Elizabeth Holmes, once lauded as the world’s youngest self-made female billionaire, faces criminal charges and up to 20 years in federal prison if she's convicted. Yahoo Finance’s first original documentary turns the page on the meteoric fall of Holmes and her blood-testing startup, Theranos.

Video Transcript

ELIZABETH HOLMES: Asking yourself whether you're wrong is a really good thing. If you really feel strong conviction that you're doing the right thing, then keep going.

ALEXIS KEENAN: That ideology is shared by some of the world's most ambitious creators who flock to Northern California with a dream. They seek like-minded encouragement to move fast and break things, and even fake it until they make it. Those principles can come at a cost, always for investors, often for entrepreneurs and their employees, and sometimes for the public at large. And for one entrepreneur once lauded the world's youngest self-made female billionaire, the cost could add up to years in federal prison. This is Silicon Valley, a hub of innovation that's often coupled with sleight of hand. I'm Alexis Keenan, and this is "Yahoo Finance's Presents".

Nearly a billion dollars gone bust, swallowed by the opaque Silicon Valley biotech startup, Theranos, whose founder, Elizabeth Holmes, faces 20 years in prison for a pitch pushed to extremes.

ELIZABETH HOLMES: I knew that I could do something that would be different than what everybody else is doing.

ALEXIS KEENAN: She said her technology would revolutionize health care miniaturizing a suite of common blood tests down to a few drops. The technique would democratize diagnostics, driving down cost to make tests so affordable that consumers could access periodic snapshots of their personal health over time. It was a story that Holmes told with unwavering conviction.

ELIZABETH HOLMES: If you watched a movie and you took one frame out of that movie, and said, OK Elizabeth, tell me the story. I would never be able to tell you that story. But if you gave me a series of frames, I can begin to piece together a story.

ALEXIS KEENAN: The concept captivated investors and media, and turned Holmes into a startup sensation, though her startups began to settle when The "Wall Street Journal" exposed frames of her story as technology over-hyped. The reckoning fueled a barrage of scathing news reports, a "New York Times" bestseller, and a feature documentary leaving homes accused of fraud, of peddling impossible science, and portrayed a vixen.

Her confident charm and even physical appearance were cited to explain why distinguished advisors and hopeful investors in a male-dominated field bought what she was selling. Yet not everyone is convinced that Holmes was just a persuasive pretty face or that her methods to materialize her vision should be viewed in black and white.

DAN WARMERNHOVEN: This is going to sound strong, but to [? a certain-- ?] she is a victim because she didn't know what she didn't know, and she relied on people who gave her bad advice or mismanaged it, I think.

JOHN IOANIDIS: Even for Theranos, I'm not 100% convinced that it is fraud, although, I mean, we have lots of leads that many, many, many things were wrong.

ELIZABETH HOLMES: The first crazy concept that we had that people said absolutely could not be done, especially when I tried to raise money for the first time to start the company, was wanting to change the way lab testing was done. If you're going to start a company, the first question is, why? For me it was, this is a change in the world that I want to see.

ALEXIS KEENAN: The change was never realized, at least not by Theranos. Instead, the company imploded under a raft of lawsuits, regulatory actions, and FCC fines, all targeting Holmes for promising more than she could prove. Yet holding homes to both criminal charges and such intense media scrutiny could ultimately be what makes her unique as a Silicon Valley entrepreneur, and may overshadow her pioneering role in an emerging biotech field.

CARY GUNN: The biggest concern I've had with the media was immediately after Theranos started falling apart was there was a rumble of people saying, well, this was such a bad idea. This could never happen. Or actually, really, I think Elizabeth's vision was phenomenal, right, and I share the same vision, and so I really resonate with it. I think it is a good idea, and it needs to be-- it needs to happen.

DAN WARMERNHOVEN: It was all doable. I mean, that's the other thing. There wasn't any engineering problem that couldn't be resolved by the time I came in the company. There was refinements. I think with a different board, maybe with a different COO, or somebody to coach her and help develop her as a CEO and a spokesperson, I think a lot of this could have been avoided.

ALEXIS KEENAN: In a culture that handsomely rewards innovators while embracing this fake-it-till-you-make-it ethos, who deserves to shoulder the blame? Prosecutors say it's Holmes and her former boyfriend and Theranos COO, Sunny Balwani, for allegedly operating the once hyped blood testing company as a criminal scheme that defrauded investors, doctors, and patients. Others, including one of Theranos' earliest critics say the answer is not as clear, and take into account a system known to conflate optimism with reality.

JOHN IOANIDIS: I suspect that there's many other companies that don't really have the ideas that they propose that they do that they have. They're still working on them. They haven't test them out, they are probably overoptimistic, and maybe most of these ideas would fail. I don't think that Theranos is an exception in that regard.

ALEXIS KEENAN: If Theranos is no exception, how strongly will criminal accusations hold up? And where will jurors draw the line between an entrepreneur's push for disruption and fraudulent deception?

DAN WARMERNHOVEN: But I'm sure the courts are going to place a different standard than I do. But my standard is, if an entrepreneur makes a claim and you want to invest, it's your obligation to go validate all the claims she's made. She may have made exorbitant statements, but those could have all been corroborated before the money was invested. And in fact, if somebody had done the work to try to corroborate them, they would have found out they're really exorbitant. The wishful, and their futuristic, and don't represent the present. If you invested based on those claims, you would have said, OK, that's fraud.

ALEXIS KEENAN: If home strategy was to temporarily fake it, how different were her tactics from her Silicon Valley peers? When did the alleged charade begin? Why did financial backers keep her company afloat for more than a decade? And what lessons should future investors learn? The answers lie in a tangle of conflicting symptoms that can give investors reason for confidence as well as caution in the traditions of seed-capital-rich Silicon Valley. Disruption often begins like this. An aspiring creator claims their vision for a new reality, then sets out to piece together the missing parts to their puzzle.

ELIZABETH HOLMES: What we wanted to change was the fact that when you find out you're sick, you're already too sick in many cases to be able to really change the course of the disease. The way you change that is you have to reinvent every element of the system, which means you have to reinvent the test, you have to reinvent the devices, you have to reinvent the software, you have to reinvent the locations through which the testing is provided, the pricing. So this was not a short term business plan.

ALEXIS KEENAN: And there's one place perhaps more than anywhere else in the world that fosters the rapid incarnation of these bold ideas.

DAN WARMERNHOVEN: This is the valley of dreams, right? It's a unique situation. There is no other place in the world where somebody with a big idea can come and have access to capital, have access to all of the corporate services you need to get it off the ground. So people come here with big dreams. And I think Elizabeth had a great big dream.

ALEXIS KEENAN: This region of resources in its early days known as the Santa Clara Valley was formed by generations of tech pioneers whose ideas were brought to life with the help of deep pockets.

MARGARET O'MARA: The Silicon Valley was just another little agricultural valley in California through the middle part of the 20th century. And the thing that changed it all was World War II and the Cold War. The government did something that it hadn't done before in the big way it got into the research and development business, and particularly, put immense amount of money into research and electronics and computing.

ALEXIS KEENAN: It was decades before the blockbuster successes of Valley tech icon Steve Jobs, Bill Hewlett, and David Packard when the Valley's founding fathers put the federal government's money to use.

