were fellows at the Hoover Institution. After befriending Shultz,
Elizabeth had methodically cultivated each one of them and offered
them board seats in exchange for grants of stock.
The presence of these former cabinet members, congressmen, and
military officials on the board also lent credence to Elizabeth and
Sunny’s assertions that Theranos’s devices were being used in the field
by the U.S. military. James and Grossman thought that Theranos’s
finger-stick offerings in Walgreens and Safeway stores were likely to
be a hit with consumers and to capture a large share of the U.S. blood-
testing market. A contract with the Department of Defense would add
another big source of revenues.
A spreadsheet with financial projections Sunny sent the hedge fund
executives supported this notion. It forecast gross profits of $165
million on revenues of $261 million in 2014 and gross profits of $1.08
billion on revenues of $1.68 billion in 2015. Little did they know that
Sunny had fabricated these numbers from whole cloth. Theranos
hadn’t had a real chief financial officer since Elizabeth had fired Henry
Mosley in 2006. The closest thing the company had to one was a
corporate controller named Danise Yam. Six weeks after Sunny sent
Partner Fund his projections, Yam sent very different ones to an
advisory firm called Aranca for the purpose of pricing stock options for
employees. Yam forecast a profit of $35 million in 2014 and of $100
million in 2015 ($130 million and $980 million less, respectively, than
what Sunny projected to Partner Fund). The gap in revenues was even
bigger: she predicted revenues of $50 million in 2014 and of $134
million in 2015 ($211 million and $1.55 billion less than the
projections given to Partner Fund). As it would turn out, even Yam’s
numbers were wildly optimistic.
James and Grossman of course had no way of knowing that
Theranos’s internal projections were five- to twelvefold lower than the
ones they were shown. It didn’t occur to them that anything untoward
could be going on at a company with such a prestigious board. Not to
mention the fact that this board had a special adviser named David
Boies who attended all of its meetings. With one of the country’s top
lawyers keeping watch, what could possibly go wrong?