Theranos whistleblower: Ethics above all, including profit

Don’t ignore wrongdoing, even while ‘changing the world,’ Olafson Ethics Symposium lecturer Erika Cheung tells UND

Last month, the UND campus community heard from a prominent whistleblower on the importance of speaking up when ethical standards are violated.

Erika Cheung, best known for uncovering unscrupulous practices at the health technology startup Theranos, delivered the keynote lecture at the 19^th annual Olafson Ethics Symposium.

The symposium – honoring the philanthropic support of UND alumnus Robert Olafson – invites speakers spanning the business community to lecture on the importance of personal and professional ethics.

In her lecture, Cheung chronicled the rise and fall of her former employer. Founded in 2003 by Elizabeth Holmes – a 19-year-old dropout of Stanford University – Theranos sought to transform the traditional model of venous blood testing with a device called the Edison.

Using a single drop of blood obtained via finger prick, Holmes claimed the Edison could detect a range of chronic conditions including diabetes, cancer and autoimmune diseases.

Investors were bullish. At the company’s height, Theranos was bolstered by hundreds of millions in venture capital, and a board of directors including former U.S. Secretaries of State George Shultz and Henry Kissinger, and former Secretary of Defense James Mattis.

Cheung called this period – spanning roughly 2013-2015 — Silicon Valley’s heyday, when the tech industry was lionized by the public.

“You had people coming from all over the world, trying to get jobs,” she said. “There were huge campuses where they would do your laundry, give you free food. What was exciting was it was a whole mindset – they were about making money and changing the world.”

In addition to support from luminaries in the business and political arenas, Cheung said, Holmes had the backing of the media. She appeared on the cover of magazines such as Forbes and Fortune, and Theranos was billed as a company poised to revolutionize its industry.

“Holmes was the darling of Silicon Valley,” Cheung said. “Everyone wanted to see her succeed – they wanted to see Theranos be the next Apple or Google.”

Cheung herself was such a believer of Theranos’ mission, that she sought employment with the company. After graduating from the University of California-Berkeley in 2013 with a degree in molecular and cell biology, she accepted a position as an entry level lab associate with the company.

“I had anticipated to work at Theranos for the next decade of my life,” she added. “This was a problem I wanted to solve. She (Holmes) seemed like a female founder I wanted to back, to encourage the next generation of scientists and engineers.”

In her role, Cheung was responsible for validating test results on Theranos’ Edison machine. Just months after starting, however, she noticed warning signs.

Cheung said she and other employees were encouraged to delete test results deemed outliers – a practice she called antithetical to the scientific principle of data integrity.

This was the tiny thread that started to unravel the company’s artfully constructed tapestry, Cheung said.

The Edison’s results were wildly inconsistent, sometimes approaching a 50% failure rate on quality control exercises – exercises where Theranos employees knew the concentration of samples being tested, she said. Despite these issues, Cheung’s daily workload increased from 10 patient tests to 2,000, due to a partnership Theranos had entered with Walgreens Pharmacy.

Cheung eventually took her concerns to Theranos chief operating officer Ramesh “Sunny” Balwani. Cheung said Balwani questioned her understanding of statistics and gave her a command: do the job I pay you to do without question.

“At this point, it became clear to me that they knew what was going on, but weren’t doing anything about it,” she said. “People often ask me, ‘When did you know something was really wrong?’ This was the stomach-flip moment where I said, ‘What the hell did I just get myself into?’”

Cheung then spoke with her friend and co-worker Tyler Shultz – grandson of George Shultz. Tyler Shultz had also found inconsistencies with lab results during his work, and invited Cheung to have dinner with him at his grandfather’s house.

Cheung reiterated her concerns to George Shultz, who dismissed them by telling her, “I’ve brought a lot of smart people into this deal, and they all say it works. Maybe you should look for another job.”

Discouraged and conflicted, Cheung resigned from Theranos. Shortly thereafter, she was contacted by the Wall Street Journal and served as an anonymous source for reporting that began to uncover the company’s deceptive practices.

After Theranos’ practices began to be scrutinized, Cheung said she was harassed and intimidated by lawyers hired by the company. She eventually moved to Hong Kong in an attempt to put the experience behind her, largely staying out of the public eye until her name was leaked via public records.

Later, Cheung and Tyler Shultz were called upon to testify in criminal proceedings against Holmes and Balwani.

The latter pair were eventually convicted of wire fraud and defrauding investors, and sentenced to about 10 years in federal prison.

Cheung, who’s now executive director of a nonprofit called “Ethics in Entrepreneurship,” opined that Theranos’ status as a biotech innovator gave it “moral license” — an ability to operate seemingly beyond reproach.

“We were in the healthcare industry – one of the most benevolent of industries,” she said. “It basically gave us credence to hide all of the horrible misconduct happening behind closed doors.”

Cheung added that the topic of business ethics is particularly salient, given the rapid rise of industries such as artificial intelligence, robotics and cryptocurrency.

“These are areas that are primed for these types of scandals to happen, because they’re operating in territory where it’s not very clear where the rules of engagement are,” she said.