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The CFO who called out deception at Theranos

The story of a medical-tech startup Theranos is a story of ambition, deceit and Steve Jobs-style black jumpers. High profile Wall St investors poured billions of dollars into the company and almost a million members of the public received incorrect blood test results.

Wall St Journal reporter John Carreyrou uncovered the lies and unfounded claims that shielded Theranos's unreliable technology in his book Bad Blood: Secrets and Lies in a Silicon Valley Startup, published in May this year. The narrative focuses on the figure of CEO and founder, Elizabeth Holmes, once acclaimed as the youngest female self-made billionaire. Carreyrou tracks the incredible rise of Holmes, from 19-year-old college drop-out with little or no medical experience, to CEO of an innovative healthcare startup that was set to revolutionise diagnostic blood testing and was valued at more than $11 billion by the time Holmes was 29.

The CFO who spoke out

But Carreyrou's book also highlights the role of Henry Mosley, the chief financial officer at Theranos who was fired by Holmes in November 2006 for questioning the reliability and integrity of the company's lab-testing systems and equipment. Mosley first guessed something was wrong when he noticed that Theranos employees were unhappy following a demonstration Holmes gave to pharmaceutical firm Novartis in Switzerland. In an interview with CBC Radio, Carreyrou explains that, when Mosley spoke to Theranos co-founder Shaunak Roy, the latter admitted that the demo in front of Novartis had involved a pre-recorded test result. Furthermore, Roy admitted that this tactic of using false results had also been used in demos for prospective investors “because the system didn't always work and, in fact, often malfunctioned”.

At this point, Mosley became very uncomfortable. He realised he had seen no proof – such as pharmaceutical contracts – that Theranos's system was reliable and what's more, he had slightly inflated revenue forecasts, at Holmes's request, because he had believed that the reliability of the Theranos system would make these higher forecasts possible.

Fired for doing his job

According to Carreyrou, Mosley confronted Holmes later that day but she down-played the malfunction of the demo machines at the Novartis meeting. When he then pointed out that they could not continue this deception in meetings with investors, Holmes accused him of not being a 'team player' and fired him there and then. 

But Mosley's departure from the company in 2006 didn't completely lift the lid on the problems within Theranos – in fact Theranos went on to attract more investment and in 2013 it struck a deal with US chemist chain Walgreens to offer its finger-stick blood test in Walgreens stores. However, the CFO's shock-departure and his lack of confidence in Theranos did stir up scepticism about the product.

Years after his departure, Theranos had to void or correct almost a million blood test results in Arizona and California and this year the company was charged by the SEC with fraud. As part of the resolution, Holmes paid a fine and cannot be a director or officer of a publicly traded company for 10 years.

What's interesting about the story of Henry Mosley's involvement with Theranos is the fact that he was one of the few people in the company at that time (2006) willing to stand up to a convincing, powerful and charismatic leader and call out some serious problems. As soon as Mosley became aware of a lack of systems integrity and an outright deception of investors, he immediately spoke to the CEO to address this, even while other executives, including the co-founder and systems developers, kept quiet. This highlights one of the key roles of CFOs and other financial executives, which is to maintain a critical and realistic approach to their company's capabilities and claims, while keeping communications with investors thoroughly transparent. Mosley was fired for doing his job.


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