The MSU Ethics Lecture Series hosted Tyler Shultz, the whistleblower who helped take down Theranos, Monday night to discuss the importance of standing up to employers and institutions engaging in unethical practices.
The event was called "Fraud is Not a Trade Secret: A Conversation with Tyler Shultz."
Tyler Shultz was an employee of Theranos Inc., a biotechnology company founded in 2003 by now-disgraced entrepreneur Elizabeth Holmes. After a meteoric rise and reaching a value of $10 billion, the company was exposed for fraudulent practices by Shultz, his coworker Erika Cheung and Wall Street Journal investigative reporter John Carreyrou.
After introductions, the event's moderators asked Shultz to recount his time at Theranos.
Shultz was a junior at Stanford University when his grandfather George Shultz, who worked in the Stanford Graduate School of Business and at the Hoover Institution, a conservative think tank on Stanford’s campus, invited him to his house one day.
George Shultz was a former U.S. Secretary of State who served under three U.S. presidents and was appointed by President Ronald Reagan.
“(My grandfather said) 'I’m having a brilliant woman over to my house, and I think you would learn a lot by just coming over and listening in on our discussion,'" Shultz recalled.
Later that day, Shultz rode his bike to his grandfather’s house and met Elizabeth Holmes.
“She was wearing her black turtleneck, her all-black outfit,” Shultz said. “I heard her really deep voice, saw her piercing, unblinking, blue eyes, and that was the first time I heard her lay out the vision for Theranos.”
Shultz summed up what Holmes said that day.
“(She said) she had dropped out of Stanford when she was 19 years old, and she had invented this technology that could do anything that a central laboratory could do, and she could do it with just a single drop of blood,” Shultz said.
However, Holmes' pitch didn’t end there.
“Even better, (Holmes said) you could do these blood tests anywhere where you had access to electricity," Shultz said. "So you could run these blood tests on battlefields, and helicopters, and operating rooms, and grocery stores, and spaceships and patients’ homes. It sounded like a technology that did not have any limits."
Following this conversation, Schultz said he knew Theranos was something he wanted to be involved with, so he remained in touch with Holmes through college. He said his first job post-college job was at Theranos.
However, Shultz quickly realized “the reality at Theranos did not align with what (Holmes) was saying.”
Shultz compared his experience at Theranos to “living in the Twilight Zone” because the technology “simply didn’t exist.”
Shultz was working with a machine called the Edison, which Holmes repeatedly told investors and the media could test for hundreds of diseases.
Shultz learned that the machine could only test for one thing at a time.
“It was just a pipette on a robotic arm in a box," Schultz said. "There was nothing that Theranos technology could do that I couldn’t do with my own hands and a pipette."
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“On top of that, the device was just poorly engineered,” Shultz said. “And what bothered me the most was that even though the device could test for just one thing at a time, it couldn’t test for that one thing accurately, so the results were wildly inaccurate.”
Shultz recalled that when inspectors came to Theranos to give a certification for the company to test real patients, the doors to the laboratory were intentionally locked.
“Regulators were only shown third party equipment that you would see in a Quest or a Labcorp,” Shultz said, referencing two established blood testing companies.
Next, Shultz said, Theranos participated in proficiency testing, or when a company must test patient samples sent to labs across the country by a third party and test the sample the same way the company would.
But Theranos split those samples and ran them on both Theranos equipment and third-party equipment.
“In some cases, the results were off by more than 300%,” Shultz said.
Shultz said management at Theranos ultimately decided to submit the results from the third-party equipment rather than the results from the Theranos equipment, “even though, if an unsuspecting patient had walked into Walgreens and gotten their blood drawn, they would have only been tested (by) the Theranos equipment.”
Shultz said this experience showed him that management knew the tests they were doing were inaccurate because they knew not to report the bad results to regulators.
At this point, Shultz said he felt he had to raise some of his concerns. But this wasn’t an easy thing to do given Theranos’ treatment of employees who had previously voiced their concerns.
“We had seen a few cases where people had spoken up, and they were just fired on the spot,” Shultz said. “And, sometimes worse than that, in one case, Theranos then sued the employees that they fired.”
Shultz said that upon firing and suing employees who spoke up, management sent a company-wide email saying, “We will sue you, too.”
Shultz recalled feeling conflicted before speaking up because of his personal relationship with Holmes and the fact that his grandfather was on the company board.
He thought he could raise his concerns and help change the course of the company.
He recalled being initially “brushed off” by Holmes upon raising his concerns and soon noticing that she was avoiding him, which was “very unlike her.”
He then put his concerns in a comprehensive email, providing evidence and suggestions to improve the company’s practices.
Shultz said the company’s COO, Sunny Balwani, who later was revealed to be in a relationship with Holmes, responded by calling Shultz “arrogant, ignorant, patronizing, reckless” and saying he “had no understanding of math and science or statistics, and that if (he) had any other last name, he would have already been held accountable in the strongest way."
