As Elizabeth Holmes awaits a criminal trial, how is she spending her days? A former employee who had a chance encounter tells us some surprising new details about just that, while an old classmate emerges to share some insight into her past. Plus former U.S. Attorney for the Southern District of New York, Preet Bharara shares his analysis on Elizabeth's potential legal fate...and then there's Balto.

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00:00:0018 drop out I'm brand new key from ABC News and want to let you know about another podcast that I host called start here every weekday morning it's 20 minutes and then there's 20 minutes will get your TWP for the stories that will be driving your day with contacts from the people who have been covering them up close that includes Rebecca Jarvis David Muir George Stephanopoulos the whole ABC News crew so smart and subscribe to start here
00:00:24previously on the drop out the SEC charged Elizabeth Holmes and sunny balwani with running an elaborate years-long fraud are made false statements about the company's technology business and financial performance that Elizabeth Holmes is stepping down as the chief executive officer settled without admitting wrongdoing she was stripped upper control of theranos and agreed to pay a $500,000 fine the Department of Justice followed suit Elizabeth and sunny were now facing criminal charges and decades in prison if convicted Sonny's lawyer about you would fight the charges but I think this is a big business failure they made mistakes along the way and executing a business plan but that's not fraud but where does that leave Elizabeth
00:01:16Elizabeth Holmes
00:01:25BBC Radio in Nightline this is the dropout
00:01:29episode 6
00:01:31what now
00:01:38hi this is Megan hey Megan it's Rebecca Jarvis in New York how are you and I'm doing well Rebecca how are you doing you're listening to Megan long she first met Elizabeth Holmes in 1995 when they started sixth grade together at St Johns Private School in Houston Megan says news of Elizabeth's downfall ricocheted throughout this tight-knit community were some of the wealthiest families in Texas send their children oh my God oh my God Elizabeth story just like everyone else followed Elizabeth story but a lot close because we knew her and the shock and sadness of of watching it all play out as just been just been huge for for the community Megan reached out to me after listening to the first episode of the Dropout she wanted people to hear about the polite and gauging Elizabeth
00:02:38she knew growing up Megan says of all her memories of Elizabeth there's one that really stands out under age where the 816 her braces and literally don't remember check the Play Store 3rd place and you're definitely not going to remember who came in last place but here's the thing to this day Megan says she does remember who came in last she says it was always Elizabeth the reason that that always stood out to me is because everyone was finished and then all of a sudden don't cross the track there still a runner on the track that Runner with Elizabeth but sure enough she was not deterred by people laughing or you know on people crossing the field
00:03:38she was going to run that race and finish it and she was determined to do it no matter what anybody said when my team and I first heard Megan tell this story the mood in the room completely shifted throughout this podcast we've learned so much about Elizabeth had so many theories about what makes her tick now imagining this young woman out on that track so determined what was driving Elizabeth back then ambition delusion was this a different side of her or glimpse into exactly who she always was we've heard from people former employees who say she was a bully that she was truly a mean person to them can you imagine that no I honestly like when I heard that I was like oh my gosh like this is like night and day that I know Elizabeth because this is not the Elizabeth then I knew growing up
00:04:34Megan says in there school filled with brilliant students Elizabeth appeared to move through life with a purpose she was frequently carrying stacks of papers and appeared to be working on something big she was always very disconnected from the larger group of girls or just kind of in her own world Elizabeth was either working on her dissertation or maybe she was learning Mandarin but she was always you know very intently pursuing something else do you remember if she had any close friends in school because of just faded out with like social aspect I'm in highschool I don't know who her friends were at that point and I didn't see her really with anybody like school dances a year and she would never come to those at lunch he wasn't you know engaged to sit down at the tables and mingle with people
00:05:34was just dedicated to seniors and everybody would just kind of talk to everybody cuz like a free. Elizabeth was never there like socializing and engaging and celebrating that there was also her distinctive voice so it was very nasally and it was back late with high and low so when she would talk to you will go up and down like it wasn't a very clear as to whether it was distinctly high or distinctly low when I see videos of her wow like her boys got Billy dick on a lighter note Megan says Elizabeth had another claim to fame Lorenzo Lamas was her step-uncle because your grandfather married his mother who were the Hollywood actress
