How Elizabeth Holmes sold the idea of Theranos to employees, investors: Part 1

Holmes' technology promised to run hundreds of tests from just a drop or two of blood, but it was a promise she would never fulfill.
11:32 | 01/24/19

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Transcript for How Elizabeth Holmes sold the idea of Theranos to employees, investors: Part 1
This is rich array. Do you swear its other chaebol or she in the industry. This is Elizabeth Holmes once the youngest female self made billionaire. In this never before your deposition she sits across from twelve attorneys. Under investigation for an alleged years long process. Dick concerned that a number of tests aren't working. Unfair an assistant vice. Now facing up to twenty years in prison it's a stunning fall from grace for the woman who was once poised to change the world. This is a revolutionary compete on price chains healthcare. It's she had made this work. She would have been the next few jobs we've made it possible. To eliminate the tubes into supported her technology promise run hundreds of tests from a tiny finger prick. A promise she would never fulfilled this is not taken to the things product that didn't work. Do ms. Holmes note that serious could not do all those tests she guessing it's a story you read. And it's a story. Credible sucks. It all started here at Stanford University. The birthplace of so many tech icons. In Silicon Valley won the things that people brag about us that they dropped out of college. Steve Jobs dropped out of college Mark Zuckerberg dropped out of college Bill Gates dropped out of college. After less than two years here Elizabeth dropped out to within a point where another few. Classes. And chemical engineering humid not necessarily mean for what I wanted to do. In 2003 she launched her company which she would come to name their announced books about it being that conviction in yourself and Elizabeth wanted nothing less than to eat apple of health care. Insiders say she was a disaster with Steve Jobs and that she wanted to mimic him at every turn turn from those signature black turtleneck this. Recording his former head of software. Poppy to beanie and this. Seems like a really bright young lady. Who is very driven. Is a really interesting idea but he quickly started seeing red flags. She pricked a finger and then she would put blot on something and then she put in the machine and then sometimes she would sit this part doesn't work anymore. Which was a little bit odd but some of that you expect to get from a startup that has a product that's not done right but the problem was and never got better. Offbeat quit after a year but Elisabeth kept going. Eventually getting an enormous loan from a former software executives named Sonny bell Lawny they think it's about twenty million dollars. But signing a flashy entrepreneur or who drove a Porsche 9/11 and a black Lamborghini. Wasn't just offering a lifeline. He was also joining there announced as CEO. Do you think qualification lab testing business. Good night for an apology here at my back not to my knowledge. He seemed an odd choice to employees. But he became Elizabeth's numbered you will be. And together they went after their biggest collaboration yet with Walgreens. As seen here in this there and it Sweden walrus at that point had more than 8000 stores in the US. So you can imagine that that there was blood tests would have been available at almost every street corner recently cut a 140. Million dollar deal. On the heels of that news EG assembled an all star board of government heavyweights. The piece that really vaulted her to fame and start over what was the cover story in fortune magazine. The article states parent knows offers more than 200 blood tests without a syringe. But precisely how geragos accomplishes all these amazing feats and he's a trade secret. We saw her almost once a week. Either gracing magazine cover or attending a tech conference or healthcare conference are going on TV. From there are no Elizabeth home Elizabeth Paul thank you for having me items sold. Incredibly humble we did. This. You founded this company twelve years ago. Right from Delano over the war. I was nineteen. And by 2014 and Aaron Ellis is valued at nearly ten billion dollars in. The founders of Wal-Mart announced 150 million and media mogul Rupert Murdoch 125. Million. And the did Voss family including now education secretary backseat Abbas and another hundred million dollars. But for all the hype on the outside and on the inside. Things weren't going his plans. Employees like Erica Chung who we're dealing with a product that still wasn't working. At what point do you start to think something isn't right here I think the transition happen is when I started processing patient samples so you basically start out with a base test yet. And it kept failing I kept running it over and over and over. And Howell it was handled school it. Totally blew me anyway and they took out data points so years you're saying essentially. That you were cherry picking exactly information right but the thing Kansas we were still processing