MARGARET O'MARA: The startup that brought silicon into Silicon Valley was a short-lived operation called Shockley Semiconductor. And the person who founded it was William Shockley. He was a co-inventor of the transistor.

ALEXIS KEENAN: A veteran of telecom behemoth, Bell Labs, Shockley realized the power of silicon to miniaturize transistors, that by the mid 1950s helped powered the world's first microchips.

MARGARET O'MARA: And so the Valley gets more and more significant in the landscape of tech.

ALEXIS KEENAN: By 1957, Shockley's team founded its own startup, Fairchild Semiconductor. Instead of turning to the federal government, the group made a radical move and looked to the private market securing funding courtesy of East Coast investment banker, Arthur Rock.

MARGARET O'MARA: Arthur Rock later becomes one of the most legendary venture capitalists in Silicon Valley history.

ALEXIS KEENAN: That same year, the microchip earned a reputation as indispensable as the Soviet Union launched its Sputnik satellite--

- The first artificial Earth satellite--

ALEXIS KEENAN: --beating the US into orbit.

MARGARET O'MARA: This basically lights Washington DC's hair on fire, and all of this money starts getting invested in rockets and missiles and technologies to get things and people out into space and ultimately to the moon.

ALEXIS KEENAN: In shooting for the moon, the influence of Santa Clara Valley technology and the investment dollars it attracted were forever altered. The region had officially left behind its agricultural roots to become a tech and investment hub. . A next generation would prove what silicon could do not just for big business and government, but for the individual.

MARGARET O'MARA: Who has all the computers? The establishment, the government, big corporations.

ALEXIS KEENAN: Key players so that independent movement were two Fairchild alums, Bob Noyce and Gordon Moore, who in the late 1960s founded Intel to build memory chips. They too tapped venture capitalist, Arthur Rock, whose $2.5 million stake advanced the uniquely American concept of partnering wealthy investors with tech entrepreneurs. The concept would carry into the next Millennia to prop up countless enterprising founders including Elizabeth Holmes.

MARGARET O'MARA: But once you have a computer on a chip, you can build a wooden box around it and it's a desktop computer. But it's under your control. It's not under the university's control or the Pentagon's control. And look, it's Vietnam, it's Watergate, this is an anti-establishment moment in American culture.

ALEXIS KEENAN: That movement gave rise in the mid 1970s to computer enthusiasts, Steve Wozniak and Steve Jobs. With Noyce's help, Jobs and Wozniak secured funding first personal computer, the Apple, through investor, Mike Markkula, and later through Sequoia Capital that would evolve into one of the region's most profitable VCs.

MARGARET O'MARA: The venture capital becomes an important glue between the generations, right, who are the leading venture capitalists of today, they're people who that, you know, had these massive exits in the '90s, who in turn, were funded and mentored by people who had massive exits in the '80s and '70s.

ALEXIS KEENAN: These generational networks reinforced Silicon Valley's tightly-knit circles and its backlash against corporate business as usual.

MARGARET O'MARA: You can't have total corporate misbehavior in order to be successful. But at the same time, there's this encouragement and cultivation and tolerance of behavior that might get you kicked out of a traditional company. Silicon Valley has a strong sense of itself from the very beginning as not being like other companies. This is a different sort of business. We think different, we do things differently, and we have amazing results as a result.

ALEXIS KEENAN: Even investors have been known to play by their own rules.

REED KATHREIN: So the venture capitalists themselves did not want to sue Theranos. And there's a reason for that. That's because they all live in Silicon Valley, and if they sue a company that they've invested in, they're not going to get the next deal.

ALEXIS KEENAN: Plaintiff's attorney, Reed Kathrein, represented individual investors who did sue Theranos claiming fraud, two late stage minority backers who bought company shares indirectly and complained they relied on false claims. The sole venture capital firm to sue Theranos was one of its largest investors, Partner Fund Management. It brought two lawsuits that ended in settlement.

REED KATHREIN: It's very important for the venture capitalists to be able to get the next deal, to get the next Google, to be able to be one of the first to invest.

MARGARET O'MARA: That was already a well-established part of Valley culture by the time Steve Jobs comes along. There were lots of arrogant jerks in the semiconductor industry. And part of the culture of the chip makers, the semiconductor makers was, if someone was producing amazing technology, you were kind of going to let them get away with murder.

ALEXIS KEENAN: In hindsight, a predictable setting for the whirlwind ascent of Elizabeth Holmes, and for her meteoric fall.

ELIZABETH HOLMES: When we began Theranos, what we focused on was creating a customized medicine tool that could be used in the home. The ability to begin bringing monitoring, as we call it, into the home we believe could fundamentally change the way that both patients are treated as well as drugs are developed.

ALEXIS KEENAN: That was Elizabeth Holmes in 2005, one of the few times early on that she spoke publicly about her ambitions.

LEN SHERMAN: I think it all starts with a very unique kind of founder who truly has a passionate burning conviction that they've come up with an idea that will change the world, and they have the soaring ambition to just be driven to want to make it happen as fast as possible.

ALEXIS KEENAN: Conviction spurred Holmes to drop out of Stanford University. In 2003, the 19-year-old traded in life as a full-time undergrad for life as a full-time CEO.

ELIZABETH HOLMES: I'd always believed that the purpose of building something, building a company is to make a difference in the world. And I got to the point in which I found what I felt like I was born to do.

ALEXIS KEENAN: As if ripped from a playbook for Silicon Valley's super stardom, Holmes early college departure followed in the footsteps of Oracle's Larry Ellison and Apple's Steve Jobs. Another Holmes era dropout included Facebook's Mark Zuckerberg, who in 2004 cut his time short at Harvard.

MARGARET O'MARA: There was a lot of money left over from the dotcom boom. You have PayPal being acquired by eBay turning the founders of PayPal, who become known as the PayPal Mafia, into multimillionaires. And that includes people like Peter Thiel, Elon Musk, Reid Hoffman, Jeremy Stoppelman. Like all these people go on to found other companies in the Valley.

LEN SHERMAN: Who didn't graduate college and left college at 19 years old. We have Bill Gates, we have Steve Jobs, we have Mark Zuckerberg.

ALEXIS KEENAN: Holmes filed her first patent around the same time she sidestepped her college career, a wearable monitor with skin piercing microneedles to detect biological red flags and deliver therapeutic drugs. By the next year in 2005, investment capital was rolling in.

- And how much money have you raised thus far in venture capital funds?

ELIZABETH HOLMES: We raised just over six million, and then we've also raised money from private investors.

ALEXIS KEENAN: Factoring for inflation, the figure dwarfed even Apple Computers' first money raised in 1977, a $250,000 investment much of which was structured as a loan. With many fewer strings attached, investors bet big on Holmes.

DAN WARMERNHOVEN: That's why in the beginning it was Don Lucas, very seasoned venture capital guy. I'm sure he'd-- I don't know the details, but I know Don's reputation well enough to know he probably did excellent due diligence.

REED KATHREIN: Well, the first guy really was Don Lucas Senior who had originally been an investor in Oracle. But at this point in time, I think he was sort of not fully paying attention to what's going on.

ALEXIS KEENAN: However well vetted, the apparent confidence was contagious. Billionaire venture capitalist, Tim Draper, backed homes, as did billionaire Oracle co-founder, Larry Ellison.