00:06:28yeah from Reese yes
00:06:37Lorenzo Lamas plays The Jock Tom Danny makes fun of Sandy for dating him
00:06:46simple is ripe Tomatoes brains are in his biceps
00:06:50he was also on a TV show on USA called Renegade a quiet loader with some amusing quirks a detached young woman but not Megan says the woman we've known her to be coming today it's a very big shock to the st. John's community and and big sadness in our hearts that this is how it all played out she may have been smart enough to conceal a lot of these tendencies in high school that I didn't see that her parents didn't see or the school didn't see it just doesn't add up so how could a dramatic shift like this happen I asked clinical and performance psychologist dr. Jonathan fader she was described to us as someone who is nice and ethical does life and life experience potentially change our wirings does it change Who We Are
00:07:43this is the million-dollar question really and you know I can't speak to any particular person without meeting them but what I can say is that most people think that it's really a combination of our wiring and then what were exposed to CEOs and High Flyers in the financial services industry it's from the show billions I want you to just commit that you're in it for the long haul that you will succeed her character traits hedge fund of bigwigs helping them to basically get over themselves you are a winner here in the Special Forces here dr. fader says when we fall into stressful situations it's possible we do out of character things and situations could make poor choices but for the most part we Are Who We Are
00:08:43poor choices but I'm sure it is possible it comes to leaders some of the same traits that make them successful also make them more susceptible to crossing the line be in some way somewhat narcissistic and excellent leader is someone who's able to really have a high level of self-confidence you know there is a very thin line between self confidence and arrogance but is it a fine line and it's a fine line for being able to ignore things that are important to other people like feelings or Consequences and doing it so much that you're putting yourself or other people at risk at a young age change how people are as Leaders success generally breeds confidence sometimes though at what I find is that you know if someone has a tremendous amount of success they don't proceed in a natural progression through developer
00:09:43now their leader skills that they would need like empathy social skills the motivation and ability to be self-aware and self-regulate whereas if someone experiences more gradual success they have more time to develop alongside with their career trajectory these other social skills and self-awareness that can protect them against really complicated and potentially dangerous decision my childhood friend Megan long says it's still difficult to make sense of it all especially when she knows what might be ahead for Elizabeth
00:10:16can you imagine her in prison and I imagined Elizabeth I can't imagine anybody that I know in prison
00:10:24I can't imagine Elizabeth in prison I hope and pray to God that everything happens the way that it's supposed to and I can only say that you know sometimes people have to learn lessons in life and it's hard if those lessons are really difficult like prison Martha Stewart know Jared Kushner father has been to prison listen this is how her card has been dealt and I wish her the best and I hope it did it all worked out so how will it all work out I wanted to better understand how strong the government's cases against Elizabeth will she go to jail if so for how long what will her legal strategy be I sat with former US attorney for the southern district of New York preet bharara justo
00:11:24did the charges and prosecuted similar cases okay so let's talk Elizabeth Holmes we met at his offices in New York just after he trapped in interview for his own podcast stay tuned with preet my first question how hopeful should Elizabeth be right now seems overwhelming and I think she will be convicted and I think our best bet is to is to plead guilty what I know about the case and how she might be perceived by the jury but just to give it but my defense had on for a second princess Elizabeth does have one important thing going for her she actually I think I might be able to show that she ultimately was trying to make things right she actually had this ambition of creating this device that we have all these wonders abilities right at the end of the day she want to create this thing and she was devoted to it and along the way it looks like she lied in order to get past the hurdle until she could fix it but unlike some other fraudsters that my office prosecuted
00:12:24play Bernie Madoff for example Bernie Madoff was a fraud through and through a perpetrator of a 65 billion dollar Ponzi scheme that ruined thousands of lives that later I'll make up some money back another way and I'll pay everyone back it was a true Ponzi scheme I'm not saying that carries the day for her at all but if she's in a slightly different circumstance and some other people against a strong case can be made about statements like this technology is being used in the battlefield in Afghanistan in at hospitals cuz I used to be on the prosecution side so when I read the diamond like this I think is very strong usually don't mix precise and specific allegations of the type in this indictment unless you can back it up how does hurricanes compared to Sony's they're both facing the criminal charges
