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Shocking Twist in the Theranos Fraud Story

The Wall Street Journal has revealed that the key whistleblower on blood-testing startup Theranos’ fraud is none other than the grandson of company director and former Secretary of State George Shultz.

Like many of the long-running narratives of our time, it started with a whistleblower.

But there’s a legitimately shocking twist in this story, revealed this week by The Wall Street Journal: The 26-year-old truth-teller who brought down Theranos Inc. is the grandson of George Shultz.

That’s the very same George Shultz who served as Richard Nixon’s Secretary of the Treasury and Ronald Reagan’s Secretary of State.

And it’s the same George Shultz who served on the board of directors of Elizabeth Holmes’ “revolutionary” blood-testing startup.

Theranos insiders tried to marginalize and simultaneously patronize Tyler Shultz in an effort to render him just another Snowden or Assange.

Sunny Balwani, the president and chief operating officer, “belittled Mr. Shultz’s grasp of basic mathematics and his knowledge of laboratory science,” says the Journal.

Balwani also suggested, strongly, that Tyler’s concerns were only addressed because he’s George’s grandson.

And now the grandson is estranged from the grandfather, a schism within one of the most notable families on the right side of the Establishment continuum.

Tyler Shultz and his family have now incurred nearly half a million dollars in legal fees due to his efforts to expose Theranos’ fraud.

As he told the Journal’s John Carreyrou, “Fraud is not a trade secret. I refuse to allow bullying, intimidation and threat of legal action to take away my First Amendment right to speak out against wrongdoing.”

And now the grandson is estranged from the grandfather, a schism within one of the notable families on the right side of the Establishment continuum.

It seems pretty clear now that Tyler Shultz was a key anonymous source who helped Carreyrou break the story of Theranos’ deceptive research and testing procedures.

As we wrote on September 9: “The red flag that sent The Wall Street Journal healthcare reporter John Carreyrou on a quest for answers was Holmes’ inability to adequately explain, with any specificity, what her company’s primary product actually did and how it actually did it.”

Indeed, as Nick Bilton discussed in his September 6, 2016, Vanity Fair piece on the sordid affair, “No scientist could credibly vouch for Theranos. Under Holmes’ direction, the secretive company had barred other scientists from writing peer-review papers on its technology.”

As Carreyrou reported in a November 16 story for the Journal:

Mr. Shultz’s allegations that Theranos’ proprietary Edison machines frequently failed quality-control checks and produced widely varying results were corroborated in inspection results released in March by the federal Centers for Medicare and Medicaid Services. In April, Theranos told regulators it had voided all test results from Edison machines for 2014 and 2015, as well as some other tests it ran on conventional machines.

Tyler was motivated by a desire to protect his grandfather’s reputation. But now he communicates with George through lawyers.

The elder Shultz’s reputation — along with those of fellow former Secretary of State Henry Kissinger, former Secretary of Defense William Perry and former Sen. Sam Nunn — is one of the factors that supported Theranos’ meteoric trajectory.

These four Establishment pillars were all fellows at the Hoover Institution, a conservative think tank affiliated with Stanford University.

Stanford is the alma mater of Theranos founder Elizabeth Holmes. Tyler Shultz took a mechanical engineering degree from the famed Palo Alto campus.

Wrote Carreyrou: “The unusually high-profile board gave Theranos an aura of power, connections and gravitas as it raised money from investors and developed the blood-testing devices Ms. Holmes touted as revolutionary.”

Power, Connections, Gravitas: That would be an apt motto for a Neoliberal Establishment crest.

Is Tyler Shultz a hero? Perhaps in the context of the times, simply telling the truth is a heroic act.

Measured against the weight of what may fall on those who spill the beans, sure, “hero” fits.

Power, Connections, Gravitas: That would be an apt motto for a Neoliberal Establishment crest.

Consider Chelsea Clinton’s effort to “investigate” donations to the Clinton Foundation and their connection to separate business activities conducted by longtime family consigliere Doug Band.