- What was fundraising like?

ELIZABETH HOLMES: Finding the right people to invest in you I think is everything.

ALEXIS KEENAN: To find the right people, Holmes didn't need to look far. Draper had been a family friend, and other deep-pocketed investors traced directly to Holmes' alma mater.

MARGARET O'MARA: Stanford's biggest, most important product isn't tech, it's people. Look through the whole genealogy of Silicon Valley, starting with Hewlett and Packard who were Stanford students there in their 30s, and you have access to incredible resources, professors, business people coming to campus. Modern Stanford has become this Town Square for billionaires, right? It's this place where you rub shoulders with incredibly successful people, and they're telling you, this is how you can be like me.

ALEXIS KEENAN: The exclusive access held another secret to Holmes' initial success. Prominent backers gave rise to an impressive board, including former US secretaries of State, Henry Kissinger, the late George Shultz, and former secretaries of defense, William Perry and General James Mattis.

- Like the only person missing from your board is the Pope. How did that happen? Was it like, I'm just going to write to Henry Kissinger. These kind of caliber of people who are in the public eye, they're probably not so easy to ring up.

ELIZABETH HOLMES: In our case, those were people who I had the privilege of getting to know and, in many cases, working with for, in some cases, a couple of years before we asked them to join the board.

REED KATHREIN: Once one got on board and was sold by-- the others were sold by him. They're all related to the Hoover Institution, for the most part.

MARGARET O'MARA: Which is stocked with former heads of state and very powerful people, people who have had incredible political careers and military careers, who also have, in turn, connections to the business community, and instill credibility on a very young untested person.

ALEXIS KEENAN: For all its privilege, the early board was mostly devoid of expertise in diagnostic testing, biochemistry, and molecular biology.

JOHN IOANIDIS: At least in its initial composition, practically, they had no scientists who were relevant to the topic of what that startup was about. They had powerful people who could really sway power across many constituents, and probably facilitate investors to send their money to Theranos, and open lots of doors and gain publicity. But they had no science. They had no science, and they had no board to tell them that they have no science.

ALEXIS KEENAN: One exception was Holmes' college mentor and first director, then Stanford chemical engineering dean and professor, Channing Robertson.

CHANNING ROBERTSON: I think he gave the credibility that these investors needed.

ELIZABETH HOLMES: I hired the person that I was working for at Stanford and--

- That's a wonderful story, isn't it?

ELIZABETH HOLMES: Yeah, it was great.

ALEXIS KEENAN: Like entrepreneurs before her, Holmes tweaked her concept along the way. Within two years of leaving Stanford, her patent applications included a portable analyzer that would quickly and inexpensively test biological fluids, including blood.

ELIZABETH HOLMES: I got interested in blood and lab testing because it's a tool in the ability to dramatically reduce the sample volume that's required for doing lab testing traditionally and dramatically reduce the cost.

ALEXIS KEENAN: Holmes' portable analyzer first became known as the Edison, and later as the Minilab. In its first iteration, the device would cater to pharmaceutical companies to test adverse drug reactions in clinical trials. Later versions would serve doctors and patients, replacing the bulk of traditional lab testing altogether.

ELIZABETH HOLMES: Instead of having to go to a lab in order to give blood, we're actually going to begin to make it possible for people to do lab testing in the places they need care.

ALEXIS KEENAN: Instead of large needles, vials of blood, and days-long processing times, Holmes envisioned that doctors and patients could draw just a few drops of blood using a fingerstick sample stored in the company's proprietary nano-tainer and get immediate results for an array of common blood tests.

DAN WARMERNHOVEN: The product is meant for an individual to actually conduct a blood test ultimately at home. And the box is about the size of a printer, desktop printer. So it's probably maybe 18 inches long and 15 inches wide and 12 inches tall.

ALEXIS KEENAN: Holmes pivot to engineer a desktop analyzer came with a mountain of electrical, chemical, and bioengineering challenges. The vision was so ambitious that critics, including Theranos employees, said it couldn't be done. Added hurdles came from Richard Fuisz, a Holmes family friend 30-plus years her senior, who filed a patent to seize upon an overlooked element in the would-be analyser's supply chain. Holmes later sued Fuisz accusing him of creating the patent with stolen Theranos IP.

By 2010, five years into her pursuit, there was light at the end of the tunnel. After struggling to stay afloat, Holmes reported to the SEC that Theranos had sold $45 million in private company shares. And a $12 million line of credit came for Holmes' then significant other, Sunny Balwani, a dotcom era millionaire who Holmes had recently hired as Theranos' CEO.

SUNNY BALWANI: I actually think the impact of what we are doing to put the diagnosis right there where the patient is, this invention is going to be way up there. We will have the same impact on human health and medicine as the discovery of antibiotics had.

ALEXIS KEENAN: Balwani and Holmes first became friends in 2002. Balwani was 37 and Holmes 19. The two became a couple after Holmes left Stanford.

DAN WARMERNHOVEN: She didn't choose Sunny, really. The board made her go hire somebody, and Sunny looked good on paper.

ALEXIS KEENAN: The couple was criticized for going to great lengths to keep their romantic relationship a secret.

DAN WARMERNHOVEN: That was ridiculous. This is part of the naivete. The way the company found out that she and Sunny were having a relationship, she changed her home mailing address to be his.

REED KATHREIN: She never told the board, and once we began to see the documents and the communications between them, it became very clear.

ALEXIS KEENAN: In an unfruitful deposition, Kathrein pressed Holmes to explain.

REED KATHREIN: Can you tell me whether or not you had a romantic relationship with Sunny Balwani?

- Again, due to the pending charges for the Department of Justice, I am instructing Elizabeth to invoke the Fifth Amendment rights and not answer.

ALEXIS KEENAN: Did you ever get an answer--

REED KATHREIN: No.

ALEXIS KEENAN: --to those questions?

REED KATHREIN: No. No. She pledged the fifth.

ALEXIS KEENAN: The partnership continued until 2016 when Balwani left the company. The dynamic is likely to come into focus in Balwani and Holmes' now separately scheduled trials. According to court documents, Holmes intends to introduce evidence concerning her mental state during her time as CEO. In 2013, Holmes and Balwani struck an equally puzzling business partnership. Theranos announced a major deal with drugstore giant, Walgreens, to deploy the device in its Palo Alto and Arizona stores despite the devices designed for home and doctor's office use. Under a $140 million contract, Walgreens would become the exclusive pharmacy to offer Theranos tests, and someday in more than 8,000 US stores.

DAN WARMERNHOVEN: Walgreens got enamored with the notion of putting one in every store so that you as a customer could come in and have your blood test done while you shop.

ALEXIS KEENAN: In a carefully-worded press release, the company said consumers can now complete any clinician-directed lab test with as little as a few drops of blood with results available in a matter of hours. It went on to say that blood samples would be drawn either from a tiny fingerstick or a micro sample using traditional methods. The Walgreens partnership made Holmes a darling of business and tech media. Her story catapulted to the covers of magazines and to the front pages of newspapers. Under Holmes and Balwani's management, in 2014, Theranos' is funding spiked to 400 million.

LEN SHERMAN: She was on every cover looking her Steve Jobs best. Everyone called her the next Steve Jobs, and it was just wonderful. I mean, I don't a CEO who wouldn't kill to have that kind of positive publicity.

