will arrest the growing of their tumors and hopefully buy them few more months of life, and back then there were some employees that sort of realized that it wasn't right to use a blood testing system that didn't work at all and to -- and granted, one thing to bear in mind, i is back then the theranos blood tests were not used to inform the treatment of cancer patients. it was validation experiment and they were to be compared with the blood -- the regular blood test that pfizer was doing the regular way. but employee were still appalled that these terminal cancer patients in tennessee were being put through these needless finger stick draws several times a day for a technology that absolutely didn't work.

then in the middle of that pilot study, she pivoted away from the microfluidic platform which was a glue dispensing robot. an engineer ordered a glue dispensing robot. >> host: made to dispense blew. >> guest: yes, and affixed a pipette at the end of the robotic arm. it had three degrees of motion, forward and back, left and right, and up and down, and he reprogrammed the robotic arm to sort of mimic what a lab scientist would do at the bench when he was testing blood, and employees, when that pivot to this machine happened, some employees felt let down because it was a huge step down from the microfluidics and so they took to refer to this machine as the

glue bot, and -- but elizabeth holmes was excited about it. she had a well-known industrial designer, design a sleek black and white case for it to hide the innardses and she krisened the edison after thomas edison and this happened as they were -- this pivot to what was essentially completely different machine, and a much more rudimentary one, happened the middle of this validation study using these cancer patients in tennessee as guinea pigs. >> host: you remind me, actually, maybe something went over too fast, is that her whole model is based on using capillary blood as opposed to blood from your veins. explain why that's a big difference. >> guest: well, it's not just the fact that you're getting such a small sample of blood.

it's also that cap blare blood tend -- capillary blood is polluted from by tissues by cell. and you're not getting as pure a sample of blood as you are when you're doing it with a needle from the arm, and one problem in particular with capillary blood is known as lycis and when we're picking the finger and milking it to get the blood out, often you're putting stress on the red blood cells and they explode, and that creates more -- releases potassium and creates more potassium than there would be in the blood so a problem that no one has solved with finger stick if with cap blare blood is the -- capillary blood is the potassium. there have been studies showing that potassium tests are completely unreliable when they're done on capillary blood,

and as i recount in the book, that's one of the big problems that theranos encountered as well. >> host: how do you interpret this obsession with steve jobs? >> guest: so, first of all you have the history of the holmes family. her ancestors for the fleischman yeast family, some of the richest people in america at the turn of the 20th century and he father raised her with the knowledge of their great success but also with the knowledge that the later generations of the family squander the wealth. his grandfather lived a veer heedonnistic lifestyle on an island he purchased in hives and squandered the money and his son squandered the rest and she was

raised with this notion that once upon a time, the holmes had be wealthy people. at the top of sort of the -- >> host: that they were elite. >> guest: the elites elites of a once upon a time and that was no longer the case. she had this desire to recreate that, and she was also -- steve jobs and silicon valley, she starry eyed about it and steve job was her idol and she reveressed apple and her mistake his modeled hems after jobs and the compute are industry, after the traditional silicon valley tech industry. and instead she should have

modeled herself after perhaps the biotech cluster in south san francisco that have been doing real medical science but he cheese as her model the computer and software industry and it wasn't the right model. there's been this culture for a long time now in silicon valley of fake it until you make it, and the term "vapor ware" was coined in the early '80s to describe computer software or hardware announces by a company and. the delivered or delivered years late without the features that were promise its. people like steve jobs and larry ellison were accused of engaging in tis program and looking at it from the point of vow of elizabeth holmes, that's okay because they did make it and become the real thing with real products and were jug are knotss

and their -- juggernauts and they were icons and her plan was to use the same playbook but the problem is you can't roll out vaporwear in medicine and the end consumer is not someone using a buggy smartphone app. it's a patient who in this case is relying on a blood test result to make crucial medical decision, and i think she either lost saying of that or conveniently ignored it, but the traditional silicon valley playbook is not applicable to medicine and unfortunately she trade to apply it to medicine. >> host: if my app crashes, it's fine, but if i get a false negative on a blood test. >> guest: twitter was famously buggy. it would knock work for hours at a time -- it would not work for

