In 1996, I published an article in the Ohio State Law Library on “vaporware” in Silicon Valley.  Vaporware is the marketing ploy of preannouncing products that do not yet exist and may never come into existence in their described form.  This was a common marketing practice in Silicon Valley at the time, but it carried the potential for antitrust liability, products liability, and securities fraud liability, both civil and criminal.

The thing about vaporware is that when software products did not materialize as promised by their companies, the damage was mostly financial—to disappointed consumers and investors.  Unfortunately, when a company is rolling out a new product in the healthcare field that does not live up to promises, lives can be endangered and that is the scary story of Theranos and Elizabeth Holmes spelled out in John Carreyrou’s new book Bad Blood: Secrets and Lies in a Silicon Valley Startup.

The book tells a startling story.  Elizabeth Holmes dropped out of Stanford to start a company she promised would revolutionize the health care industry by quickly, cheaply, and nearly painlessly allowing virtually every blood test known to man to be done with just a drop of blood pricked from a finger.  Holmes was smart, confident, articulate, driven, and beautiful.  She channeled Steve Jobs, dressing all in black and copying him in other ways.  She affected a deep voice. She ran Theranos as her personal fiefdom, maintaining voting control while raising $900 million, and wrapping many very prominent old men around her finger—George Shultz, Rupert Murdoch, Henry Kissinger, James Mattis, David Boies, Sam Nunn, among many others.  She held Barack Obama, Joe Biden, and Hillary Clinton in thrall.  Holmes became the darling of Silicon Valley and a role model for all of us who were tickled to see the first female billionaire whose wealth derived from a company that she herself started. She was described as a genius with a heart.

At one point, Holmes held more than half of the stock of a company that private investors were valuing at $9 billion.  But it was all a mirage.  The firm never got close to creating the technology to do the tests that Holmes promised.  And yet she kept promising and kept trying to roll out products that did not work.  She sustained the fraud by fanatic security that kept employees in silos so that they didn’t know what other employees knew, by suing ex-employees with lawsuits if they talked, by threatening the press, and by being the consummate liar.

As a business ethics professor, I am most interested in how this happened.  The most innocent explanation is that Holmes genuinely wished to change the world, but her enthusiasm coupled with overconfidence led her to overpromise.  Because she was rapidly accumulating capital, employees, and good press clippings, loss aversion made it impossible for Holmes to admit the truth—that her products were nowhere close to living up to her hype.  Like rogue trader Nick Leeson, rather than admit the truth, she kept doubling down.  She desperately wanted to believe her own hype, but likely at some point realized the truth but saw no alternative but to keep lying.  Incrementalism kicked in and little lies and small cheats slowly became more blatant lies and bigger cheats. Because she was so determined to change the world for the better and had deluded herself into thinking she was about to do so, Elizabeth likely gave herself moral license to tell the lies she deemed necessary to reach her goal. This behavioral ethics explanation is plausible, I think.  [Naturally, Ethics Unwrapped has videos on all these concepts.]

Another school of thought mentioned by Carreyrou near the end of his book is that Elizabeth was under the influence of her lover, Sunny Balwani, who was rich, twenty years her senior, and a bully who summarily fired any employee who dared point out that the emperor had no clothes.  Carreyrou points out, however, that Elizabeth had been lying to pharmaceutical companies for at least a few years before Balwani joined the company.  And Elizabeth was nearly as big a bully in managing the firm as Balwani and shared his paranoia.

Carreyrou seems to believe a darker story, described in the last paragraph of his book:

A sociopath is often described as someone with little or no conscience.  I’ll leave it to the psychologists to decide whether Holmes fits the clinical profile, but there’s no question that her moral compass was badly askew.  I’m fairly certain she didn’t initially set out to defraud investors and put patients in harm’s way when she dropped out of Stanford fifteen years ago.  By all accounts, she had a vision that she genuinely believed in and threw herself into realizing.  But in her all-consuming quest to be the second coming of Steve Jobs amid the gold rush of the ‘unicorn’ boom, there came a point when she stopped listening to sound advice and began to cut corners.

Carreyrou points out that Holmes has never apologized or shown any remorse for her wrongs, which may make his theory the strongest.  Whichever theory is correct, Bad Blood tells a riveting cautionary tale.



Ken Auletta, “Blood, Simpler,” New Yorker, Dec. 15, 2014.

Julia Belluz, “How Silicon Valley Got Played by Theranos,” VOX, June 12, 2018, available at

Nick Bilton, “She Absolutely Has Sociopathic Tendencies”: Elizabeth Holmes, Somehow, is Trying to Start a New Company,” Vanity Fair, June 8, 2018.

Nick Bilton, ”Exclusive: How Elizabeth Holmes’s House of Cards Came Tumbling Down,” Vanity Fair, October 2016.

John Carreyrou, Bad Blood: Secrets and Lies in a Silicon Valley Startup (2018).

Marco della Cava, “She was ‘the next Steve Jobs.’  Now, Theranos Founder Elizabeth Holmes is Charged with Fraud,” USA Today,” March 14, 2018.

Avery Hartmans, “The Rise and Fall of Elizabeth Holmes,” Business Insider, May 25, 2018.

Robert A. Prentice, “Vaporware: Imaginary High-Tech Products and Real Antitrust Liability in a Post-Chicago World, Ohio State Law Journal, 57: 1163-1263 (1996).