00:13:18betsonny is in a better position because the defense in all these kinds of cases right is that there was a mastermind and The Mastermind especially in this in the circumstance where all the evidence is going to be that she lied to everybody this was the defense of a lot of people that we charge outside of Bernard Madoff they were other people who are accomplices for a little bit more difficult to prosecute and I think son he's probably in a similar position although he's probably more entwined a Sunday in a romantic relationship to the same as some other people in Santa and arms like this since and I did my nine-to-five job in the day they were probably talking about everything all the time so he has that shortcoming in his defense if she can say maybe something that possible unlike her she lied to everybody and Sonny's defense lawyer is going to want to say yeah look at all this evidence you've heard to pull the wool over lots of people's eyes and clean George Shultz and Betsy DeVos and General Mattis all these really smart people
00:14:13did the same to my client
00:14:15but it doesn't sound like that's the directions Sunny will go in at least not initially you might remember in the last episode I spoke with Sony's attorney Jeff Cooper Schmitt and you may recall he said Sunny doesn't feel like he was duped by Elizabeth no that's not what is going on here mr. balwani believe in Elizabeth Holmes and her vision for the company he tried to execute that plan with her to make it a success but I know he's not saying that he was too nice position might not stay that way for long even the right now sunny and Elizabeth Holmes seem to be in sync with each other that can change and this is the future of prosecution that is as commonplace as a judge's gavel people flip and you know what you'll be all kinds of people sometimes slip for boyfriends and girlfriends Elizabeth has something else working against her in predestination
00:15:15is problematic based on what I've seen
00:15:19they're sometimes cases you bring against the CEO of a company and it's a CEO who can claim that I hear she was someone gets engaged and I wasn't involved that I had managers I delegated may very well go this route remember in her deposition she claimed she didn't know or couldn't recall more than 660 times when it came to the particulars of her business say I don't know specifically on that I'm not sure why I don't know exactly I just don't know what it says here she can argue that she was deeply strategically substantively in every aspect of the business and how the prototypes worked or didn't work because of her you know charm and Charisma and personality she personally saw that the investors you personally so now people who be on the board for her
00:16:14being incredibly smart and being incredibly educated and Incredibly sophisticated is a harmful
00:16:21you have to wonder in Silicon Valley a place where so many Founders are playing the fake it till you make it game could Elizabeth make the argument she was just a symptom of her environment if it's this whataboutism that we talked about in America these days where you go after somebody whether it's your child who stole from the cookie jar and you say well you know my brother just left my cookie jar yes you will that's okay I'll do with him separately this is not about him it's about you and the court of law it's not relevant if you were advising her would you tell her to settle to plead guilty person good lawyer says look you're still a friendly young person your whole life ahead of you and you will maybe come out of this still relatively young but I think you have to have a conversation like that because files are tough and prosecutors don't bring cases like this until unless they really really really think they're going to Prevail there's something else to watch out for showing hubris
00:17:21she might have to testify so not only maybe does she think that she is a good witness because she's been able to scam people before and she knows she can talk her way out of a paper bag you think we'll all I got to do is convince 12 people at the end of the day that I'm not a bad person the danger for her is most Witnesses think they are better than they are and they got crushed in cross-examination unfortunately if you're one of the many listeners hoping for some quick closure here you might be disappointed how hard is this case going to be to prosecute we know depends on your perspective on the one hand it seems very obvious that there was a frog and the allegations in the diamond of a specific you know lie after lie after lie misleading statement after misleading statement right but in any white collar case you have to prove not only the things happened do you have to prove Beyond A Reasonable Doubt and this is the threat of lack of success in any kind of White Collar prosequi
