A $100 million Theranos investor did a little audit out of fear of upsetting Elizabeth Holmes
Theranos sent financial forecasts to a major investor that were too optimistic – and possibly deceptive – the jury heard yesterday in the criminal trial of the company’s founder and former CEO Elizabeth Holmes.
Laura Peterson, who oversees investments for RDV Corporation, the DeVos family office, testified that Theranos sent her company forecast projecting hundreds of millions of dollars in the very near future.
In October 2014, Theranos Stadium Material said the startup would generate $140 million in revenue in 2014, and a loss of just $3 million that year. The picture was more positive for 2015, when forecasts forecast $230 million in profit on $990 million in revenue. In fact, the startup generated only $150,000 in revenue in 2014. Peterson said she and others were unaware that the company didn’t make any money in 2012 or 2013.
The DeVoses family was just one of a few wealthy families that Holmes tried to invest in their company. The DeVos family’s fortune, estimated at around $5 billion today, stems from the Amway Corporation, a multi-level marketing company founded by Betsy DeVos’ father-in-law, a former Secretary of Education. Holmes also acquired the Walton family from Wal-Mart and Robert Murdock’s fame.
Peterson got the impression that the company was “picking out” investors. Peterson said that while she was studying Theranos, she felt that Theranos was studying DeVoses. “She was inviting us to take part in this opportunity,” she said. Holmes told her she was looking for long-term partners rather than the typical private equity investors who might want to get paid with a quick initial public offering.
Peterson volunteered to look at Theranos after its president, Jerry Tubergen, flagged the investment opportunity for family members in September 2014. “This morning I had one of the most interesting meetings I can remember with the woman mentioned in the accompanying Fortune article,” he wrote in an email.
I followed Theranos by sending two Peterson’s “very large” volumes filled with information about the company. Pink financial forecasts are included, as is the report that Prominently featured the Pfizer logo. That report, which the jury heard last week, was actually authored by Theranos scientists using Theranos data, and Pfizer has not given the startup approval to use its logo. Materials in folders too claimed The company’s proprietary blood test technology “has been comprehensively validated over the past seven years by ten of the 15 largest pharmaceutical companies.”
Things went quickly from there. Peterson, Toubergen, and members of the DeVos family traveled to California for a flight Meeting at Theranos . headquarters. There, they heard a sound and got a sound Demo of the company’s test device—One of the DeVoses family was pricked for testing. Peterson told prosecutors that she and others went to the meeting expecting to invest $50 million. But after the meeting where they are he heard That others were investing nine-figure sums, they crowded the parking lot and decided to increase their commitment to $100 million.
What else prompted the family to double their investments? First, they were impressed with the technology and claims that it could be used in military helicopters and other challenging environments. They also believed that Theranos’ main risks were mostly in rolling out its technology at Walgreens and elsewhere. Peterson’s notes from the meeting said the startup has “long-term contracts, so the risk is execution.”
Test problems are hidden
Peterson and others were unaware that Theranos was having trouble getting results from its proprietary devices. Assistant US Attorney Robert Leach Requested Peterson if Holmes said the company was relying on third-party hardware for the majority of its tests.
She said, “No.”
“Did that matter to you?” Leech asked.
She answered, “Yes.”
In cross-examination, Holmes’ attorney Lance Wade questioned Peterson’s level of diligence. Have you read Theranos press releases about the Walgreens rollout or studied the company’s website, both of which mentioned that the startup used intravenous withdrawals in many cases? No, Peterson said, she didn’t. Have you visited Walgreens in Arizona where the show was being rolled out? No, did you call anyone at Walgreens, possibly the CIO, who she knew? No, Peterson admitted. Did she or anyone else at the RDV hire a regulatory scientist or attorney to conduct further investigation? She said no.
why not? “They were telling us it worked,” Peterson said. “We were relying on what we were told.” But it was more than that.
“We felt that if we got past the process, we wouldn’t be invited to participate,” she said. “We were very careful not to cheat things and annoy Elizabeth.”