A Wall Street Genius's Final Investment Playbook-Chapter 66

"My algorithm is recommending withdrawing investments from Theranos. If not that, then significantly reducing the investment percentage."

A flicker of bewilderment crossed Prescott's face.

Theranos was the company he deemed the most promising.

Yet, my algorithm, boasting an 80% accuracy rate and a 630% return rate, was raising red flags.

Whether or not he trusted the algorithm, it was bound to weigh on his mind.

"What on earth is the reason?"

"There are two risk factors that could cause excessive volatility in the company's valuation."

"And those are?"

Prescott's expression and tone turned somewhat sharp.

Being overly confrontational in such situations could backfire.

"Well…"

"Speak up."

"No, it might just be something I shouldn't have said…"

"It's fine; feel free to speak."

Feigning hesitation as if it were difficult to explain, I hesitated. At first, Prescott was firm, but he softened his expression and urged me to continue.

Only then did I cautiously open my mouth.

"There are two main factors, the first being the absence of clinical data."

"Clinical?"

"The results of clinical trials with pharmaceutical companies are missing."

However, even after pointing out the absence of critical documents, Prescott immediately waved it off.

"Probably just a procedural oversight."

"But the lack of supporting documentation is an undeniable fact. Without those documents, the risk is too high."

This time, Prescott's face visibly relaxed. He seemed relieved, as though the issue was less serious than he'd initially thought.

"Documentation delays are common. Hesitating on an investment because of one missing document is unnecessary. In this industry, the ones who jump on promising ventures first reap the most rewards. Thoroughness is good, but don't let excessive formalism make you miss opportunities."

He had the attitude of a senior lecturing an inexperienced junior.

A novice giving advice on investments… But that wasn't the priority right now, so I let it slide.

Steeling my gaze, I continued.

"Even so, for risk management purposes, it's essential."

"Just because a document is missing doesn't mean there's a problem with the technology."

But there is.

That kind of technology simply doesn't exist in this world.

For now, though, I chose to let it go.

Challenging the technology outright wasn't wise.

To argue that such technology doesn’t exist, I’d need to prove its impossibility, which is difficult at this stage.

I had to abandon paths without evidence and focus on areas where I could secure proof.

That would be clinical trial data.

"Professor Carrington has already vouched for the technology."

"Technology and clinical results are separate matters."

"Are you doubting Carrington?"

Prescott’s eyes said it all.

—Who are you to question Carrington?

He trusted the professor more than me.

By an overwhelming margin.

Granted, Carrington was a nationally renowned star professor.

And me?

No matter how much I boasted high returns and accuracy, I was just an analyst.

Given the circumstances, even I would side with Carrington if I didn’t know the details.

So directly contradicting the professor wouldn’t do me any good here.

"Not at all. Of course, the professor is correct. I'm not questioning the technology but rather the clinical results."

This might be hard to grasp.

Let me explain with an analogy.

"Imagine a car is released. In the lab, it runs smoothly, and all its engines function perfectly. Professor Carrington, in this case, has seen the flawless technology in the lab."

Actually, Theranos’s Newton wasn’t even capable of demonstrating that, but let’s set that aside for now.

"But no matter how advanced the technology, it needs road tests before hitting the market. A car that performs perfectly in a controlled environment could still encounter issues on real roads. Newton, however, lacks road test data—in other words, clinical data."

"…"

"They claim to have started testing seven years ago, but there’s been no news since. We don't know if they've completed the testing but have no data, if they're still in the process, or if the project was abandoned midway. In such a situation, the risks are too high, and my algorithm warns against investing."

"…"

Prescott was silent for a moment.

The fact that he didn’t immediately adopt a defensive posture indicated that logic and facts resonated with him to some extent.

"Did Professor Carrington explicitly say that ‘it works perfectly in clinical trials'?"

What I pointed out were the clinical results, not the laboratory results.

These two are distinctly different.

Prescott, now aware of this, thought back and replied casually.

"Well, I only recall mentions of groundbreaking innovative technology…"

"May I contact him to verify this?"

When Prescott nodded, I followed up with another request.

"If possible, could you ask for that confirmation in writing?"

This time, Prescott frowned slightly.

I quickly added,

"My position is delicate at the moment. Strictly speaking, I'm affiliated with Goldman, so I don't have the authority to request such information from Theranos."

Theranos is a private company.

It has no obligation to share proprietary technology information with outsiders.

That's why the formal approval of an actual investor like Prescott was necessary.

