Blood-testing startup Theranos Inc. and its founder and chief executive Elizabeth Holmes, once the darlings of Silicon Valley, agreed today to settle charges of "massive fraud" leveled against them by the SEC. And the company's scandal-ridden flameout could cause some awkward moments for Defense Secretary Jim Mattis.
Let me explain.
Theranos became a hot property after it claimed to have a technology that could revolutionize instant blood screenings. But the SEC charged that Holmes and her company exaggerated their technology and business relationships in a bid to raise more than $700 million from hungry investors.
Until late 2016, one of Theranos' business relationships was with none other than Mattis. He pushed for its technology within the Defense Department and sat on the company's board for years, until he was nominated to his current role in the incoming Trump administration.
The linkup started in 2011, while then-Gen. Mattis was in charge of U.S. Central Command. He met Holmes for the first time at an event at the Marines Memorial Club and Hotel in San Francisco. This was back when Holmes, an intense 20-something who'd dropped out of Stanford to become an entrepreneur, graced the covers of Fortune and Forbes as a billionaire visionary.
The full details of their meeting are not known, but Mattis seemingly came away impressed. In June 2012, Mattis wrote Holmes, "I’ve met with my various folks and we’re kicking this into overdrive. I’m convinced that your invention will be a game-changer for us and I want it to be given the opportunity for a demonstration in-theater soonest."
He told her she could call or email him if she needed any help — which she did about a month later. Mattis also personally called a fellow general at Fort Detrick, where the Army conducts medical research, emails obtained by the Washington Post show. According to the SEC complaint, Holmes had discussions with multiple divisions of the DoD from 2011 to 2014, and eventually generated about $300,000 from three Pentagon contracts.
Meanwhile, Theranos' technology was getting pushback from other civil servants, according to the Washington Post:
During that month, Lt. Col. David Shoemaker, a military regulatory expert, wrote to an official at the Food and Drug Administration with questions about the company's regulatory strategy. The FDA official, whose identity was redacted from the emails, wrote that "bottom line, Theranos is not FDA compliant. ... We will be following up with them and recommending a path forward so that they come into compliance...."
Mattis's eagerness to deploy the technology was known and noticed at lower ranks. Near the end of the month, Shoemaker wrote another email to an undisclosed recipient: "The Theranos issue has taken on quite the life of its own within the Army. General Mattis who is the 4-star general in charge of Central Command ... wants to see the Theranos device put into Afghanistan."
The device never made it to Afghanistan, or any battlefield, though Holmes falsely told investors on a number of occasions that was the case. And she reached out to Mattis in August 2012 to complain about Shoemaker.
"I would very much appreciate your help in getting this information corrected with the regulatory agencies,” Holmes wrote in an email to Mattis, also obtained by the Post. "Since this misinformation came from within DoD, it will be invaluable if this information is formally corrected by the right people in DoD."
The general then forwarded the email chain on and asked, "how do we overcome this new obstacle?"
"I have tried to get this device tested in theater asap, legally and ethically," Mattis wrote. "This appears to be relatively straight-forward yet we’re a year into this and not yet deployed."
He later met with Shoemaker, who said the general wanted to "see the side-by-side comparison" of what the military was currently doing for blood lab testing vs. Theranos. It wasn't until about 2015 that people were beginning to learn that Theranos' "breakthrough" blood testing technology wasn't much of a breakthrough at all.
But now that Theranos has been without-a-doubt exposed as a fraud, Mattis' small part in the company raises some questions:
- Was Holmes lying to Mattis, too? His email to Holmes said he was "convinced" her device would be a "game-changer," but what did Mattis see that was so compelling, six years before it would all come crashing down?
- What did Mattis know of the technology in Dec. 2015 — two months after The Wall Street Journal revealed startling problems inside Theranos — that led him to defend it so ardently: “Theranos had demonstrated a commitment to investing in and developing technologies that can make a difference in people’s lives, including for the severely wounded and ill,” Mattis told The Washington Post. “I had quickly seen tremendous potential in the technologies Theranos develops, and I have the greatest respect for the company’s mission and integrity.”
- Mattis joined Theranos' board after retiring from the Corps in 2013 — a move which likely afforded him more information on the technology at hand. He stayed on until December 2016, shortly before he went to work at the Pentagon. But why did he stick around so long? The company was the focus of that stunning WSJ investigation into its regulatory problems starting in 2015, and a federal probe had been launched in April 2016.
These are questions we don't yet have answers for. Mattis probably needs to address them in the interest of transparency and ethics. As the SEC complaint makes clear, Holmes' misleading statements about working closely with the DoD were important, because they lent legitimacy to Theranos' business and helped bring in more cash from investors.
Knowing what Mattis knew, and when he knew it, while on the Theranos board would go a long way to keeping his reputation for selfless service and integrity intact.
Mattis did not respond to my emailed questions, but Pentagon spokeswoman Dana White told Task & Purpose on Wednesday: “Secretary Mattis was struck by the promise of technology and was looking for any technology solution to save lives on the battlefield. He resigned his position on the Theranos board on Dec. 16th prior to his confirmation.”