A former Theranos employee testified at founder Elizabeth Holmes’ fraud trial that she raised multiple alarms about the blood-testing startup’s fraudulent practices, but was ignored by high-ranking members of the company.
In a bombshell six-hour testimony in the San Jose fedearl court on Wednesday, former lab associate Erika Chueng said that as well as alerting several managers, she also she warned several senior officials, including Ramesh ‘Sunny’ Balwani – Holmes’ former lover – and late board member George Shultz, a former Secretary of State.
Cheung told the court that she told them that the company’s technology wasn’t should not be used on patients, and the results it produced were about as reliable as ‘flipping a coin’.
She also alleged that the company often cut corners to give the false impression that its products were ready for widespread use on patients.
Holmes is facing accusations that she defrauded patients and investors with promises that her supposedly revolutionary blood-testing technology could diagnose more than 200 conditions with a few drops of blood from a finger prick
Former lab associate Erika Cheung attests that she warned several senior officials – including the company’s number two-executive, multiple managers, and a former US Secretary of State – that the company’s proprietary technology wasn’t reliable enough to use on patients, and that the produced results were about as reliable as ‘flipping a coin’
Cheung revealed to the court that she was ‘really stressed and uncomfortable with what was going on’ in her waning months at the company, and did not feel comfortable using Theranos’ blood-testing technology to administer samples on patients.
She resigned in April 2014.
Holmes is facing accusations that she defrauded patients and investors with promises that her supposedly revolutionary blood-testing technology could diagnose more than 200 conditions with a few drops of blood from a finger prick.
Cheung, however, told jurors that Theranos’ primary blood-testing apparatus could not handle more than 12 types of tests, and instead ran most tests on third-party machines.
Cheung testified to the court Wednesday that quality-control tests in Theranos’ lab would regularly fail, and they would then ‘cherry pick’ the best data points to gain certification.
She added that lab employees often manipulated data in an attempt to keep the devices operating.
Shockingly, the former lab associate also revealed to defense attorneys that quality-control tests for the company’s blood-testing products were not done on human blood samples.
Cheung told the court that she eventually brought her concerns to Balwani, Holmes’ second-in-command – and former live-in lover – but was rebuffed and condescended by the executive for her claims.
‘The feedback and reception I got from him was, “What makes you think you’re qualified to make these calls, you’re a recent grad out of UC Berkeley, what do you know about lab diagnostics? You have no visibility in this company,”‘ Cheung recalled to the court.
‘It was starting to get very uncomfortable and very stressful for me to work at the company,’ Cheung said. ‘I was attempting to tell as many people as I could, but it was just not getting through to people.’
As mentioned, Holmes and Balwani have a history together – in a context that seems far from professional.
The two dated and even lived together prior to Balwani joining Holmes’ multibillion-dollar startup in 2009, and according to text messages released by prosecutors, their relationship spilled over well into his tenure with the company.
The text messages between Holmes and Ramesh ‘Sunny’ Balwani offer a window into their scramble to combat fraud allegations, and may undermine a huge facet of Holmes’ defense, that attests that she was a pawn manipulated by an abusive lover – Balwani.
‘You are breeze in desert for me. My water. And Ocean,’ read the messages from Holmes to Balwani in May 2015, which were released by prosecutors on Tuesday
The text messages between Holmes and Ramesh ‘Sunny’ Balwani (above in 2019) may undermine her defense that she was a pawn manipulated by an abusive lover
The text messages were sent just before the Wall Street Journal published its explosive report exposing alleged fraud and misrepresentations at Theranos.
The messages show how Holmes and Balwani raged when they learned of the looming report, and schemed to identify and discredit the insider sources who had spoken to the Journal.
Balwani, who will be tried separately next year, has also pleaded not guilty.
Cheung also testified that she took her concerns to Theranos board member George Shultz, a former U.S. Secretary of State, and the grandfather of another former Theranos employee-turned-whistleblower, Tyler Shultz.
Nothing materialized from Cheung’s efforts, however, and the company continued operations without hindrance.
Cheung said she also told multiple managers and collegues about her concerns with the start-up’s technology, but nothing came of it.
In 2015, Cheung wrote a nearly 1,800-word letter to the main U.S. labs regulator alleging that Theranos had ignored standards for staff credentials, used expired lab supplies on a frequent basis and that its proprietary testing devices had ‘major stability, precision and accuracy problems.’
CMS described similar findings after inspecting the company’s labs. Theranos later cleared all of the test results performed on its machines, and reached a settlement with CMS under which Theranos voluntarily closed its labs.
Cheung is the second witness in what will likely be a more-than-three-month-long trial.
If found guilty, Holmes will be charged with ten counts of wire fraud, two counts of conspiracy to commit wire fraud and up to 20 years in jail if convinced of the felony charges in a case that has captivated Silicon Valley and the biotech world.
The firm is accused of lying that it was able to diagnose a multitude of health conditions with a simple blood test, and further lying to Walgreens in order to set up a partnership which saw testing deployed at the retail giant’s drugstores.
Holmes was a Stanford University dropout who started Theranos in 2003 at age 19.
She grabbed headlines with her vision of a small machine that could draw a drop of blood from a finger prick could run a range of tests more quickly and accurately than those in conventional laboratories.
She has pleaded ‘not guilty’ to ten counts of wire fraud and two counts of conspiracy to commit wire fraud.
Cheung, who made appearances in a documentary and TED talk about Theranos, notified The Centers for Medicare and Medicaid Services (CMS) to what she thought were constant safety and quality-standard violations in Theranos’s laboratories.
Cheung’s testimony will continue on Friday.