hours at a time and the consequence was frustration on the part of users but didn't put anyone in danger. >> host: speaking of putting people in danger, are want to go to the walgreens/safeway part. we kind of have i think a general assumption that large institutions have checks and systems in place so that they don't get way out on a limb. how did walgreens get -- >> guest: it's one of the craziest parts of the story. there's a chapter in the book, i think it's chapter 7 of the book, where i recount walgreens' attempt at due diligence, if you call it that, when elizabeth and sonny first approached walgreens in early 2010, and they assert to walgreens they have this

technology that can do hundreds of tests off just a drop of blood, very quickly, cheaply, et cetera. in fact, the last iteration of the technology -- they started working on in late 2010 and that's a big lie. walgreens should have been able to figure that out because they hired a laboratory consultant named kevin hunter to kick the tires and to try to check out these claims and to try to do some verification, and he even flew out and met with elizabeth holmes and sonny and other employees twice in 2010, and he started asking tough questions and he started suggesting they do things like 50 patient comparison study with stanford, and elizabeth and sonny didn't like this questions at all, and after a couple of months of this, they told his superiors at

walgreens, we don't want this guy in meetings anymore. they were -- they either had these in-person meetings once a month or every week, this video conference calls, and they wanted him excluded from the meet examination from the video conference calls, and the unspoken threat was that if walgreens didn't exclude hunter from the meetings going forward, they would walk away, and walgreens was terrified that theranos would walk away and then go to cvs, it's archrival, based in rhode island, at walgreens, people had this tunnel vision which was we're in a battle to the death with cvs, and everything we do is -- we would see it through that prism and they were terrified that

theranos would go to cvs and strike a feel and they would regret it for the next 20 years. i think it's fire say the fear of missing out, otherwise known as fomo, played unfortunately a big role in walgreens dropping the ball and excluding kevin hunter. he remained their consultant for a while longer but kept at arm's length. his role -- they made it impossible for him to do his job, and as a result, walgreens never really vetted the supposed theranos technology, and then that was a really important part of the -- important part of the story because everybody assumed walgreens, that's been around for more than 100 years, surely they've done their homework, right? surely they kicked the tire is. woman be rolling out a -- wouldn't be rolling out a medical technology that people rely on to make health decisions without having done their

homework, and everybody assumed that walgreens had checked this out and, therefore, ifs was good enough for walgreens, it's good enough for me. >> host: how far down the road did they get with regard to actually testing customers at walgreens into by the time i started digging into the company they had commercialized the blood test in walgreens stores for more than a year and a half. and they were in more than 40 locations. most of them in arizona. they chose arizona because arizona's policies are very pro business and light on regulation, the other reason is the phoenix area has high concentration of uninsured patients and theranos liked to advertise it's very low prices and it's true it offers low prices and now that the patients who would be sensitive to low

prices were the patients who actually had to pay for their labs, uninsured patients, because insured patients and medicare patients have their labs covered by insurance. >> host: what did they do about the fact that the technology didn't work? [laughter] >> guest: right. i mean, that's where it gets unbelievable. they would try to validate tests -- so the minilab, the last version of the technology, they edison -- the second generation of the technology was limited in that it could only do one class of blood tests, immunoas says and there are a half dozen classes of blood tests and the minilab would do the other classes of test but by the time they rolled out the finger stick tens the minilab was a prototype that didn't work. i it was years from functioning so they couldn't exactly use that so they dusted off the

edison, and they tried validating some finger sticks tests on the edison but according to my source, i learn subsequently when i started digging into the reporting, that the validation experiments they ran were very shoddy and they cut all sorts of corners, ignored data points. very well-known in science you don't ignore any data. you don't eliminate any data points. that's scientific fraud. and they were engaging in this type of behavior because they were trying to get the validation reports from the blood tests to look the way they should look in order to put the tennessee online and so they did put about a half dozen tests online on the edison that weren't reliable, and because the edison could only do immunoas assayses that ha to --

they hacked a machine called the siemans 1800, pug hulking commercial analyzer that isn't made to test tiny samples of finger stick blooded but had the bill brilliant idea they could adapt this machine to finger stick and they diluted the blood, the samples to create more volume because the machine was built to test normal size samples of blood. so to create more volume they would dilute the blood and there were several problems with that. oner is there's already a dilution step in the protocol so this amounted to double die luigs and when you alter the sample multiple times, you create more room for error.