00:18:21how to prove what's in the person's mind and her and her boyfriend Sunny are only guilty if you can prove Beyond a reasonable doubt that they intended to lie that they intended to mislead bottom line though pretty things Elizabeth if convicted will face some significant time if she loses if the prosecution wins their case do you think she'll go to jail well into the 10 to 15 to 17 years is that mean she'll get that much time if she's convicted maybe not but I think it's a substantial likelihood
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00:20:05it'll be a while before we learn Elizabeth's legal fate a trial still a long ways off and there's a huge amount of documents in this case more than 16 million pages that need to be process that was all held up earlier this year by the government shutdown Elizabeth is due back in court on April 22nd for a status hearing basically an intermediate step to look at how everything's proceeding
00:20:31until then how exactly is Elizabeth spending her days Michael Craig has an idea he says he ran into her a few weeks ago over Martin Luther King weekend in Sausalito Michael and his wife Betsy we're having cocktails at a bar overlooking Richardson Bay and there's a woman sitting across from us and I never realize she's looking right at us and it was Elizabeth Holmes although she look very different house it's such a surreal thing I never thought I'd run into her again but she was she was dressed in like a dark hoodie and jeans and didn't look to have any makeup on or anything she looked pretty young and a little bit slight her pastor was a little stooped over and she was staring right at us
00:21:25and then she got up and came over and we stood up and I was completely you know taken by surprise but the last time Michael had spoken to Elizabeth was in 2017 his final day at their nose even let go is part of a company restructuring she came over and introduced her friend is her fiance and we shook hands and it was just really weird Elizabeth is engaged apparently least that's what I heard
00:22:03what was her fiance like he was probably mid-20s who looked like a you know he look like a college educated you know I wouldn't say hipster but like he reminded me a lot of like you know the the two boys that work there in a short cropped hair handsome guy pretty you know about going on say whose family has been very successful in the hospitality business is 8 years younger than she is he graduated from MIT where he studied economics and now works in technology in San Francisco but I honestly wasn't that focused on them
00:22:43Michael says he was especially thrown by what she said next fiance Michael and I used to work together at their nose and I was just caught off guard Again by that because it sounded like you know she was some one of the employees or something she said you know Mike was one of the most loyal people and he was unfortunately victim of one of the layoffs and we were very sad to see him go and then she asked a whole lot of questions about you know how I was doing how my wife is doing and a little small talk and then she said something which was a little bit weird which was
00:23:25she asked if we could get coffee sometime and she told us that she would really like to have us back in her life again and I know I didn't know what to say I didn't certainly didn't want to deal with that question
00:23:43attitude like what I thought was really interesting about you know this is the woman who had been on all these magazine covers she used to walk around with such an air of confidence and certainty and definitely a subscriber to positive thinking and things like that positive psychology and in the moment I saw her and when she came over she seemed I don't know a little bit worn down but she didn't seem like somebody who was had done anything wrong there was no apology or anything like that there was no responsibility extended in anything she said and I thought I just thought that that was it was upsetting you know this is somebody who claimed to be promoting transparency and have integrity in the reality is that neither one of those is true
00:24:29Michael says Elizabeth didn't even intimated about the elephant in the room no acknowledgement She's accused of fraud facing jail or allegedly lied to so many people including him this is someone I almost worshipped in your eyes as has like a guru of you know technology and business and and then to have that you know glass shatter I bet that illusion I held up of her was you know was traumatic that's he said afterwards that I was seemed pretty shaken by the whole encounter but we've made an excuse and got out of there paid the bill and you know when I walked around the corner I just yelled out cuz I didn't know what I was feeling it was such a rush of emotion a lot of contradictory emotions because this is somebody who I you know devoted and served for 5 years
00:25:29Leslie keno and then all this stuff comes up along the way and you know she's facing a criminal investigation and yet she's talking to me and she doesn't know if I could be a potential witness or anything like that so I thought the whole thing was very weird and I just started to realize coming out of it that there's a lot of stuff I haven't dealt with in terms of the impact that whole experience has had on me in the end I wanted to know if Michael could have asked Elizabeth just one thing point blank what would it be