ALEXIS KEENAN: "Wired" first reported Theranos' this analyzer could perform hundreds of blood tests, and as many as 30 from a single drop. Holmes soon boasted to "Fortune" that 70 different tests were possible from a fingerstick sample, and that Theranos offered more than 200 common tests. The bold claims elevated Holmes to her first cover feature.

ANDY SERWER: I was the editor, Tim was the story editor, and Roger Parloff was the writer, and we were excited about it. It sounded, you know, just like everyone else said back then. I mean, this was like the next big thing, you know, and there was a lot of enthusiasm about it, and a lot of interest certainly.

TIM SMITH: It's already a good-sized company with 500 employees. It was represented by David Boies, who at that time, was sort of the preeminent attorney in the country. And it had backing from Larry Ellison and Betsy DeVos.

ALEXIS KEENAN: "TechCrunch" also interviewed Holmes in the peak of her company's ascent.

JONATHAN SHIEBER: This is the amount of blood that's needed to draw to do a test. A lot of private companies were getting a significant amount of funding. So I think it was valuations were just high across the board. And there was a sense-- there was a lack of circumspection, I guess, around what was going on in the industry.

ALEXIS KEENAN: "Forbes" followed suit, publishing a cover feature of its own.

ETHAN PINES: They were kind of saying she may be the next big thing like visionary, guru, Silicon Valley, big deal, young. A lot of CEOs, sometimes they can be very controlling, and she just had none of that. I think even at that point, "Forbes" was already telling me that she was apparently America's youngest self-made female billionaire.

ALEXIS KEENAN: The coming out party lasted nearly two years as Holmes purported to disrupt the multibillion dollar diagnostics industry dominated by companies like Quest, Lab Corp, Siemens and Abbott. Meanwhile, Walgreens customers relied on Theranos-branded tests, and the company's valuation soared to $9 billion. The company grew to more than 800 people on its payroll, including former Apple OS X developer, Avie Tevanian, eventually asked to resign from the Theranos board, and chief scientist, Ian Gibbons, a 30-year biochemistry expert, who in 2013, took his life after receiving a subpoena to testify in the patent dispute with Holmes' former family friend.

ETHAN PINES: There's a little bit of irony in the photograph now. It's like the firehouse catching on fire. What you're seeing in that photograph, it's exactly what is not supposed to happen. By that time, US attorneys say Holmes was peddling a fraud. The accusation was first waged in an October 2015 "Wall Street Journal" expose. Reporter John Carreyrou skewered Holmes' claims that her technology could accurately process hundreds of tests using the fingerstick technique.

TIM SMITH: But it really wasn't until John Carreyrou story in "The Wall Street Journal" came out that we had in the understanding that there was less here than met the eye.

ALEXIS KEENAN: Whistleblowers who informed Carreyrou's reporting compounded the damage, claiming the analyzer returned enough false-positive and false-negative results that the company was forced to run all but one test on traditional equipment made by the very companies Holmes aimed to disrupt.

REED KATHREIN: Even if you can test blood on third-party equipment, they were diluting that blood on equipment that was not made for diluting that blood. Their defense was, well, we did have the technology, and it wasn't that on our box, but it was on third-party equipment. In their testing and in their quality assurance and all the things you're supposed to do at a lab, if the numbers didn't work out, they were playing with the samples they used and it's questionable.

ALEXIS KEENAN: At the heart of the Justice Department's indictment are accusations that Holmes and Belwani lied about Theranos technology to dupe investors and business partners into forking over cash, and to dupe patients into paying for Walgreens-based tests. Claims further examined in Carreyrou's nonfiction book, "Bad Blood" and an Alex Gibney documentary, "The Inventor".

ALEX GIBNEY: Well, the question is, did she know she was perpetuating a fraud? Or was there something more mysterious going on? I think she is afflicted with what the police call "noble cause corruption" meaning simply put, it's like the end justifies the means.

ALEXIS KEENAN: Holmes and Balwani's knowledge will be key to their defense. Given prosecutors' burden to prove intent, a non-negotiable element required to obtain a conviction.

- Well, that's what makes this a difficult story to draw conclusions about in terms of investment fraud because I don't think anyone disbelieved this story, including Elizabeth Holmes at the outset.

ALEXIS KEENAN: By 2010, seven years after Holmes started Theranos, is when US attorneys say she and Balwani began a conspiracy that by 2015 would include lying to investors about the range and accuracy of tests, faking product demonstrations, misrepresenting projected revenues, and fabricating stories that Theranos' device had been deployed in military combat zones. By 2013, prosecutors say the two knowingly promoted and delivered tests likely to contain inaccuracies, and falsely represented to investors that the test did not require FDA approval, a point Holmes has contested along with pleading not guilty to criminal charges.

JOCELYN BAILEY: When I started, they had scrapped the Edison device so we were working on the next generation, you know, black box.

ALEXIS KEENAN: It was 2015, a month before Carreyrou revealed what Jocelyn Bailey and other Theranos employees already knew, more than 90% of Walgreen's-based tests used neither the mini lab nor tiny blood samples, and instead came from traditional larger volume blood draws processed by traditional analysers made by Siemens. Bailey's job was to develop immunoassays, a common type of blood test intended to run inside the Minilab. Did you know about the Siemens machines being used while you were working there?

JOCELYN BAILEY: Yeah. Yeah, we knew. I think it was communicated to me. Yeah. Our team knew about it. I don't know if everyone knew. We knew that fingerstick had been cut or had been cut real recently from the clinics. Some of those original claims were known. You know, it hurts, but we knew it and we were in the lab trying to make it better.

ALEXIS KEENAN: The revelations turned "Fortune's" cover story on its head.

TIM SMITH: It became clear that they couldn't accomplish the tests that they wanted to using Edison machine. Then in fairly short order, it unraveled when some of the technicians blew the whistle on her.

ALEXIS KEENAN: One whistleblower, Tyler Schultz, a Theranos employee and grandson to board member, George Schultz, disclosed the shortcoming to "The Wall Street Journal" and filed a complaint with New York State's Department of Health saying the company had manipulated proficiency testing, a process meant to promote test accuracy. At a minimum, if the Theranos-Walgreens 2013 press release, and home statements to media were to be believed, with as little as a few drops of blood, its device should have been able to accurately process multiple, if not more than 200, common diagnostic tests. Did it make you question the technology or not necessarily?

JOCELYN BAILEY: You definitely realize that 220 assays on a single drop of blood, all on the same machine that you developed, that's not feasible. And so you realize, if their goal was to have it in all these wellness centers and have the price be cheap and all this kind of stuff, you understood why they were using these commercial analyzers. You didn't realize, I guess, the extent of how much they had pitched their own machine, and how the public was understanding that everything was being done on our technology.

ALEXIS KEENAN: When reporters pressed Holmes on the inconsistencies, she admitted that only one fingerstick test was commercially available using the Minilab, a single assay for herpes virus HSV 1. The rest, Holmes said, remained in R&D or awaited approval. In 2016, the Centers for Medicare and Medicaid notified Theranos of laboratory deficiencies posing immediate jeopardy to patient health. The agency sanctioned the company and agreed to a settlement banning Holmes from owning or operating a clinical lab for two years. The agreement forced the company to shutter its Walgreens and laboratory operations.