the other thing is they were diluting the sample so much, the analites, the concentration was so low it fell bee anything the fda approved analytic measurement range of the machines so meant using the machines in way the manufacturer did not intend and the way the fda had not approved them and led to another series of unreliable tests. >> host: that patients now were actually getting. >> guest: right. they did about -- i think they did 80 tests using this hacked method with the machine. >> host: well, we could go on and on about this element but i think you have pretty well established that -- i won't use the term scam -- of the -- i want to go now to where you become part of the story if i

can put it that way. were you first sniffed out something was different here and how that led to your investigation. >> guest: right. so, theranos and elizabeth holmes first came on my radar when i read a profile of elizabeth holmes in the "the new yorker" magazine in late 20 14678 she had become a celebrate, about a year or more since she had risen to fame and she had graced the cover of for money magazine and that was in the first time i discovered the company exist and this young woman founded it and then i learned of the company's valuation and of her great wealth, and there was a thing -- a couple things but one thing in particular that struck me is odd as i was reading that new yorker profile on the subway home from

manhattan to brooklyn which was this notion at a 19-year-old college dropout with just two september -- semesters of chemical engineering just drop out and pioneered groundbreaking new medical science. this is happened before in silicon valley. there have been press dens with mark zuckerberg and bill gates and taught. thes how to code and program on a computer when they were young, legend has it that zuckerberg taught himself how to code on his father's computer when he was ten years old, and that's believable. you can do that with a computer manual and you spend hours hourd hours at a key board but you can't do that in medicine. in medicine you have to have formal training go to medical school, often do a fellowship, get your

ph.d, do post doctoral studies, do years of research, sometimes decade of research before you start adding value, and as i say in the book, it's no coincidence that most nobel laureates in medicine earn their nobel prizes in their 60s. takes a lifetime of training and work to add value in medicine, and i knew that. so i smelled a rat. but to be fair, i might not have done anything with that hunch if i hadn't got an tip three or four weeks later, and the tip came from a clinical pathologist who was based in the midwest, who wrote an obscure blog called "the pathology blog" and spilled it blawg and i don't know how many readers he had but i wouldn't speculate it was much more than 10.

and i had come across him, the previous year, doing a series of stories on medicare fraud and abuse, and i had sought his acity is dance, trying to understand lab bore billing and how clinical labs billed medicare and he had patiently explained the arcane art of laboratory billing to me and i used that knowledge to expose the scam at a network of cancer centers but hat nod spoken to him in seven or eight months, and he called me because he had read the new yorker story, too, and knowing a thing or two about blood testing, had been immediately dubious about the claims in it and had quickly posted a short skeptical item on his blog, and he had been contacted almost immediately by a little band of theranos skeptics, one was this guy,

richard fuse, who was a childhood neighbor of elizabeth and her parent when the lived in washington, and was a medical inventor and entrepreneur and this is sort of a crazy plot twist but when elizabeth dropped out of stanford and founded terrance know, he and his wife, lower rain -- lorraine, were fill friends with the holmes and fuse is a very proud -- i would say even vain man and his pride was hurt that the holmes hadn't sought his advice, even though they knew very well he had decades of experience pat depthing medical inventions and building and sells companies. so, at the same time he thought elizabeth's vision had merit so he had gone on the theranos web site, check it out, listened to an interview on npr and figure out there was one part of her vision that she probably hadn't

pat tenned, the alert mechanism to alert doctors when a blood test result was abnormal, and he had gone ahead and filed a patent, and patented that -- and which -- is probably not a very nice thing to do. and she didn't immediately -- she and her parents didn't immediately know he did that but eventually did because the patent applications are made public in the uspto's databases after they're filed, and then elizabeth had come to develop this theory that he had used his son, john fuse, who had worked at the same law firm that theranos used briefly for its patent work and she developed a theory that john fuse had stolen information from theranos' on provisional patents and given it to his father, and i looked at those allegations very closely,