00:26:00was it intentional or did you just screwed up what do you think
00:26:09I suspect it's both things a certain level there's wanting something so badly that you're just going to do whatever means necessary take whatever actions you need to take necessary cuz you're so convinced you're going to get there in the long run
00:26:24isn't alone the question still linger for many of the people who got caught up in Elizabeth's world like on arriola the product designer who left Steve Jobs is Apple to work at their nose in the early days I think it's a really coined the reality Distortion field Mets win set individual believes implicitly that what they are saying is emphatically the truth that everyone else believes it to be the truth Steve Jobs former right hand at Apple who originally put 1 and 1/2 million dollars into their nose and for a time served on the board wonders if they all felt just a little bit into that Distortion field of Elizabeth's along the way here that created what's called fomo fear of missing out right and everybody before you has been on this so you really want to believe that it's true
00:27:24and then you combine that with this incredibly compelling story okay you've got this really smart female CEO right who's really smart who's going to make herself super it in his going to do a wonderful thing for the world right it is a great story you want it to work we all want that to work
00:27:46what Avi raises here is one of the central questions of this story because in order to have an Elizabeth Holmes you also have to have a bunch of people and institutions fail how much of that fomo culture do you think plays into the culture here in Silicon Valley
00:28:06it definitely happens there's no there's no question and it's sometimes self-fulfilling because the companies that can raise hundreds of millions of dollars get to be the ones that stick around to try and make it a success or they get to be the ones that spend a lot of money on acquiring large customer bases and then turn them into success and the ones that don't get into that mode they never raised enough money and they're never successful even if have a better product so what's interesting is it somewhat self-fulfilling and it's almost a legitimate strategy to invest find other successful investors just because they'll have the momentum
00:28:46according to clinical psychologist dr. Jonathan fader it's actually not that easy to get around this group think it's part of our DNA and this is evolutionary we sat around and older versions of ourselves and evolution etcetera and tribes the one thing you never wanted to do is speak out against the chief if you speak out against the Chiefs or guess what you might get damaged and if you're banished well you're basically dead Without Shelter without the group there's nothing to sustain you when we have a narrative or story that we can buy
00:29:27this is especially true he says when the person selling that story appears to be as remarkable as Elizabeth person who can talk in a way that can pull at the underlying values that people have and can can make them feel face and that we're headed in the right direction even the message that lacks data or is somewhat flawed can be accepted and this part is personal investors weren't the only ones who bought into Elizabeth much of the media was dazzled by her narrative and satisfied by answers that didn't always add up or made doubters look simple-minded
00:30:09we can and must do better to don't get distracted leave our preconceptions at the door keep asking the tough questions and listening to the answers over the course of this podcast you've gotten to know a lot of people not just Elizabeth but all the lives in her orbit obviously this whole situation created a lot of collateral damage but many of the central players in this Saga have moved on now they're building their own things
00:30:44Tyler Shultz the original whistleblower who risked so much to tell his story about Theron UPS his own medical device company in San Francisco it's called flux biosciences George Shultz the former theranos board member who apparently was cited with Elizabeth over his Ransom Tyler has had a change of heart George Shultz responded to a request for an interview with the letter writing he commends Tyler for his quote handling of the troubling practices he identified at their nose and that Tyler quote did not shrink from what he saw as his responsibility to the truth even when he felt personally threatened and believe that I had placed allegiance to the company over allegiance to higher values in our family Tyler navigated a very complex situation in Waze
00:31:43made me proud he's been an example for the entire family for which all of us are grateful I want to recognize and congratulate Tyler for his great moral character
00:31:57Erica Chung a former theranos employee who is instrumental in telling this story is now working at betatron a venture capital private Equity Firm in Hong Kong she said she's committed to Growing the entrepreneurial ecosystem I hope that people don't get completely discouraged and think that everyone who is in the healthcare industry in the Biotech Industry is somehow out to get them and to hurt them like there are a lot of good people in this industry that really really want to do you don't really want to do good
