Tyler Shultz is the grandson of George Shultz, 95, who was President Richard Nixon’s Treasury and labor secretary and secretary of state for President Ronald Reagan, with whom he had a close relationship. The elder Shultz also happened to be a Theranos board member in 2013 when his grandson accepted a full time position there.
Fresh out of Stanford with a degree in biology, it didn't take long for Shultz to discover deficiencies in the accuracy of Theranos' testing equipment. After Shultz's complaints to Theranos executives, including Elizabeth Holmes, fell on deaf ears, he decided to blow the whistle to a state regulator instead. Using an alias, Tyler Shultz contacted New York state’s public-health lab and alleged Theranos had manipulated a process known as proficiency testing, relied on by federal and state regulators to monitor the accuracy of lab tests.
After working at Theranos Inc. for eight months, Tyler Shultz decided he had seen enough. On April 11, 2014, he emailed company founder Elizabeth Holmes to complain that Theranos had doctored research and ignored failed quality-control checks.
The reply was withering. Ms. Holmes forwarded the email to Theranos President Sunny Balwani, who belittled Mr. Shultz’s grasp of basic mathematics and his knowledge of laboratory science, and then took a swipe at his relationship with George Shultz, the former secretary of state and a Theranos director.
“The only reason I have taken so much time away from work to address this personally is because you are Mr. Shultz’s grandson,” wrote Mr. Balwani to his employee in an email, a copy of which was reviewed by The Wall Street Journal.
Mr. Shultz quit the same day. As he was leaving Theranos’s headquarters in Palo Alto, Calif., he says he got a frantic cellphone call from his mother, who told him Ms. Holmes had just called the elder Mr. Shultz to warn that his grandson would “lose” if he launched a vendetta against the blood-testing startup.
It all started in the summer of 2012, Shultz accepted an internship at Theranos. Impressed by Elizabeth Holmes, Shultz decided to change his major at Stanford and accepted a full-time position a year later. By chance, or maybe not, Shultz was assigned to the "assay vaildation team, which was responsible for verifying and documenting the accuracy of blood tests run on Edison machines before they were deployed in the lab for use with patients." It didn't take long for Shultz to realize deficiencies in the accuracy of the Edison machines.
After voicing his concerns internally, Shultz received a startling response from Theranos' President, Sunny Balwani.Mr. Shultz interned at Theranos that summer and went to work there full-time in September 2013. He had just graduated after changing his major to biology to better prepare for a career at the startup, he says.
Theranos began offering blood tests to the public in late 2013. The company soon achieved a valuation of $9 billion from investors, with Ms. Holmes owning a majority stake. She also is chief executive of Theranos.
The new employee was assigned to the assay validation team, which was responsible for verifying and documenting the accuracy of blood tests
run on Edison machines before they were deployed in the lab for use with patients.
Mr. Shultz says he found that results varied widely when tests were rerun with the same blood samples. To reduce that variability, Theranos routinely discarded outlying values from validation reports it compiled, he says.
One validation report about an Edison test to detect a sexually-transmitted infectious disease said the test was sensitive enough to detect the disease 95% of the time. But when Mr. Shultz looked at the two sets of experiments from which the report was compiled, they showed sensitivities of 65% and 80%.
Then Mr. Balwani’s response arrived. It began: “We saw your email to Elizabeth. Before I get into specifics, let me share with you that had this email come from anyone else in the company, I would have already held them accountable for the arrogant and patronizing tone and reckless comments.”
Ms. Holmes never replied, says Mr. Shultz, who decided it was time to quit his job. He says his mom called while he was on his way out and implored: “Stop whatever you’re about to do!”
Mr. Shultz says he was startled. He went directly to his grandfather’s office. George Shultz had his assistant photocopy the email from Mr. Balwani and put it in an office safe but seemed skeptical of his grandson’s story, says Tyler Shultz.
After making the decision to quit, Theranos went all-in with their efforts to silence Shultz by releasing an army of lawyers and even hiring private investigators to have him followed.
Of course, Shultz was ultimately proven right as independent researchers have confirmed that "Theranos’s proprietary Edison machines frequently failed quality-control checks and produced widely varying results." Meanwhile, Theranos is the subject of criminal and civil investigations by the U.S. attorney’s office in San Francisco and the Securities and Exchange Commission.He says he was told by his parents that Ms. Holmes called the elder Mr. Shultz in the summer of 2015 to complain that their son was being unreasonable. Tyler Shultz says he also got a tip that private investigators were watching him.
In a conversation in his parents’ kitchen, they pleaded with him to agree to whatever Theranos wanted, he says. Even though his heart sank when they discussed selling their house to cover the costs of defending him against a potential Theranos lawsuit, Mr. Shultz didn’t make a deal with the company.
His grandfather asked if he would sign a one-page confidentiality agreement to give Theranos peace of mind. According to Tyler Shultz, when he said yes, his grandfather revealed that two lawyers were waiting upstairs with the agreement.
Michael Brille and Meredith Dearborn, partners at the law firm Boies, Schiller & Flexner LLP, then came downstairs, says the younger Mr. Shultz. Mr. Brille said he was trying to identify the Journal’s sources. He handed the young man a temporary restraining order, a notice to appear in court and a letter signed by Mr. Boies alleging the former employee had leaked Theranos trade secrets.
Tyler Shultz says his grandfather protested to the lawyers that this wasn’t what he and Ms. Holmes had agreed to earlier, but that Mr. Brille kept pressing the younger Mr. Shultz to admit he had spoken to the Journal.
He wouldn’t. “This conversation needs to end,” the young man eventually declared. He says his grandparents ushered the two lawyers out of the house.
That said, Tyler's decision to speak out against Theranos has caused a rift within his family as he and his grandfather only speak through lawyers and his parents have been forced to spend $400,000 on legal fees.Tyler Shultz is cooperating with an investigation of Theranos by federal prosecutors, according to people familiar with the matter. Theranos is the subject of criminal and civil investigations by the U.S. attorney’s office in San Francisco and the Securities and Exchange Commission, which are trying to determine if the company misled investors and regulators about its technology and operations. Theranos has said it is cooperating.
Mr. Shultz’s allegations that Theranos’s 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.
In the past year and a half, the grandson and grandfather have rarely spoken or seen one another, communicating mainly through lawyers, says Tyler Shultz. He and his parents have spent more than $400,000 on legal fees, he says. He didn’t attend his grandfather’s 95th birthday celebration in December. Ms. Holmes did.
“Fraud is not a trade secret,” says Mr. Shultz, who hoped his grandfather would cut ties with Theranos once the company’s practices became known. “I refuse to allow bullying, intimidation and threat of legal action to take away my First Amendment right to speak out against wrongdoing.”