and the litigation that arose from them, and came to the conclusion that what fuse had done wasn't very nice but he had not stolen any information from theranos, but she sued him in 2011 and that litigation went on for three years, and she hired david boyce two litigate that case, and through the litigation, fuse, who had a background in medicine and was a trained physician, had become convinced theranos was a scam. he told the pathology blogger of his suspicions and he had just made contact with an employee who just left theranos, who was the outgoing laboratory director. when i heard that i was very conscious of the fact that the pathology blogger was three

times removed from any primary information and fuse himself women talked to was a second hand source but the fact i was being told there was a prime primary source who left the company and was alleging wrong-doing. >> host: the lab director. >> guest: from then on it was my mission was to get this lab director on the phone and make contact. did after a couple of weeks, and he was terrified. he was being hounded by theranos lawyers. he had sent a bunch of e-mails to himself to his g male -- gmail account and they were pressuring him to delete them. he hired a lawyer. she was not -- she definitely wasn't competent to take on his case and go up against boyce, and she was intimidate by the

heavy duty lawyers on the other side, and he was under stress, and so he would only speak to me if i granted him confidentiality and i did. figured all i had were rumors and innuendo if i couldn't get this guy to talk and i promised him i would treat him as an anonymous source and would guard his identity which i still do because he is identified in the book under a pseudonym, allen beam, during that first phone call with allen beam that lasted an hour or more, learned bout the fact that very few of the blood tests were done on theranos technology, that the edison machines were faulty and most tests were done on commercial instruments that hey had modified, that elizabeth and sonny were a couple and were hiding it from the board of

directors, from employees, from the public. henry kissinger was quoted in new yorker piece as saying that she and his wife had tried to set elizabeth up on dates, so it was clear she was lying to her board but the relationship. so i pretty much immediately knew this was a big story and especially the part about gambling with patients' health and lives, and at the same time the journal wasn't going to let me go to print with a story based on just one source. however good that source was. if? source was anonymous, and so it became a game of corroboration and over the ensuing months i set about corroborating what allen beam was telling me, and that is how i came across other former theranos employees, one of whom was tyler schultz, and george schultz's grandson, and

he worked there eight months and had come to the conviction it was fraud and a scam, during his eight months, and at the tail end of his eight months trade to alert his grandfather and open his eyes to what was going on, and george hadn't believed him, and so he had to leave theranos and keep all of this bottled up for a year, and then when i started poking around and calling a lot of his ex-colleagues he heard that this journal reporter was poking around and so he looked me up on linkedin and at that point allen beam had told me about tyler and said he might be someone you can trust. i thought the connection with the grandfather was interesting. and as you know lynched n -- linkedin has a feature that enable yourself to check out your propile and i noticed when tyler schultz check out my profile so i sent him an e-mail

through linked n and didn't hear back from him for a mock and was making headway with the story in other ways, and then when i had sort of lost hope he would get back to me, my phone rings one afternoon and the journal newsroom and it's tyler, also terrifies, very nervous, calling from a burner phone, because he was worried that theranos would trace our communications, and i had to grant him confidentiality as well, otherwise he wouldn't talk to me. but once i did, he gradually got comfortable and could tell he wanted to unburden himself and his story came pouringing forthd that add an unbelievable twist to the story, the tyler-george axis. >> host: so, -- last raft --

[laughter] >> host: last part of this, though, is you finally decide to publish. right? >> guest: right. >> host: october 6, 2015. >> guest: the company -- tyler had good reason to be paranoid, as did allen beam, because the company did figure out they were among hi confidential sources and threatened them, and there's a surreal incident that is recounted in the book about the way tyler was ambushed by theranos lawyers at his grandfather's open house, and then had to withstand months of legal threats, theranos wanted him to sign documents basically recanting, and also naming my sources and tyler withstood this

pressure and never caved and i was able to good to press with the story in october 2015. >> i want to get to audience questions because they're better than mine. but tell about how you were treated once you published the story, and it's like -- >> guest: yes. so, the story was published on october 15th, 2015, which i think was a thursday, i think, and elizabeth holmes was in boston for her first meeting of the harvard medical school board of fellows, and so she went on cnbc from boston. she spoke to jim crane and theranos let it by known she be base which i rebut the "wall