Holmes defense wasn't enough to quiet her most formidable critics. A flood of lawsuits followed. Arizona's attorney general, investors, and the SEC claimed fraud. Walgreens sued for breach of contract. And the Justice Department filed criminal charges for conspiracy and wire fraud. Did Holmes ever explain to you why she maybe embellished what her product could do?

DAN WARMERNHOVEN: No. Although she didn't have to. You know, it's not uncommon for entrepreneurs in particular to talk in the present tense about the future. My product can do this. But your product's not built yet. Your product is a bunch of concept. But nonetheless, the tendency is to say, my product can do this. Or my service can unify people. But none of that-- it's a way of essentially describing a future vision. And Elizabeth was very good at that.

ALEXIS KEENAN: Aside from the DOJ's criminal action and a civil suit filed by Theranos' customers, Holmes settled the lawsuits out of court. The company paid Walgreens around $25 million to settle its breach of contract claim, and separately agreed to pay nearly $5 million to Arizona customers. A $500,000 fine was paid to settle the SEC's claims of fraud. Among other stipulations, Holmes relinquished her controlling stake in Theranos, and diverged from Balwani who continued to defend the SEC's claims. Kathrein said his clients recouped their investments. Still, most of the $900 million Holmes raised came from investors who took no legal action against her.

REED KATHREIN: So they all sort of circled the wagons around Theranos and didn't go after them. In fact, they did reach an agreement not to go after them early on.

ALEXIS KEENAN: That overwhelming capitulation by the very investors who prosecutors say were victims of fraud begs closer examination of Silicon Valley's status quo, and the contributing roles of the parties that power its big ideas.

REED KATHREIN: Of course, I have to blame Sunny Balwani and Elizabeth Holmes. I mean, they're the primary two. I mean, they're the co-conspirators who created this mess.

MARGARET O'MARA: You can't do it alone. She was and is a singular figure. And she does bear responsibility. I mean, even as young as she was, she bears responsibility for what happened under her watch. Look, there's so many other people went along with her. You know, so many other people wanted it to happen. You know, she will say in her defense, you know, it wasn't me alone. I mean, that's true. It's true of every entrepreneur, it's never them alone.

ALEXIS KEENAN: Where do you put Sunny Balwani in all of this?

MARGARET O'MARA: I think he's really critical. He's in some ways, the bad cop to her good cop. And we often in the case of tech companies, there's many instances of the man behind the curtain or the more silent partner. And you saw that at Apple with Steve and Steve. You see this at Microsoft with Paul Allen writing Basic and Bill Gates.

DAN WARMERNHOVEN: I'm not sure the investors were wrong because I'm not sure they ever fulfill their own obligations or responsibilities.

MARGARET O'MARA: Venture capital, and of the rule of thumb if you see is that out of 10 investments, you'll have three that fail, you'll have three that kind of go, you know, fine, and you'll have one or two that actually make you money, and sometimes make you a lot of money. And what makes the risk worth it is when you hit, you hit big.

JOCELYN BAILEY: The investment money was good eventually because it gives runway for scientists. So she did a good job of getting some runway later. But the first round of the technology, obviously, was a massive failure and was terrible for patients. But she did a good job at setting a vision for scientists to work towards to allow-- like a lot of companies don't have that much funding.

DAN WARMERNHOVEN: In private company investing, the prospect of an investor has to fill out a very detailed form that says, I understand the risks, I understand that I may not get any return on this. I understand furthermore this will not affect my net worth.

ALEXIS KEENAN: They're accredited.

DAN WARMERNHOVEN: They're accredited. Sophisticated, actually, I think is the term. But nobody did. I mean, they all filled out the form, but nobody did the work. I didn't see them storming the gates and going after the board saying, hey guys, you know, you're got to-- in fact, the board was telling Elizabeth, you don't have to do that, which I think she had bad advice.

ALEXIS KEENAN: In announcing its settlement with Holmes, the SEC posed Theranos as a lesson for entrepreneurs, warning that innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.

DAN WARMERNHOVEN: I believe that the SEC did not have jurisdiction. I think the SEC has got a great role to play in public markets and all kinds of other things like that, but I'd hate to see them get deep into the venture community and the startup world. It's a fine line between that and, you know, the mom and pop business, believe it or not.

ALEXIS KEENAN: There are some people who say that Elizabeth Holmes is being held to a public company standard. Do you think that that's a valid argument?

MARGARET O'MARA: I think there's some merit in that. One of the things particularly the last decade of Silicon Valley, the decade since the Great Recession that has been different has been the private markets have dominated more than the public markets. Companies would go public, they'd have to go public. I mean, Intel went public when it was three years old. Netscape went public when it was less than two. The way you raise capital was on the public markets. And with that, came accountability. now in the last decade, you have-- it's harder to go public, right, new regulations post-recession, it's a heavier lift, and there's been all of this private capital just sloshing through the global markets looking for a home. And then you have this kind of flywheel of storytelling and buzz about, oh, this is the next big thing. And everyone's like, I want to get in on that. Then you're allowed in kind of relative you're protected from the scrutiny of public markets. Does that mean that you can get away with fraud? No. Investors are right to be, you know, calling her to account.

ALEXIS KEENAN: Warmernhoven said early investors had every opportunity to do just that.

DAN WARMERNHOVEN: They did nothing in terms of trying to ascertain the current status of the product or the risks to completion or anything else.

MARGARET O'MARA: Whose fault is that? I think it's the investor's fault. Yeah, you invest in something, you want to know how your investment is doing. And I think it's also a symptom of the founder culture that has really, you know, really took hold of the Valley exactly during the time Theranos was growing.

DAN WARMERNHOVEN: The first meeting I was in was with all the major investors. And I hadn't had any meetings with the company since the round and closed. And you know, maybe occasional phone call or something, but nothing as a group, nothing really got a status report, which I found staggering.

ALEXIS KEENAN: And weren't demanding it?

DAN WARMERNHOVEN: They didn't seem to press hard before the investment, and they certainly seem to press hard after the investment. From my viewpoint, is really out of character for a startup investor not to be all over it, you know. If you were a venture capitalist and you put in 100 million, you would be there every week. How are we doing? Are we on track, you know?

ALEXIS KEENAN: So those documents do not exist?

DAN WARMERNHOVEN: Not in the hands of the investors. I mean, they were available internally.

ALEXIS KEENAN: Internal documents may have exposed the chasm between Theranos' this aspiration and ability, though Holmes told the SEC, its investor pitch left room for improvement.

ELIZABETH HOLMES: We didn't intend these documents to be standalone. And sitting here now, I know we could have been much better the way we prepared materials.

- And did you talk about specifically the technology and blood draw and what was in place at that time versus what was aspirational? Was there a clear delineation between those two?

ELIZABETH HOLMES: We tried to do that.

ALEXIS KEENAN: When we look at Theranos investors, many of them, not necessarily your clients, but certainly perhaps a VC fund, we would expect to be seasoned investors who can properly vet a company, a startup like Theranos.

REED KATHREIN: In this case probably what you would consider a seasoned investor like Tim Draper perhaps Larry Ellison in Oracle, they invested early when it was just a concept. And a lot of VCs will invest even when it's not proven. Theranos got well beyond that, and then started raising funds, massive amount of funds, over $700 million.