00:32:27after years of working for Elizabeth Michael Craig is now a senior architect at hintmd it's a start up in the medical aesthetic space he also has something else in the work they reduce the musical I've got a good structure for it I do and when I have to start working on some songs have some good ideas for them though
00:32:51areola one of Elizabeth's early employees poached from Apple has since moved on to become a general manager and partner at Microsoft specializing in artificial intelligence and research and like so many including the team of women behind this podcast on it is particularly disappointed that Elizabeth is a woman so many others looked up to only to be let down by her
00:33:16it hurts me to know that so many women so many female entrepreneurs in the world believed in her and saw her as this world changing individual in all on I knew she was ethically corrupt Phyllis Gardner an early skeptic continues to teach medicine at Stanford and shares and honors regret if I was not successful it bothers me that the women wanted to idolize her and that she fell bothers me that his students thought she was great and it bothers me about the patients
00:33:54so I get Disturbed she hopes future generations of students will focus their energy on learning over dollar sides without sounding too critical it would be better as soon as we focus on service Humanities arts and other things to broaden their minds rather than just focusing on becoming a multi-millionaire by starting your company
00:34:16Joseph use who was Elizabeth's neighbor in the late eighties and early nineties thinks there's a particularly sad irony to the fact that Phyllis Gardner whom he regards as one of the most brilliant scientists of our time is in some ways that very groundbreaking female Healthcare Pioneer but he says Elizabeth just pretended to be honest pictures of that way I mean it if you take A Time release tablet today is very good chance it's from the technology that that Phyllis Gardner worked on and was so sad to me here's this woman who really is like this amazing inventor right but the Press wanted Youth and they wanted you know this would have blond hair Etc and so the elevated Elizabeth I always find it so ironic an set an away because I to Meet the Press is building up Elizabeth for trying to be with Phyllis actually was Phyllis is in your home. Elizabeth's machine
00:35:17theranos wellness centers are long gone from Walgreens stores but the drugstore chain says it's still waiting on theranos to pay the settlement
00:35:27to this day neither Elizabeth Sunny North their nose have admitted any wrongdoing
00:35:34read Catherine represented investors in a lawsuit against their nose says the company should be held responsible for what he says are egregious misdeeds jail for sexual things this is not a little thing not only did they fully investors they fooled the media they fooled patients they full doctors Jeff Cooper Smith is optimistic about the trial ahead are very confident that when the jury hears a whole story you're going to see an acquittal is caves acquittals so you think both Elizabeth Holmes and sunny balwani will be a really brilliant person who has plans and dreams like all of us if he wants to continue to develop software he wants to
00:36:34I don't know whether to be Healthcare he wants to continue the intrapreneurship that he's shown in the past Elizabeth sources say she's living in San Francisco happily engaged she's often seen walking her dog ball to a Siberian Husky she named after a famous sled dog who transported life-saving medicine across Alaska in the 1920s
00:36:59it according to insiders she's already planning a new company it might even resemble their and out as she told a packed house at a Forbes conference three and a half years ago down over and over and over and over again and you win by getting back up and I would start this company over 10,000 times if I had to
00:37:21and if history is any indication Elizabeth Holmes the drop out the last woman on the track who refused to quit until she finished the race is not going down without a fight
00:37:51Elizabeth Holmes and sunny balwani did not respond or declined to comment for this podcast some material including Court depositions were edited for clarity and time the Dropout is written and produced by Taylor Dunn Victoria Thompson and me our editors are crispr Ube and Evan Viola who also created our theme song our researchers are Victor Ordonez and Lane when our artwork is by Teddy blanks at chips and why the Dropout is a production of Nightline ABC radio and ABC's business unit for Nightline gentleman is the supervising producer and Stephen Baker is the executive producer Ericka room rust ABC specialized units thanks to the team at ABC radio and thanks to you the listener for joining us on this journey you never know when we might be back with more
00:38:44from ABC this is no limits even from the beginning all of us were saying this is so important and each week we're taking an honest look at success and how to get there with the boldest most influential women in the world I said I am a working mother and I'm here to tell you how to do it what happened after that is a very long story to tell episodes of No Limits every week on Apple podcasts or your favorite podcast app

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