patience. Like Sherry after. The loan screens wearing hand and infamous blood drop. As of breast cancer survivor cheery needed to get tested regularly. But things took a terrifying turn when shocker results. This that he Estrich dial amount was over 300. Homeland college's office of lenders called me back and she said. I am so sorry that's not good there could be a tumor growing somewhere and will never forget that day the doctor told Siri to go in for more cast. But this time recommended a non there are no slap. It was about a week later. I got the call from my doctor and he said congratulations. Your estrogen is basically nonexistent. That there knows tests had been off by hundreds of Boeing's. No one from their nose ever called me to apologize. And no one. Yeah okay. So many inside the walls of air announced CD were too scared to speak up. But there was one unlikely whistle blower willing to attain the rental scheme and a research engineer named Tyler Schulz but he also happened to be the grandson of former secretary of state George shall miss them on board member Aaron house. You also said that ms. Holmes was manipulative what did you mean that she's really get it telling you when you need to hear to keep coming and she definitely did. A lot with migrant. She would just like she'd hand things hours completely factually not true. People can commanding do you full service laboratory testing. With a stick from a finger as opposed to having tubes in tubes taken from her arm. Good news over calling you factually not true things that ms. Holmes told you. Big ones are being able to run hundreds of blood test from a single drop of blood and. My grandfather would go and get a thinnest tests done and you have been needling his arm. Yeah so what those as a single drop of blood. And there'd be some you know an excuse about why they needed to take them being struck for hand at you know for everybody else's fingerprints and you. Continue to buy into that. They weren't even running as a test on the dance devices while I was working there we only ran second test and it on the best of crisis. Plus the tests are being run. On third party machines. You ms. Holmes knows the time. That serious could not do rather than Sheen Sheen. Bob did you test we were running on geragos devices Tyler says the results were often not accurate. Kind of candidate everyone was concerned that we weren't giving patients the right results. Tyler eventually decided he would raises issues directly with the CEO herself. Elizabeth responded by email later that evening. She writes Tyler. These are very very serious comments and allegations are making this she says this is gonna have to get who have teams go through this climate line. So we'll take some time a story of actions. But rather than a follow up from Elizabeth. She received this email from Sonny will want to. Bad reckless comment based on absolute ignorance is so insulting to me. They had any other person made these statements we would have held them accountable in the strongest way. The only reason I've taken so much time a week from work to address this personally. Is because you are mr. Schultz is grandson. The only email on this topic I want to see from you going forward. Is an apology. Instead Tyler gave his two weeks' notice he says he went to fill me with his grandfather and his home later that day. Tyler tried to make him realize that this was a fraud and his grandfather had sided with Elizabeth Holmes. And didn't believe him he said they're trying to convince me that you're Steven. But he can't do that they can however convinced that Iran and in this case that you believe you're wrong. And and grandfather said that they ferrous prices were currently being used in medevac helicopter. He's so did he tell you who had told him that. She didn't say we're told them. But haven't religion. They also their means and operating rooms and I remember saying that but couldn't possibly be true because. The devices were barely working within the laws that there those. Having made no progress with his grandfather. Tyler eventually took his concerns to Wall Street Journal investigative reporter John Kerry rail. Cherry grew up during the first of many explosive articles in the Wall Street Journal that stated among other claims that the company isn't using its technology for all the tests it offers but instead it was using traditional machines not from companies like Siemens to run the majority of its tests. Following the article a defiant Elizabeth appeared on mad money with Jim Cramer. This is what happens when you work to change things ends. First they think you're crazy then this volume and then all of a sudden change the world. Elizabeth continued to deny deny deny them. But when we come back under the harsh glare of a different kind of spotlight she'd find it harder to avoid the mounting evidence. I know that we made mistakes and for the first time ever you'll hear from the defense attorney for the CEO Alan Aaron this. Stay with us.

This transcript has been automatically generated and may not be 100% accurate.

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