Elizabeth Holmes and Sunny Balwani had a romantic relationship while working together at Theranos – something they did not disclose to investors
When scientist Doug Matje walked out of his well-paid job at a buzzy Silicon Valley startup on Friday 13th, it turned out to be his lucky day. By quitting Theranos in September 2013, Matje narrowly avoided a five-year rollercoaster ride known as one of corporate America’s most infamous frauds.
Later this month Matje’s former boss, Theranos’s founder Elizabeth Holmes, will go on trial. Next in court will be her chief operating officer Ramesh “Sunny” Balwani, who unknown to investors was also conducting a romantic relationship with Holmes.
They are accused of lying about Theranos’ ability to conduct cheaper, accurate lab tests than its rivals with the prick of a pin and just a few drops of blood. The lies helped con investors including Rupert Murdoch out of $700m, prosecutors allege.
A judge ruled this month that the court will be able to examine Holmes’s mental health records, after defence lawyers signalled plans to call on a clinical psychologist to testify about a “mental disease or defect”. The papers are also expected to offer new insights into her pivotal relationship with Balwani, who at 56 is nearly two decades older than Holmes. He met the entrepreneur when she was 18 and still in high school, and remained by her side as Theranos was built and later collapsed in infamy.
Today Balwani claims he was one of the biggest losers in the debacle. Yet Matje says his sudden decision to quit Theranos was spurred by the operations chief’s management style. Balwani was frustrated that the scientists were not producing lab test data quickly enough to send to regulators, despite their frequent all-nighters. Theranos was under pressure to back up its claims that its machines were capable of revolutionary faster, cheaper blood tests. They were not.
The Theranos lab in San Francisco, April 12, 2015, where inaccurate blood test results were processed
Credit: Carlos Chavarria/The New York Times
That September morning had begun as it often did with Balwani dressing down Matje’s line manager, Paul Patel, in front of a dozen or so employees across Theranos’s otherwise silent open-plan office. Tired of “gruff” Balwani’s rants, Matje locked eyes with him in a “death stare” and stormed out of the office for an early lunch. He was exhausted from his late-night attempts to fix the “piece of crap” Theranos technology.
“My boss had become a whipping boy for Sunny,” Matje says. “He was chewing him up in front of the entire department because he didn’t think we were working fast enough – even though the expectations of what we needed to do were way out of the ordinary”.
After lunch, Matje was called into Balwani’s office where it was implied he was not pulling his weight. Pushed beyond his breaking point, the scientist grabbed his belongings and went to the nearest bar where he was later met by his ex-colleagues. He drank so much that evening he woke up in his back garden in the early hours of the next morning.
“It had been so stressful, it was like a release,” he says. “A cult is a good way to describe the mentality they were trying to dispense to the organisation”.
Matje then watched from the sidelines as Theranos became a Silicon Valley darling. Within three years the blood test startup had secured lucrative contracts with Walgreens Boots Alliance – the second largest pharmacy chain in the US – and grocery chain Safeway. It fetched a $10bn price tag after appealing to a bevy of well-regarded investors, turning Holmes into the youngest self-made female billionaire overnight.
Journalists fawned over the prospect of a female Steve Jobs. Holmes’s black turtleneck, blonde hair and startling blue eyes stared out from newstands. She was flown to speaking gigs in a private jet and photographed at glitzy dinners and award ceremonies with celebrities like Bill Clinton, Alibaba’s Jack Ma and Serena Williams.
Then Vice President Joe Biden tours a Theranos facility with Elizabeth Holmes in 2015
Credit: Connor Radnovich / San Francisco Chronicle / Polaris
‘Dangerously unreliable’ results
As Holmes sold the outside world on the wonders of Theranos’s technology, Balwani cracked the whip at headquarters in a vain effort to deliver on her promises. He was not averse to hyperbolic salesmanship himself, however.
“We have been working on something that we believe is magical and is going to improve the quality of care and reduce the cost burden on taxpayers,” Balwani told politicians during a presentation in Arizona in 2014.
He declared that Theranos was aiming to help those who struggled the most with blood draws: the elderly, cancer patients and children. After his talk Senator Kelli Ward said she “loved” what Theranos was doing, and heralded it as an example of “bringing the free market to the health system”.
Prosecutors now allege that Balwani knew what he was promising did not exist. Some of the lab tests for Walgreens – the second largest pharmacy chain in the US – were conducted using rivals’ technology when Theranos machines failed. Even when they did operate they sent inaccurate results that meant patients were handed “dangerously unreliable” data, Wall Street regulators have said.
Among the patients affected was a woman who received a negative pregnancy test only later to find out she was having a life-threatening ectopic pregnancy, and a cancer survivor whose results suggested her cancer had returned. Despite claims otherwise, Theranos was only able to perform 12 out of the 200 types of test it advertised, according to court documents. Balwani denies all criminal and civil charges of fraud.