street journal." i was already working on a secondary story because i had gotten wind before we went to bed with the first story, that the fda had inspected the company but i hadn't gotten confirmation and was finally able to get confirmation the first story was published. i was on deadline for the second store. she came on, kramer, in the afternoon. >> host: that's the mad money program. >> guest: yeah. was standing over the shoulder of an editor and stopped and turned up the volume on the tv and he played the role of the aggrieved startup silicon valley entrepreneur who is being attacked by a reporter in league with her competitors, namely quest and lab corp and this entrenched duopoly that is

pulling my strings, and then kramer, owl though it's a friendly interview, asks her about some of the allegations in the article and she proceeds to dodge and possible and weave and that night she flies back to palo alto to address what is beginning to be a growing crisis because my second story comes out that reveals the fda has just done an inspection and has taken away from their theranos the able to use its blood vial which meant they could no longer do finger stick testing, and that evening late afternoon, california time, she and sonny gather employees in the cafeteria of the theranos headquarters on page mill road in palo alto and she gives a defined speech about how i'm just -- this biased reporter out

to get her and miss reporting is seeded by competitors and by disgruntled employees and how she is going to take on the "wall street journal" and the "wall street journal" is a tabloid, she says, and then sonny goes on and he gives a sort of defiant speech as well, and three months earlier, the fda had approved one of theranos finger stick tests, herpes test, and it had been a big moment of victory for theranos and they celebrated in the same cafeteria, and sonny led the assembled employees in a -- i don't know if i'm allowed allowy this word but an f-u chant and they were directed at quest and lab corp. at the end of -- now we're back to two days after my first story, and toward the end of

sonny's speech, one of the senior hardware engineers asks him if he can lead them in another chant and everyone immediately understand what he means, which chant he means, and sonny is happy to indulge him and they start chanting fu carreyrou, and that -- and then about a week after that she came to our technology conference in laguna beach, a lot of people were wondering whether she would come, and she came with her big security detail, and she sat on stage and sat through half hour interview with our technology editor and there was so much interest in the story that the journal live streamed it on the web site and i couldn't go out to california, so i watched it from the newsroom in new york,

and she told one baldfaced lie after another over the course of the half hour, and suspect shed would come out swinging and would deny, but her willingness to lie in public in front of an audience, and really say things that were verifiably false i thought was stunning. the early weeks after the story were -- the response was that the "wall street journal" is wrong and we're fighting this, and john carreyrou is a rouge report. >> host: i suggest when you read this book, just like they say, don't use your computer like awe half an hour or 45 minutes before you want to go to sleep. don't read the laster part of this book before you want to go to sleep.

it gets to real john lecarre page turner. want to go to audience questions because they're really good. not going to be able to get to them but going to try to consolidate some themes. one is suggests that this -- a lot of scams start off as scams. >> guest: yep. >> host: and -- but this did not. this started off as a bona fide effort. >> guest: right. she didn't -- i mean, i fully believe that she did not drop out of stanford at 19 with a premeditated plan to defraud investors and put patients in harm's way. she dropped out this is the idealistic, young entrepreneur or would-be entrepreneur, who really did want to follow in the steps of steve jobs and had this

idea, this cool idea and wanted to make it happen, and she had this charisma and she raised a lot of money over the years, and made some progress building a device, never really got there, and soon started overpromising and lying, exaggerating, and the lies got bigger and bigger and over the course of 12 years, it became a giant lie. ... >> eventually i'll get the technology -- >> right. >> -- to deliver on what i've promised, and it will work, and then it will be a great advance for. >> right. >> -- you know, laboratory

medicine, and it'll be for the good of society. >> yeah, when you see her interviewed, she's quite passionate about the long-term social benefit of -- >> and i think a large part of that is genuine. >> yeah. that's my, that's the point. and many people are curious about so what has happened to the company now. >> uh-huh. >> what -- >> so the, elizabeth holmes laid off another hundred employees about a month and a half ago, so the head count of the company is now down to about 20 people. it's a shell of what it was when i started digging into the company. it had 800 employees and had this beautiful new headquarters on page mill road in palo alto. they have long since abandoned that pricey real estate, and now the 20 employees left are in a manufacturing facility across san francisco bay in newark.