LEN SHERMAN: From other investors, the amounts of money that a certain class of what I call "mega VCs" with untold, unprecedented amounts of capital available to invest starting with the Japanese company, SoftBank, and some of the sovereign wealth funds in the Middle East who are looking for what to do after the oil begins to peter out are able to and are bringing amounts of money that have just never been seen before. There's no independent validation. That's what concerns me now when we look at some of these mega-funded companies like WeWork and Uber that it hasn't been vetted as much as you would normally hope and expect from at least an independent venture capital set of players. And that adds to the board and the CEO and here we are.

DAN WARMERNHOVEN: And they go dig in inside the company and get the facts. Start with Channing Robertson, start with the head of engineering, you know, and start asking questions.

ALEXIS KEENAN: : In addition to Ho it was Channing Robertson, who in 2016, gave Warmernhoven confidence to join Theranos' board even after media and lawyers had accused Holmes of fraud.

DAN WARMERNHOVEN: And he had just concluded organizing two-- what do you call it-- the blue ribbon panels, one that look at the science of the biochemistry inside the box, and another one looking at the mechanical nature of the box to make sure that it was all viable and doable. And they both came back very positive. So I didn't get in deep to understand how far they were from go to market. But I did have enough confidence that the fundamentals were sound.

TIM SMITH: He clearly thought that she was special. And when she felt like starting a company that he's the one she went to.

REED KATHREIN: He was being paid quite handsomely to work for her, and had a desk in their offices, and he claimed that he didn't know about that technology. And he claimed that he didn't know about the fact that things didn't work. He claimed he didn't know things were being run on third-party equipment. I don't know what the heck was going on with him, why he wouldn't ask these questions, why he claims to have been completely in the dark. And he's the one that brought her around, got her credibility, and was paid handsomely, annually.

ALEXIS KEENAN: One former board member reportedly did ask the hard questions. According to ABC, Avie Tevanian, software engineer and former right hand man to Steve Jobs, was asked to resign in 2007 following his ultimatum that Holmes be replaced as CEO.

MARGARET O'MARA: The way that startup boards are usually they're made up of venture investors, and they're made up of other people with domain expertise. And at the early stage or later stage, corporations may, you know, look even more widely for people who have domain expertise in politics and statecraft. Sure, because they have domain expertise and understanding how large organizations can run and interact with the rest of the world. Something's off from the very early stage.

JOCELYN BAILEY: I would say there was a lack of scientific mentorship overall. It was the assay teams, and that was it. There was little other science guidance given to the actual scientists.

ALEXIS KEENAN: So even Channing Robertson was not interacting with your group.

JOCELYN BAILEY: No, he wasn't present as far as I can tell.

MARGARET O'MARA: That did set Theranos apart from the very beginning, and it was a red flag to other potential venture investors in the tech, and particularly the biotech space. It's a biotech company that doesn't have the personnel or the procedures in place that a biotech company would need to have even at the very beginning stage to develop product.

ALEXIS KEENAN: In 2016, Theranos finally empanelled a medical board. And under new leadership, Holmes presented a scaled back version of its updated device, the Minilab, to the American Association for Clinical Chemistry.

- There's truly been a lot of interest in your company. I would argue that a lot of that comes from the fact that there were these claims that were made that were very broad early on, 70 tests, the whole, you know, panoply of lab tests from a couple drops of blood. And the evidence that you presented fell far short of that. So how should we think about that?

[APPLAUSE]

ELIZABETH HOLMES: Well, I think we fully understand in picking this place to come to introduce it that we have a lot of work to do to engage with this community. And I mean, I can tell you, I wish that I had started earlier in the context of building the scientific and medical board that we've had the privilege to build.

ALEXIS KEENAN: Under legal pressures and burning cash, the effort would prove too late. Should the board have looked at its own composition and said, perhaps we don't have the level of expertise that's required for a revolutionary health care company?

LEN SHERMAN: Yes, but you know, you're asking people to admit their own weaknesses. You know, let's give credit to Elizabeth Holmes. She was quite the charmer, and people just felt great and important. You know, in their own minds, I'm sure they thought they were providing good sage counsel. But yes, of course, that should be a part of the equation as well.

ALEXIS KEENAN: Stanford Medical School professor Dr. Phyllis Gardner reportedly critiqued fingerstick drawers as an impossible source from which to glean accurate results for hundreds of tests. She described Theranos investors as crazy, and its board members as old men whose brains had gone to their groin. Yet the suggestion that Holmes concept was nothing more than fantasy fails to account for a flood of diagnostic startups surfacing in her wake.

Take Genalyte life and its Maverick analyzer that's FDA-approved and on its way to running more than 100 common tests from a tiny drop of blood.

CARY GUNN: Over here is our proprietary technology. So this is a machine we just got cleared from the FDA. And what it's really good at is analyzing blood proteins. Nobody else has a machine that can analyze a large number of blood proteins in 15 minutes on the whole blood in a physician setting. So that's our ambition.

ALEXIS KEENAN: The Maverick can perform much of what Holmes envisioned. The device features a proprietary optical silicone sensor that detects color changes in light when it's exposed to targeted blood molecules. For now, blood comes from a low volume draw taken from a patient's arm. And next, is the FDA'S decision for the Maverick to perform about 200 common diagnostic tests from a fingerstick.

CARY GUNN: It is a politically-charged topic to operate off of a fingerstick. What you'll see when we take the blood out of the tube is we're going to take a tiny fraction of one drop of blood. So we've validated that our machine works on less than a drop of blood. We're going to add less than a drop of blood to it.

ALEXIS KEENAN: Less than a drop?

CARY GUNN: Yeah. So it's about 4% of one drop that we use.

ALEXIS KEENAN: In late 2020, the Maverick was also granted emergency use authorization to diagnose SARS-CoV-2 also known as COVID-19. It's one of 28 approved coronavirus and flu tests that can all be performed from a fingerstick. Eventually, how many tests are you hoping that Genalyte will be capable of performing on one device?

CARY GUNN: That list is well under 200 tests. It's really about a hundred test comprised the vast majority of that. And there's only a few of those that we can't do. We can get to 95% of all commonly ordered test in 15 minutes.

ALEXIS KEENAN: So what do you have to say to the critics who said Theranos' vision was science fiction.

CARY GUNN: Well, I think you just saw it happen in the other room.

ALEXIS KEENAN: So this is what the future looks, like a small sample of blood can perform hundreds of tests?

CARY GUNN: Exactly.

ALEXIS KEENAN: While not every test can be accomplished using a tiny drop of blood, the advancements show Holmes may have had the right concept and the right story without enough technology at the right time.

CARY GUNN: There's a difference between the idea and the execution, you know, clearly. But decentralization of diagnostics and getting more data in the hands of doctors when they're making decisions is vital.

ALEXIS KEENAN: Beyond Genalyte, a light investment in miniaturized diagnostics hardly dried up when Theranos was forced to close its doors. Similar startups have been proving the concept as anything but science fiction. There's Athelas, a Sequoia-backed in-home blood testing device touting technology to detect white blood cell count, viral infections, and cancer from a single drop. And Truvian's portable benchtop analyzer, takes five drops of blood to deliver multiple assays within 20 minutes. If the latest technology is the living proof that Holmes' concept was sound, where exactly was her Achilles heel?