Elizabeth Holmes' ambition to revolutionise blood testing through biotechnology spawned one of the biggest frauds in Silicon Valley
Also in 2014, Balwani donned his suit for a nationwide roadshow promoting Theranos’s technology to investors and potential customers. He exaggerated Theranos’s annual revenue by a factor of 1,000, and falsely forecast $1bn in revenue for the following year even though it generated just $100,000 the year before, according to the Securities Exchange Commission, which has settled fraud charges against Holmes out of court. Balwani has not settled and says he is innocent.
The separate criminal prosecution of Balwani is scheduled to begin after Homes’s trial ends in January next year. Whatever the outcome, his has been a dizzying rise and fall after arriving in the United States in the 1980s from Pakistan via India.
Theranos workers, many steeped in the Silicon Valley start-up scene, were surprised when a man without any medical experience was appointed to lead operations in 2009. There were whispers at lunch tables over his history and even today Matje describes him as “not trashy but with one too many buttons undone on his shirt”.
Michael Craig, a senior software engineer at Theranos, told ABC News in 2019: “I always wondered why he was there. If [Holmes] actually had this vision of really impacting the world, I was like ‘Why, why did you pick him then?’”
Balwani’s expertise was in corporate software, not science. He enrolled in Texas University in 1986, studying Information Systems. After stints at Microsoft and Lotus he helped build and sell an internet company and made $40m just before the bubble burst.
A freshly-minted millionaire, he married a Japanese artist and splashed out on cars including a Porsche 911 and Lamborghini Gallardo and a mansion in Atherton, the well-heeled San Francisco satellite where Sir Nick Clegg now lives as he spins for Facebook.
Relationship an ‘open secret’
Theranos founder Elizabeth Holmes and former chief operating officer Sunny Balwani addressing the company’s staff in 2015
It was on a Stanford University trip to Beijing, China, that Balwani, then a 37-year-old computer science student, met 18-year-old Holmes, who was due to join the Silicon Valley institution the following year.
She did, but eventually dropped out to start Theranos and begin her romance with Belwani. He moved Holmes into his home after divorcing his wife, and in 2009, he was named as Theranos’s president.
Investors and board members were unaware Holmes and Balwani had been living together for four years when Balwani took over Theranos. Despite the age difference and the arrival to work in different cars, employees say it became something of an open secret in the office.
“My thought was what was this child doing with that man who is so much older than her,” says Cheryl Gafner, a receptionist at Theranos in its earlier years. “If nothing else maybe he was a mentor because she didn’t graduate from university so she wasn’t an engineer or scientifically inclined. In the end I realised that she needed Sunny because he could be a bigger d*** than her, which is what you want on your side.”
Matje suggests that Theranos was already aware it had bitten off more than it could chew prior to his departure in 2013.
“I started seeing shady stuff start to appear,” Matje says. “I was thinking ‘they’re going to be sending false data to the Food and Drug Administration [the medicine regulator] and that kind of made me nervous”.
It was when Theranos began working with Walgreens that the pressure multiplied. Firings became so common that staff joked that when someone had left that “Sunny has disappeared them”, according to John Carreyrou’s essential book on the scandal Bad Blood.
Walgreens, which eventually sued Theranos for $140m, was beginning to grow concerned over reports of inaccurate patient test results and was asking Balwani for answers. In texts to Holmes, shown in court filings prepared by prosecutors ahead of Holmes’ fraud trial, Balwani warned that Walgreens was asking questions about a regulator investigation which it had tried to keep quiet.
“Okay. WAG [Walgreens] freaking out,” read one text from Balwani to Holmes. “Lack of transparency”.
In another he wrote: “Our validation reports are terrible. Really painful going thru this process. Same issues FDA point out… Going bad so far. Pray.”
When workers raised concerns about the efficacy of Theranos’ technology, Balwani allegedly shut them down. Former worker Erika Cheung said that when she told him she was leaving he became “very aggressive”.
“He said ‘you’re hardly out of college, you don’t know what you’re talking about,” she said while speaking at a conference in Dublin in 2019. “‘Why don’t you do the job I’m paying you for, which is to test samples’.”
Balwani was himself on borrowed time. One year after questions about Theranos’s accuracy became public, he was ousted from the company and Holmes moved out of the home they shared. He later sold the mansion, now worth an estimated $13m.
Holmes is now married to William Evans, a 28-year-old Californian heir to a property management company. She gave birth to her first child earlier this month, and the judge has designated a quiet room for her to nurse in during the trial.
When his trial begins in January, Balwani’s lawyers will argue that he cannot be accused of fraud because he has nothing to show for it. He claims to have joined Theranos when it was on the brink of bankruptcy, investing $12m of his own money and paying himself just $1 salary and stock, which is now worthless.
“Sunny operated the mechanics for the Wizard of Oz,” says Reed Kathrein, a lawyer who sued Theranos on behalf of investors. “And Elizabeth Holmes was the wizard.” A highly intelligent man, he was “truly ignorant of science and medical science,” he adds. “I think he was trying to translate his software and hardware experience into a field that is very different and I think that is why they kept going for so long – he thought it was eventually going to work.”
Neither Holmes nor Balwani’s lawyers responded to requests for comment.