the sec has charged her and sonny and the company with fraud. she settled the fraud charges without admitting or denying wrongdoing. she was fined a half million dollars, relinquished most of her shares and her controlling interest in the company and agreed to a ten-year officer-director ban on a public company. a lot of people feel like that's very light punishment given the magnitude of the wrongdoing, and it's really a slap on the wrist. and to those people, i say don't forget that there's another investigation that's ongoing, a criminal one spearheaded by the u.s. attorney's office in san francisco. >> uh-huh. >> i'm told that's pretty advanced. >> yeah. >> and that criminal charges are very possible and even likely. in terms of the company, the company probably has another two months before it runs out of

money and then will be liquidated. i expect it to cease to exist by august. >> and another kind of overarching question that appears here is what have we learned from this. i mean, the v.c. community, what have they learned? the walgreens and -- everybody was affected by this. is there, are there takeaways? >> right. i mean, i think that in recent years we've come to lionize, you know, these tech entrepreneur who create these companies and become fabulously rich and whose, you know, creations do impact our lives when you think about facebook and twitter -- >> right. >> you know, these are are products that we use every day. and we tend to forget that these are young people, barely adults. you know, she was 19 years old when she dropped out. basically a kid.

with the amount of money that's gushed into silicon valley in large are part because the fed has kept interest rates at rock bottom for ten years after the great recession, so people were no longer able to get returns, you know, from traditional investments like bonds. so i think that contributed in a big way to this enormous flow of money into silicon valley are. and people like elizabeth holmes and these young founders were able to dictate the terms and to do whatever they wanted. and in fairness, keep more than 99% of the voting rights. >> yeah. >> the board couldn't even, the board of directors couldn't even reach a quorum without her. i mean, it was -- that was not a real board of directors. >> right. >> it had no powerful whatsoever. and it's also given rise to the situation where these companies, because they have access to so much money in the private markets, put off going public for a long time and are are able

to continue operating not in a transparent way, at least not as transparently as they would have to if they ipo'd and they suddenly had to, you know, put out earnings every quarter or and put out annual reports and answer analyst questions. >> and peer review. >> yeah. and then i would say another, another big lesson here is that she modeled herself after the traditional silicon valley, you know, the silicon valley that started with the microprocessor industry in the '50s and '60s, that became the personal computer industry, that became the internet industry in the late '90s and now essentially smartphone apps and companies like uber. but that's not medicine. >> right. >> and increasingly, there is a convergence between traditional tech and health -- >> particularly with a.i. coming in. >> right. and so increasingly there's going to be this convergence. and i think the they theranos sy

is a cautionary tale to everyone involved in this health tech space that you always have to remember that when you're building a device that is ultimately a medical device used for medical decisions, that your end customer is the patient. >> right. >> and that you should always have the patient in mind. and that vapor ware doesn't knew. >> right. [laughter] the blue screen of death. the last question, because one of the lingering -- from here, again -- one of the lingering thoughts that she had which was really a paradigm shift in medicine was the retailization, i'll call it, of blood testing so that we could go to walgreens and find out what our cholesterol level is or whatever we were interested in.

is that going to occur, do you think? >> i mean, that was not necessarily a bad idea. one of the ironies of the theranos debacle is safeway, you know, invested $350 million in remodeling the pharmacy sections of its supermarkets, and for years now these areas have been -- these little clinics have been empty. but in the past couple of years, a place in arizona has reached a partnership with safeway and is offering blood tests to retail consumers. hopefully their results are more reliable -- [laughter] than ther narcs -- theranos. one thing to bear in mind, elizabeth liked to advertise how low the prices were, but that was a fiction too. it was not a fiction in the sense that they weren't offering

those prices, they were. but what was a fiction was that the company -- that that was a business model that could work and that the company could actually make money that way. there really was no secret why that theranos was going to make those low prices profitable. it had the same costs as other labs. and lab testing, you know, there are enormous costs; costs of equipment, cost of personnel, cost of shipping, the blood samples is an enormous cost. >> and regulatory costs. >> and regulatory costs. and theranos had made none of those costs really go away, so that was a mirage, the low prices were not something that was sustainable. >> well, we are out of time, but i -- there's two ways for you to follow up on this. number one is get this book and read it -- [laughter] second is wait for the movie to come out.