This email from Balwani caused Shultz to quit.
Shultz said his grandfather didn’t believe what he was telling him about Theranos’ malpractice and stayed on Holmes’ side. He even said Holmes came to his family Thanksgiving about eight months after he quit Theranos.
A few months later, Shultz contacted a Wall Street Journal investigative reporter named John Carreyrou, who was working on an exposé of Theranos using a burner phone he bought with cash in an attempt to avoid being caught by Theranos lawyers.
A month later, Shultz recalled what he thought was a private conversation with his grandfather at his grandfather’s house when he was ambushed by Theranos lawyers who served Shultz with a notice to appear in court.
“Even though I knew I was right, I felt like they could buy the truth,” Shultz said.
In 2015, the Wall Street Journal started publishing articles exposing Theranos’ fraud.
From then on, “It was a really long, drawn-out ending for Theranos,” Shultz said.
Federal investigations ensued, and the Theranos laboratory was eventually shut down.
Holmes is currently serving an 11-year prison sentence on convictions of fraud and conspiracy related to false claims she made to investors regarding Theranos’ technology.
After sharing his experience, the event transitioned into a question-and-answer session.
Moderators asked Shultz if his connection to George Shultz affected his decision to speak up.
“I felt like, where everyone else is too afraid to say anything, I actually can say something and she cannot afford to fire me on the spot with my grandfather being on the board.”
When asked about his outlook on the world following his experience, Shultz said that despite his initial pessimism following his departure from Theranos, he has a “generally optimistic (outlook) on life and Silicon Valley in general.”
However, Shultz stressed that after his experience as a whistleblower, he doesn’t recommend that everyone do what he did due to the “extreme emotional cost.”
When asked about what Shultz did after leaving Theranos, Shultz said that he started two diagnostic companies of his own.
Shultz said his experience starting companies in Silicon Valley caused him to change his perspective on Holmes and Theranos.
“I hesitate to say this, but I have a little bit of sympathy for what (Holmes) experienced when she was 19 years old in Silicon Valley,” Shultz said. “When you’re trying to raise money for a start-up, every single day there’s pressure to exaggerate. Every single day there’s a venture capitalist telling you, ‘Make that number bigger.'"
One attendee asked why George Shultz stayed by Holmes’ side rather than the side of his own grandson.
Shultz said he had the same question and angrily asked his grandfather that question when George Shultz and the board at Theranos had expressed their full support despite federal agencies vindicating Shultz’s concerns of scientific malpractice.
“I wanted to go on the record with my story, in part, to make my grandfather look really bad,” Shultz said. “If he was going to choose her over me, I’m going to make him make that choice publicly.”
When asking his grandfather about his allegiance to Holmes, Shultz said, “The only reasons that I can see are that you are, one, in love with her; two, you invested too much, and you are greedy, and you can’t bare to lose that amount of money; or three, you’re old, and you don’t understand what’s happening.”
Shultz believes the answer to the question is a combination of all three, he said.
Shultz said that his grandfather doubled down and told him that Holmes was about to unveil the technology at a conference and would “blow everybody’s socks off.”
One attendee asked about Holmes’ motivations for starting Theranos and if she was planning to defraud investors all along or if she believed her product worked.
Shultz said that he believes Holmes started the company because she wanted to be famous.
“She wanted to be Steve Jobs and she emulated him in so many ways,” Shultz said.
Shultz had to clarify that he was not joking after recalling that “Theranos had their flag at half-mast when Steve Jobs died for longer than Apple did.”
How can students learn to be ethical?
Student moderators asked Schultz what college students should know about ethics before graduation.
He answered that someone has to be faced with ethical dilemmas in order to learn how to conduct themselves and that dealing with smaller-scale ethical dilemmas can prepare one for larger-scale ones.
“When you’re a student, maybe your ethical dilemma isn’t a $900 million fraud, maybe it’s something much, much smaller, but this ethical impulse is like a muscle that needs to be worked out,” Shultz said.
Shultz was asked by a moderator what role universities play in preparing students to become ethical leaders.
“One way universities can do better is by being ethical leaders themselves,” Shultz said. “If students see their universities being ethical leaders, then they will reflect that.”
Tegan Kareus, a student moderator for the event and supply chain management senior, said there is an increased importance for MSU students to learn about ethics and social responsibility given MSU’s recent history of controversy.
Nandita Jagan, the other moderator for the event and finance sophomore, said, “I think leaders need to be able to be as transparent as possible, which is, you know, maybe not very common at MSU.”
Kareus also spoke on the importance of MSU students learning about ethics given the status quo in the corporate world.
“I think corporate America can tend to be a pretty unethical beast… it’s essential that MSU students are the people who will not turn their heads away from (unethical situations),” Kareus said.
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