The issue is that people generally dislike leaving official records in writing, and convincing him was essential.

"I'm not necessarily saying there's an issue. If they're conducting clinical trials and are in the reporting stage, the risk will disappear. If all risks are eliminated, Theranos could be valued as high as $10 billion."

"$10 billion…?"

"But that depends on the state of the clinical trials. To make an accurate assessment, we need to know the current situation."

"…Fine. Do it."

Persuaded by the promise of discovering Theranos's true value once the documentation was in place, Prescott agreed.

Then, with a hint of expectation, he turned to me again.

"Alright, I understand the first risk. What's the second risk factor?"

"Well…"

Once again, I hesitated awkwardly.

This was a particularly delicate topic to bring up.

"What is it this time?"

I exhaled deeply, locking eyes with Prescott.

"All medical devices must receive FDA approval before entering the market."

Prescott blinked at me with an expression that asked why I was stating something so obvious.

But would his expression remain the same after hearing my next statement?

"Theranos's Newton has not received FDA approval."

…

Silence hung between us for a moment.

"What do you mean?"

"I directly inquired with the FDA. Not only has it not been approved, but they haven't even submitted an application."

"…"

"Without FDA approval, the product cannot be sold on the market. My algorithm strongly advises against investing in such a high-risk company…"

"…There must be some misunderstanding!"

Prescott finally cut me off, snapping out of his shock.

"I'm sure it's been approved. I confirmed it with Holmes myself."

"Are you absolutely certain?"

"Of course! It was the first thing I asked before investing. They assured me that all certification procedures were complete."

"At the time, did you specifically ask which organization's certification it was?"

"Which organization?"

"I mean, did you confirm that the certification was explicitly from the FDA?"

Prescott looked at me with disbelief before furrowing his brows and speaking.

"Then what kind of approval would they have received if not from the FDA?"

As expected.

I gave a bitter smile and replied.

"Newton received only LDT certification instead of FDA approval."

"LDT…? What is that supposed to mean?"

"Lab Developed Test. It refers to diagnostic products restricted for use within a single laboratory. To put it in automotive terms, it's like a car permitted only to run on a factory test track."

"…"

"In other words, a vehicle that would face legal issues the moment it's driven on public roads."

"That’s absurd!"

Prescott glared at me, his eyes filled not with distrust of me but with disbelief in the situation itself.

"If you don’t trust my words, you can verify it directly with the FDA. A single phone call would expose the truth, and I have no reason to lie about this."

"But if what you’re saying is true… the product can’t be launched, can it?"

"Exactly."

Theranos was essentially claiming they could sell a car that wasn’t roadworthy.

An impossibility.

Perhaps that’s why Prescott bristled.

"That can’t be true! They've already signed supply contracts with major corporations and launched their business!"

His disbelief in my claim was understandable.

Theranos had proposed a remarkably groundbreaking business model.

—Get a simple blood test while you’re grocery shopping!

To realize this vision, they had signed contracts with well-known supermarket chains like Safeway and Walgreens.

Numerous contracts substantiated this claim, and Safeway even invested $350 million to install Theranos centers in 800 locations.

"Both chains have already set up Theranos centers! Walgreens is even operating them! Do you expect me to believe they’d sign such deals for a product without FDA approval?"

Moreover, Theranos centers in Walgreens were already operational in 40 stores, serving customers.

Superficially, everything seemed to be progressing smoothly.

But I shook my head and refuted his point.

"Those dazzling diagnostic centers don’t actually have the Newton device. Instead, they draw blood from customers and send it to Theranos's laboratory. That’s no different from the conventional blood testing process."

"…"

"Why hasn’t Theranos installed their so-called revolutionary symbol, Newton, on-site?"

"…"

"Because it's an incomplete product that can’t be used outside a laboratory. Future on-site installations are highly unlikely."

Prescott's face stiffened, but he soon shook his head.

"Impossible! Do you expect me to believe that corporations like Safeway wouldn’t verify such details before signing contracts?"

His voice carried confusion and frustration.

Anyone would feel the same.

It defied common sense.

Imagine a car that could only be driven with passengers inside the lab.

Could the best supermarket chains in the U.S. rush to sign contracts for such a nonsensical product?

Something so illogical couldn’t possibly happen…

Yet, regrettably, this illogical scenario was unfolding in real time.

"Of course, they must have asked Theranos about certification. But they likely didn’t explicitly confirm ‘FDA approval.' Alternatively, they might have assumed LDT certification was sufficient."

