What lessons should retailers take from the Theranos fraud debacle?
Testimony in the criminal trial of Theranos founder Elizabeth Holmes paints a picture of major retailers willing to take a vendor’s word without engaging in the type of due diligence required to vet those claims.
Ms. Holmes has been charged with nine counts of wire fraud and two counts of conspiracy to commit wire fraud as part of a case brought by the Justice Department. The government alleges that Ms. Holmes and Ramesh “Sunny” Balwani, the former president and COO of Theranos, engaged in a multi-million dollar scheme to defraud investors, doctors and patients with the promise of new laboratory testing processes for drawing and testing blood and interpreting patient data.
The startup in 2010 was trying to bring major retailers on board with its promise of a revolutionary step forward in testing.
Executives at Safeway and Walgreens were excited by Theranos’ claims after outside experts gave the thumbs up, even though they did not have access to the equipment used in the testing. The chains also failed to independently test Theranos’ devices. If they had, they would have found that what sounded good in theory did not work.
In the end, Walgreens engaged in a pilot program with Theranos before filing a 2016 lawsuit against the company. Safeway never made it to the pilot stage after encountering issues that indicated the tech was not as advertised.
Wade Miquelon, chief financial officer at Walgreens from 2008 to 2014, traveled in 2010 for a meeting with Ms. Holmes and Mr. Balwani where he was told that Theranos could run about 95 percent of conventional lab tests on its own devices with results coming back in around 15 to 20 minutes.
The Wall Street Journal reports that Mr. Miquelon said in his testimony that the drugstore giant was drawn to the claims made by Theranos because it meant that small testing devices could be placed inside of pharmacies or clinics to quickly provide results to patients rather than having to be sent out to labs.
Ms. Holmes told Walgreens that three pharmaceutical companies had done their due diligence on the Theranos devices and confirmed their claims.
“This was one of the most exciting companies that we had seen, maybe not just in lab but in general,” Mr. Miquelon said.
- U.S. v. Elizabeth Holmes, et al. – United States Department of Justice
- Former Walgreens CFO Describes How Theranos Wooed Him – The Wall Street Journal
- Elizabeth Holmes Trial: Retailers Vetted Theranos Without Testing Devices – The Wall Street Journal
- Former Walgreens CFO testifies about pharmacy’s troubled partnership with blood-testing start-up Theranos – The Washington Post
DISCUSSION QUESTIONS: Did the retailer vetting process work in the Theranos case? What responsibilities do you think retailers need to take for the products they sell and the services they offer?