JOCELYN BAILEY: If she had dialed it back and was straightforward about using commercial analyzers, and was straightforward that, you know, this is about access, this is about getting patient's blood draw somewhere else, and like that kind of stuff, and said that. And we're working on our fingerstick technology, we're working on this, then you know, we could have gotten there most likely.

LEN SHERMAN: This is an epic fail of a perceived-- a self-inflicted need for speed that proved to be, you know, very dangerous and fatal to the company. And we could have had an entirely different story, and on top of this, we have to do it at breakneck speed. And this was a case where literally and figuratively, speed kills.

MARGARET O'MARA: It's easy to blame the people involved. It's easy to say, oh, you investors, you should have known better. Like you should have looked more closely. But the hype machine is powerful. The magazine covers are powerful.

ETHAN PINES: Maybe if enough people don't want to dig deep enough because we all want to believe, we'll prop them up, we'll put them on the cover of magazines, and they can just plow forward. And maybe eventually they'll make it or maybe not. But there definitely is a public hunger for that kind of celebrity.

ALEXIS KEENAN: Nearly a year before the "Journal's" expose, John Ioanidis published a critique of Theranos and other well-funded health care startups for a lack of peer reviewed data, and for keeping their intellectual property too close to the vest.

JOHN IOANIDIS: Theranos had published practically nothing, that they had a couple of papers but they were not relevant to their technologies. So there are several unicorns out there with very high valuations, with very little or no evidence that is supported by peer-reviewed publications.

ALEXIS KEENAN: Why is peer-reviewed publication so important in your opinion?

JOHN IOANIDIS: This is how science is run. This is how we can put trust that something has merit, that something is real, that something can be scrutinized by other scientists and be proven or at least sustain some criticism and show that it is relatively bulletproof.

ALEXIS KEENAN: Holmes slight of hand didn't go entirely unnoticed. "Fortune's" editorial team did note limits to their account. I have this sentence in the original piece that was published in June 2014, it said, quote, "Precisely how Theranos accomplishes all of these amazing feats is a trade secret." So what does a journalist do from there?

TIM SMITH: It's difficult to cover proprietary technology. What do we really know about Facebook's algorithms? And how far can we go in there? Well, some of it is ultimately a trade secret.

ANDY SERWER: So it's an unproven proprietary technology, particularly as it pertains to something as sensitive as health care that we probably should have been more skeptical about or had more questions about. And I think it's a great lesson.

CARY GUNN: Just because someone is claiming they're doing it, doesn't mean that the media and the investment community and everyone else should just believe them. And it's often harder for the media because they don't have the same amount of time or necessarily the technical depth. Whether it's the media, investors, or customers, everyone needs to do the work, and make sure that what they're doing is they're getting into bed with someone who is doing a good job.

MARGARET O'MARA: And look, it's not just the media. The media consists of the people who produce it, and the people who read it, right? And then when it all comes crashing down, we rush out to buy the books, we rush out to watch the documentaries. We sort of salivate over the, oh, you know, what a fraud, you know, those silly people. And so we kind of delight in the failure stories as well as successes. And it does become hard to put it in context and see the broader facts and say, well, this was a manifestation of a bigger, you know, a bigger problem.

ALEXIS KEENAN: While Theranos' purported trade secrets were walled off from journalists and outsiders, another party, aside from investors and the board, had power to probe deeper. According to Walgreens, in March 2010, Holmes and Balwani pitched Theranos devices to Walgreens company executives as viable and consumer-ready, and said its technology had been comprehensively validated by 10 of the 15 largest pharmaceutical companies. Do you place any blame there?

REED KATHREIN: I place huge blame with Walgreens. But it's more on the negligence side. I don't believe that Walgreens knew what was going on. But they should have known what was going on. It's almost inconceivable to me that they didn't know that things were being run on third-party tests.

DAN WARMERNHOVEN: Somehow things got embellished. There was never any concept anywhere in reality that they could do 150 tests for one drop of blood. It was they could do different panels of tests with each other drop a blood. Part was just how Elizabeth talked, but part is what people want to hear, you know, wow, this is amazing, you know. But the truth was, rather than getting three or four vials of blood taken, it would be a very small sample.

And the fact that sample could be a finger prick and you could just get the drop of blood loss, let's say, of your son or whatever and have no need to poke a vein. So there's a lot of good things to it, but somehow the one drop of blood, that's what got put in the machine. But to do the whole panel, do that 150, probably would have taken 25, 30 drops of blood.

ALEXIS KEENAN: In a deposition before the SEC, Holmes admitted that Theranos had kept Walgreens in the dark over FDA concerns, that the nano-tainer had been under-classified, yet she maintained the move away from fingerstick tests was no secret.

ELIZABETH HOLMES: Walgreen's was operating with us in the stores so they would have known locally that we were doing venipuncture to the extent we were doing venipuncture.

- Do you have a general sense of what Walgreens was concerned about following the publication of the article?

ELIZABETH HOLMES: I think there were multiple issues. One was they were reacting to the press in general. But then the other was that we hadn't disclosed engagement with FDA with them to them yet, before it was in the press

Holmes argues that because the FDA engagement had to do only with nano-tainers, and because it began months, and in some cases, years after soliciting investors, it can have no bearing on the government's claims of fraud.

DAN WARMERNHOVEN: Once the Walgreens concluded, we can't get this deployed in the store. From Theranos, as you pointed, you should have said, time out. What you want to do doesn't fit our architecture, our product strategy, nothing. But that's really kind of where they took the left turn that sent them right in the ditch.

ALEXIS KEENAN: Red flags did spook world-renowned medical center, Cleveland Clinic. It bailed on a partnership after Theranos left its due diligence requests ignored. And Walgreens competitor Safeway also withdrew its plans for a pilot program. Was that the value add for Theranos? Was $140 million up front?

DAN WARMERNHOVEN: It got them on the map in a hurry. But the Walgreens deal gave it credibility. And so, you know, it helped them basically raise the money they were looking for. You know, that kind of proposal, something of that size or magnitude, should have been reviewed at the board in depth. You know, there are enough people on the board to say, wait a minute, you know what? This is not us.

ALEXIS KEENAN: In deposition testimony, board members, Schultz and retired US Navy Admiral Gary Roughhead, said they did not question Holmes or anyone else at Theranos once public concerns were raised about Theranos' use of third-party technology.

DAN WARMERNHOVEN: Now, the board had some very competent people, and experienced people, good operating people in some ways, and they should have called a halt. I'm not sure it was ever fully discussed at the board. And Elizabeth as CEO, right, had the right to turn it down or to take it to the board.

ALEXIS KEENAN: And what about Sunny Balwani? What was his role as you understood it?

DAN WARMERNHOVEN: I never met Sunny. He had been dismissed from the company before I showed up Elizabeth was the chief architect. And she led most of the engineering program, but Sunny led all the rest of the operations.

ALEXIS KEENAN: Veterans of Silicon Valley startups know that faking it can be fair game.

JOHN IOANIDIS: Many of these companies start an idea, they think that they have it, actually, they don't. But they hope that they will develop the working idea while they're pursuing it. And they have that expectation that, lets go ahead and it will kind of get itself together, and it will be successful. This is not fraud. I mean, this could be seen as visionary. The distinction between fraud and visionary is very subtle here.