"That’s preposterous!"

"Safeway and Walgreens are supermarket chains. They might not be familiar with medical device procedures."

"…"

"Isn't that just basic common sense?"

Yes, it is.

But there’s a reason they were deceived.

"Newton is unprecedented. It’s not being used in hospitals; it’s the first diagnostic device being placed in supermarkets. In such cases, the application of existing laws and regulations becomes ambiguous. Proper inquiry with relevant authorities is necessary."

"And you’re saying they didn’t do that?"

"From their perspective, they likely assumed Theranos had already gone through the proper procedures."

In this sense, the victims also share some responsibility.

They should have verified it themselves.

However, supermarket chains typically don’t have personnel with expertise in medical devices.

And Theranos was led by Holmes, a figure revered as a rising star in IT, academia, and venture capital circles.

If someone like Holmes claimed LDT certification was sufficient, it wouldn’t seem unreasonable for them to believe it was true.

But here’s the thing:

In investments, the most dangerous trap is the illusion of ‘what seems obvious.’

"Still, Theranos must have known!"

"They likely did."

"And if they knew and didn’t disclose it, that means… they intentionally deceived us?"

"Strictly speaking, they didn’t lie. They did receive LDT certification."

"But they can’t deliver the product, can they?"

"That’s correct. Even if they were to apply for FDA approval now, it would take at least 3 to 7 years. Real revenue wouldn’t start until then."

"But… they clearly claimed they expected $10 billion by the end of the year!"

Yes, Theranos had been making that claim.

They insisted that with so many contracts in place, massive revenue was just around the corner.

But that was a lie, an impossible one.

You can’t generate that kind of money without the technology existing in reality.

How could you earn money from a product that doesn’t exist?

Yet, Prescott’s face was still full of doubt.

He still believed their lies over my words.

And there was a reason for that.

"Why would they pull a stunt that would obviously fail, with no ability to even deliver? It would be exposed soon enough."

Exactly.

Even if they managed to skirt by for now, this lie was destined to be discovered.

In short, it was a stupid lie.

This is where the confusion comes in.

Would a Stanford prodigy, a rising star endorsed by every major figure… tell such a stupid lie?

There seemed to be no plausible reason for it, leaving Prescott unable to believe me.

"That’s why we need confirmation. Preferably, we should inquire with the board of directors rather than Theranos itself."

Companies can lie.

The role of the board is to prevent them from doing so.

"We need to verify if the board members are aware of this situation."

"Do you even know who’s on Theranos’s board of directors?"

Prescott’s face was flushed with frustration.

"Of course, I know."

The board was filled with illustrious individuals.

Alongside Henry Kissinger, there were two former Secretaries of State, two former Secretaries of Defense, and a former Senator, among others.

"Are you seriously suggesting that such distinguished figures are complicit in deception?"

"Not at all. I’m not saying they’re complicit. There may be other circumstances we’re unaware of, but without understanding those, the risk is simply too high."

"…"

"Do you happen to have direct contact with anyone on the board?"

"Why do you ask?"

"It would be the fastest way to get to the bottom of this. A single call could clarify whether they’re aware of the FDA certification issue."

Prescott fell silent for a moment.

It seemed personal contact was difficult for him.

That was understandable.

The members of that board were once among the most powerful individuals steering the United States.

They weren’t the kind of people whose personal numbers you could easily obtain.

Even for someone with a billion-dollar net worth, it would be the same.

"Then, may I contact them to inquire about this matter?"

"You?"

Prescott immediately frowned.

The idea of someone like me—a mere subordinate—reaching out to such high-profile figures clearly didn’t sit well with him.

He seemed suspicious of how I even intended to obtain their contact information.

"It’s because I anticipate discussing technical details. It would be more appropriate for someone on the operational side to initiate contact."

I replied while silently holding my breath.

This moment was crucial.

To expose Holmes’s fraudulent scheme, I needed testimony from the victims.

Of course, even if I did meet them, there was still the question of whether they’d publicly admit they’d been duped by such a “stupid lie.”

But that was a concern for later.

Right now, I had a different hurdle to overcome.

‘I need to meet them first to do anything.’

As things stood, persuasion wasn’t the issue—I couldn’t even get close.

However, if I could leverage Prescott’s name under the guise of contacting the board as an investor, there was a chance.

That’s what I had been preparing for.

"May I reach out to them?"