What was the whistleblower’s path to coming forward?
In 2013, Erika Cheung was a new employee at Theranos and excited to be working at such a prominent company fresh out of college. Then she started noticing that quality control tests on patients’ samples were continuously failing. Cheung raised concerns to senior management but was shut down and told nothing was wrong. She was instructed to delete certain data points, and the sheets on which she marked the number of times the tests failed would mysteriously disappear.
She discussed her worries with another employee, Tyler Shultz, and after seven months at Theranos she decided to quit. A few months later, she was contacted by Wall Street Journal reporter John Carreyrou, who was investigating the company and its founder, Elizabeth Holmes. Cheung agreed to an interview but was anxious about possibly being revealed as a source — Theranos was very aggressive in coming after people, and she had signed a nondisclosure agreement (NDA).
When she received a letter from Theranos threatening legal action, Cheung consulted a lawyer, who advised her to report what she had seen to federal health regulators. This prompted an investigation that eventually led to the company’s downfall. Cheung never intended to go on record and had assumed she would remain anonymous, but in the summer of 2016 she was subpoenaed to be deposed for a lawsuit against Theranos. Once the depositions were unsealed, Cheung became widely known as one of the first Theranos whistleblowers.
What were their motivations?
Cheung feared the company’s actions were harming people in real life — that people were making medical decisions based on faulty tests. This, along with the chaotic nature of the work environment and the fear and pressure Cheung felt from upper executives after she brought the faulty tests to their attention, prompted her to leave Theranos. But even after quitting her job, she was afraid to come forward and wondered whether her worries were unfounded. She did not feel validated until she was approached by Carreyrou and told him her concerns. Cheung’s father also encouraged her, recommending that she consult a lawyer and report the company.
What was the initial reaction to their story?
After Carreyrou’s article was published on October 15, 2015, things went rapidly downhill for Theranos. Carreyrou described the story as “bulletproof,” as it withstood all attacks and everything reported was eventually proven to be accurate.
How did those being exposed react?
Theranos was already trying to suppress Cheung and fellow whistleblower Schultz by threatening legal action. When the story ran, Holmes denied everything, both in public and to her company, even appearing on CNBC’s Mad Money with Jim Cramer the day the article came out. She gave a rousing speech at Theranos to unite her employees against the allegations, even leading a “Fuck you, Carreyrou!” chant. Holmes continued to appear on talk shows and make statements claiming no fraud had been committed. Allegations poured in throughout October and the rest of 2015; Theranos largely ignored them.
But by the summer of 2016, Theranos was facing serious consequences from all the bad press. Its largest partner, Walgreens, had halted expansion of their partnership and then terminated their contract. The FDA released a scathing review of the company’s management, and the Centers for Medicare & Medicaid Services banned Holmes from owning or operating a lab for two years. The company was also facing criminal and civil investigations by the US government. By October 2016, almost a year after Carreyrou’s article was published, Theranos announced it was closing its lab and blood testing centers.
How did public opinion change?
Although Theranos was once considered one of the tech world’s most promising and revolutionary start-ups, its reputation tanked quickly after Carreyrou’s article was published. As more reports of fraud and mismanagement followed, the public swiftly lost faith. It took a while for Theranos’s employees to believe the bad press; many rallied behind their CEO, certain the accusations would be disproved. Two of its company’s earliest investors, venture capitalist Tim Draper and Stanford professor Channing Robertson, passionately defended Theranos and Holmes well into 2016. But in 2017, Holmes and Balwani were facing criminal investigations. Charges were filed by both the SEC and the Department of Justice in 2018, and by that September, Theranos was officially out of business.
Where is the whistleblower now?
Cheung worked to build the entrepreneurial ecosystem in Hong Kong by helping to create Betatron, a startup accelerator based in the city. Currently, she is the co-founder and executive director of Ethics in Entrepreneurship, a nonprofit that works to “provide investors, entrepreneurs and workers with resources to better recognize and manage ethical issues in emerging companies.”