[laughter] tell us who is -- [applause] thank you very much. [applause] [inaudible conversations] >> here's a look at some books being published this week. in the death of truth, former book critic for "the new york times" takes a critical look at political discourse in the united states. fox news host judge jeanine pirro defends president trump against many of his detractors in liars, leakers and liberals n. blood and ivy, paul collins describes the murder of dr. george parkman who went

missing while visiting his alma mater, harvard medical school, in 1849 and the succeeding trial that captured the country's attention. and in bad call, mike scardino recalls his time working on a new york city ambulance in the 1960s. also being published this week, investor george gilder argueds that the golden age of google and other tech companies is coming to an end in life after google. and the 19th century american seamen and merchants who competed for profits in barrons of the sea. hook for these titles in bookstores this coming week and watch for many of the authors in the near future on booktv on c-span2. >> i thought they were huffing glue like everyone else because, you know, they said these things that sounded utterly, supremely racist and bananas, but they would say that, you know, if we field the right candidate, our message -- which is, you know,

close the borders, build a wall even, bring the troops home, all that kind of stuff -- they believed that if they got the right candidate to say these things, they could get, gain some power. and i thought they were nuts until around 2016. so it turns out, like, they were in a way right. i mean, they knew back then that white voters in america would be willing to accept this ideology, this mind frame if conditions were right. and then suddenly conditions were right. >> and matthew, when does he start doing his, like, i'm going to start uniting all these french groups into a party that really makes sense? >> i think he always wanted to, but it was never really the right time because he was -- he's a young guy. >> right. >> and you've got to be, you've got to sort of become a known entity in the far right, and then he tried to start his own thing. he was relatively well known back in 2012, 2013 because he

had this thing called the white student union that was a white student union that he started -- [laughter] yeah. but he started at town wepped university in -- town university in maryland, and it spread to a few campuses until colleges, this is not good. all student organizations need to have the faculty advisers, and this thing had a faculty adviser, weirdly, and they said, no, you cannot be this faculty adviser. so after that he decided to form this political party which at that time was very like a proto-fascist, it had elements of far-left ideology. it was very pro-unions and workers and all this kind of stuff. >> kind of populist. >> yeah, he was very populist, but he never -- i guess he looked out at the movement itself and realized that we're too small and fractured for us to be, for us to be able to gain

any kind of semblance of power. so i think at that time the seed of, like, let's form something, let's get something going started. and he started reaching out other groups. and he's, you know, he's a talkative, convincing guy, so he was able to pretty early start growing the pie. he went to skinheads in pennsylvania, he went to skinheads in california and recruited them. he went to the league of the south in the south is and was able to recruit some of them. and then finally, he came across jeff scoop who's the leader of the national socialist movement which is the large neo-nazi pageantry, you know, dress up in ss uniforms we talked about. and he was also looking for more members. that's kind of why -- that's what all this comes down to. it comes down to block recruiting. i have 15 guys, you have 20 guys, let's have 35 guys. and so they were able somehow to put aside all their ideological

differences. and for a group of people who all exist in that one scene on the far right, they have a lot of differences. they can agree on very little. but they still managed to get together somehow, and that's where we are now. there's an alliance of sorts. >> you can watch and other programs online at booktv of.org. booktv.org. >> you're watching booktv on c-span2, television for serious readers. here's our prime time lineup. at 6 p.m. eastern, former house speaker newt gingrich offers his thoughts on the impact that trump administration policies are having on america and around the world. then at 7:15 eric posener argues that a truly free market can lead to greater equality, prosperity and political cooperation. at 9 p.m. on booktv's "after words" program, amanda carpenter, former senior staffer to republican senators jim demint and ted cruz, argues that president trump is using

gas-lighting strategies to manipulate the american people. she's interviewed by new york daily news columnist s.e. cupp. and we wrap up our prime time programming at 10 p.m. eastern with investigative reporter seymour hirsh who talks about his life in journalism. that all happens tonight on booktv on c-span2, television for serious readers. >> you guys are quiet. [laughter] that never happens. good evening. i'm mark updegrove, the presidency of the lbj foundation, and it's my pleasure to welcome you here tonight the. first a little housekeeping. i want to the thank the st. david's health care, the ford foundatio