iki Chen
M
AC115-11
Professor Li
5 December 2024
Case #3 - Theranos
1. Please list 5 facts from your reading of the case and be prepared to discuss them in class.
❖ Elizabeth Holmes founded Theranos when she dropped out of Stanford in 2003
when she was nineteen years old.
❖ She wanted to create an innovative method that can process and analyze
bloodwork which is just pricking the patient's finger a lot faster than the
conventional methods.
❖ She knew that the technology she was using to process the data was flawed and it
did not deliver the results as fast as Holmes and Balwani told the public.
❖ However, she continued to market her product as she originally did and did not
disclose the information to her investors and even faked her results using
third-party results.
❖ Lots of investors were attracted to what they marketed and the results that they
were shown and Theranos received a lot of investments.
3. Provide two specific examples of how Theranos used or did not use nonfinancial
information to violate the full disclosure principle. In your description, state the specific
way in which the full disclosure principle was violated.
olmes knew that Edison which is the technology that is supposed to analyze the patients'
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bloodwork and deliver the results quickly did not actually perform as promised. However,
she still marketed to the public that they did which then gave them a good reputation. Then,
when the investors came to see the process, Theranos used a third-party result because
Edison could not perform as promised and made the investors think their company had
achieved what they promised. Consequently, they benefited from the investments received.
4. Discuss whether a private company and its leaders have the same ethical obligations
when seeking funding from wealthy private investors as a public company and its leaders
have when they seek funding through public securities offerings.
private company and its leaders definitely have the same ethical obligations when seeking
A
funding from wealthy private investors as a public company and its leaders have when they
seek funding through public securities offering because if they lie to get investments, it is
lying to their investors. The investors could be losing a lot of money because of false
information and it is unfair to them as they do not have any information to make the correct
choice for investment.
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