Email traffic disclosed by Julian Assange’s WikiLeaks as part of the “Podesta” package and reported by Zero Hedge reveals an effort to quash, via intimidation, Chelsea Clinton’s concerns about propriety.

“I hope that you will speak to her and end this,” Band wrote to Podesta. “Once we go down this road…”

Yeah, it’s messy. But the Neoliberal Establishment is a mess. That much is clear in the aftermath of its candidate’s historic loss in the 2016 presidential election.

Here — what Lambert Strether of the blog Naked Capitalism describes as “a lovely metaphor” — is a compelling picture drawn by J.D. Alt, author of The Millennials’ Money, of what ails the left side of the Neoliberal Establishment continuum:

If the forest is not healthy, however, the mature trees are highly vulnerable to certain events. Windstorms and ice storms, for example, can bring down huge swathes of what appeared to be strong, mature trees overnight. In this light, we would have to say, in retrospect (although we’ve certainly sensed it for some time now), that the “neoliberal American forest” was not in good health. Under its bark, its hidden structure was eaten away by the doubts, worries and insecurities of the 99% of the population whose incomes and quality of life were headed in the wrong direction.

The neoliberal trees may have honestly thought they were feeding the 99%, but in fact they were starving them. A case in point, which has never been adequately accounted for, is the fallout of the American mortgage crisis. The fact that on the day of the election, 3.2 million families were still underwater in their mortgages — paying more each month to a corrupt banking system than their houses are worth, unable to sell, unable to move to make a new beginning and find a new job, constantly threatened with a downgrade in their credit rating, unmotivated or unable to make repairs or upgrades, living in neighborhoods blighted with empty windows and unkempt yards — the magnitude of that reality alone should have suggested there might be a lot of voters not much interested in maintaining the status quo. The fact that the neoliberal Obama-Clinton coalition, from day one of the Great Recession, didn’t understand (or simply ignored) the devastating and insidious impact the housing collapse was going to have on the lives of the American middle class is still, from my perspective, one of the greatest miscues of modern American politics.

Tyler Shultz would rather not have to spend more than $400,000 on lawyers to justify his attempt to keep his grandfather’s name and reputation clean and intact. Of course, he probably would have liked for Theranos to be a legitimate company.

Chelsea Clinton would rather her mother had won the White House. And she, too, would probably like there to be no question of her parent’s financial and moral integrity.

They would — if offered a choice — favor the status quo.

But here we are.

The Neoliberal Establishment is in crisis.

At least its second- and third-generation scions are asking questions of it.

Old Things New

The 1970 concept album Blows Against the Empire may be credited to both Paul Kantner and Jefferson Starship,” but it’s a Kantner operation all around. It actually predates the formal founding of Starship by about four years.

It’s not the most famous work the guitarist, singer and songwriter participated in; he was, after all, a co-founder of Jefferson Airplane.

But it was the first rock album ever nominated for a Hugo Award, a set of honors given for achievement in science fiction and fantasy.

Contributors include Jack Casady and Joey Covington of Jefferson Airplane; Jerry Garcia, Bill Kreutzmann, and Mickey Hart of The Grateful Dead; David Crosby and Graham Nash of the “supergroup” Crosby, Stills, Nash & Young; and David Freiberg of Quicksilver Messenger Service.

Kantner, who died on January 28, 2016, tells the story of “a bunch of left-wing hippies closely resembling his San Francisco Bay Area compatriots,” as William Ruhlmann of All Music Guide describes it, drawing heavily on ideas espoused by the author Robert Heinlein.

The album concept strikes a chord here because of its theme of interplanetary exploration and resettlement: Kantner’s revolutionaries “hijack a government-built starship and head off to restart the human race on another planet.”

The lead track “Mau Mau (Amerikon)” includes the first reference to Ronald Reagan in a rock song.

It also resonates because of this line: “Get out of the way, let the people play…”

Smart Investing,

David Dittman
Editorial Director, Wall Street Daily

David Dittman

, Contributing Writer

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