ALEXIS KEENAN: These high-risk, high-reward gambles have been taken by some of the most famous visionaries. And even the inventor who inspired Holmes first prototype, Thomas Edison.

ALEX GIBNEY: He was the original fake-it-till-you-make-it guy. Now, he was different than Elizabeth Holmes in that he ultimately did make it. He was an inventor who got it right. And along the way when he was having trouble with the incandescent light bulb, he didn't let anybody in on that. He faked demonstrations, and he was not so dissimilar from other famous people in Silicon Valley like say, Steve Jobs, who was a notorious liar, but also a great storyteller. So she's in that tradition. And that's what makes Elizabeth Holmes interesting.

ANDY SERWER: Pushing out and out fraud or was she, you know, just in the great tradition of Thomas Edison and Steve Jobs, you know, faking it till she made it. And it could sort of be a little bit both.

ALEX GIBNEY: She's part of a tradition of fake it till you make it, which to some extent, is celebrated in Silicon Valley, but not so much when it comes to medical devices that can actually affect the health of people.

ALEXIS KEENAN: Is there a certain point with respect to Theranos where you say, that's where things went wrong.

JOHN IOANIDIS: I think that there was a gradient going down the tubes, and it's hard to say which specific decision was the worst. I believe that here my response will be biased. I think the decision to move to patients was probably the worst without having something that was mature. Because once you move to patients, then you're exposing people to risk.

ALEXIS KEENAN: In pushing a soft-baked health care pitch, Holmes isn't alone. In its early days, Silicon Valley biotech company, 23andMe, was ordered by the FDA to immediately discontinue marketing its widely-publicized cheek swab tests after making unsubstantiated claims that the company could identify risk levels for a number of diseases. A consumer class action lawsuit followed, and the company settled with complaining customers. Diagnostics startup, uBiome, was dropped from CVS after federal investigators and an FBI raid of its San Francisco headquarters. In 2021, the company's co-founders Jessica Richman and Zachary Apte were accused by the SEC of defrauding investors, and indicted by the DOJ for money laundering and securities fraud.

Even the FDA and experienced mega corporations have been known to get it wrong. The International Consortium of Investigative Journalists found in 2013, that over the prior decade, 80,000 global deaths and nearly 2 million injuries were linked to faulty medical devices. Take FDA-approved vaginal mesh, implanted in approximately 10 million women worldwide before the agency banned US sales over risks including organ perforation, protrusion, and death.

Its manufacturers, among others, Boston Scientific, Johnson & Johnson, Coloplast, and CR Bard. And health care giant, Bayer, was forced by the FDA to restrict sales of its permanent birth control device, Essure, after reported complications involving device migration and death. This widespread imprecision is evidence that as the next biotech billion is already being raised and spent, from startups to multinationals, there's much to be learned and improved.

MARGARET O'MARA: Elizabeth Holmes was made possible by a broader culture. And her downfall and the attention given to it is also a reflection of the broader culture. You know, there still are investors out there hunting down, you know, who's the next bright young person, man or woman who's going to have the world-changing product.

JOHN IOANIDIS: I think that we have a lot to learn from understanding what happened with Theranos. But I wouldn't like us to lose the bigger picture, the bigger picture being that there is hundreds of companies out there that may be like Theranos eventually, many of them.

ALEXIS KEENAN: How do investors who want and care about getting accurate information out of a very opaque company, where should they look?

ANDY SERWER: You know, I'll tell you-- all this stuff scares me. And then there's a lot of stuff in Silicon Valley actually, technical stuff, chip companies, telecom, even medical stuff that people don't understand. I urge people to make sure they understand. You know, sometimes it's not 100% possible. You can make a rule with yourself, so I don't really understand it, I'm not going to invest in it.

ALEXIS KEENAN: Whether founders can back up what they boast may depend on how vigorously interested parties demand to look behind the curtain.

LEN SHERMAN: I mean, there are several sort of checks and balances. And it could be the press, it could be the board, it could be investors. Theranos was a case where all of those entities let down their guard because the story was so great, and they believed in the mission, and they believed that success would be around the corner until it wasn't. There's a cautionary tale to be looking a little deeper into the underlying economics. I think boards clearly have to be more vigilant than they've been.

REED KATHREIN: I mean, ask if it is a secret, but 90% of the time I think in Silicon Valley they're going to tell you it's a secret.

ALEXIS KEENAN: Now a lot of these biotech startup companies, their IP is very important to them, and they want to protect it.

JOHN IOANIDIS: There's indeed some tension between IP and peer-reviewed disclosure. With patents, it's possible to protect IP, and at the same time allow someone to disclose sufficient information.

ALEXIS KEENAN: Even with patents and peer review, biotech founders and their funders may need to take a few leaps of faith.

CARY GUNN: You always think when you start a new science project, you don't know what the unknowns are. And so that naivety of not knowing what roadblocks you're going to hit, what you don't have to solve along the way, I think that has a long way to go with being an innovator, right, the naivete they [? in-joke ?] is a really important piece of [? the mission. ?]

ALEXIS KEENAN: It is. Yeah. Yeah.

JOCELYN BAILEY: You need money in science, you need a lot of it. And you don't know if it's going to work, but you need guidance.

JOHN IOANIDIS: We don't want to get rid of visionary people. We don't want to get rid of people who really take a shot at a very high risk idea. We don't want them to think that if they do that, they're just going to end up in jail. We want them to take the best shot, but we also want to have some transparency about what is being done.

ALEXIS KEENAN: Just how much transparency is demanded of future visionaries may also depend on how much light the Justice Department shines on private markets by way of Holmes and Balwani. A lot of entrepreneurs would love to have that much money. Why do you think that Theranos chose not to just keep its head down and keep the research going?

CARY GUNN: Because once you've gone public, and you've got this dialogue and mantra and there's all this momentum that you have to maintain, it's very hard to turn that off and go into stealth mode again for a period of time. So there was really-- that's a big part of it.

DAN WARMERNHOVEN: I think Elizabeth had a great big dream. I don't think there was any governors put on her, no speed limits. But that's the case for a lot of people, some work out, some don't. She made some bad decisions too. You know, I mean, she's not home free, but I always felt like she was fully committed to try to deliver the product and make the company successful, and to do that with all the energy she had. She gave it her all. To a certain rate, like I said, you know, I know people laugh when they say, how is she a victim?

ALEXIS KEENAN: Do you see Elizabeth Holmes at all as a victim of this culture?

JOCELYN BAILEY: I think to some degree she is. I mean, look, she was so young.

JOHN IOANIDIS: There's two ways that we can look at Theranos. One way is to say that it is a bad apple, and that the people involved, the CEO, or whoever else were psychopaths and bad people, and they were cheating, and it's all fraud. And everyone else is wonderful and perfect. In a way, there's some sort of recall bias, to use a scientific term. If Elizabeth Holmes had managed to pull this off and get the technology up and running and developed something that worked, everybody would consider her a hero, you know, the most famous person of the 21st century probably.

ELIZABETH HOLMES: If I were fired or I had to start this company over a lot of times in order to figure out how to get this right, I would. And I would just do the same thing over and over again.