The company to be analyzed in this paper will be Theranos, this was a company that was
privately owned and was a player in the health technology. The idea in which the company was
formed was to revolutionized tests
going to reduce the cost that is incurred in conducting the medical tests for patients. Over time,
as the company was growing it falsified claims of having devised blood test which needed little
amounts of blood (Wong, 2018). It was as a result of this claim that the company was able to
attract investors and also gain popularity within the medical field. This paper is going to analyze
the balance of law and ethics when operating a business.
With regards to laws that sought to regulate the operations of Theranos, the following laws were
applied: The federal offense securities and commodities fraud; Consumer Product Safety Laws;
US Securities Act; and Clinical Laboratory Improvement Amendments of 1998. These laws were
supposed to regulate the operations of Theranos, it was, therefore, the mandate of Theranos to
ensure that they comply with the relevant laws. The laws and how they were breached will be
discussed in detail in the subsequent paragraphs.
The federal offense securities and commodities fraud, this particular law prohibits the use of
deception in the stock market that will induce investors to make a purchase or sell the stock
while relying on the deception. In the case of Theranos, it had committed an offense under the
law. The company was able to raise money from private investors and venture capitals based on
the deception or false claims that they had made a discovery that could see less blood being used
for medical tests. While relying on this falsehood, many investors were able to buy shares and
also invest in the company. This was a breach of law to a great extent because Theranos had the
LAW AND ETHICS
obligation to make sure that it promoted the principles of this law while promoting the objectives
of its business.
Theranos did not observe the product safety laws, this is because the alleged products or rather
technological equipment that was going to be used in favor of patients were not subjected to tests
to show their safety. The company relied on false information to promote its objective, this was
subjecting patients to unnecessary threat as it was not proven that indeed their technology or
discovery was able to use less blood to conduct tests. The company owes a duty of care to the
consumers as per the law, the purpose of this duty is to make sure that the goods or services
provided are fit for purpose. The deception that was being sold by Theranos was risky because as
a result of its patients could be misdiagnosed. This would have exposed them to unforeseen
health hazards. As a producer of a product that will be consumed in the United States, it is the
sole responsibility of the producer in this case Theranos to ensure that they conform with the
necessary laws. This will help in reducing the exposure of risks that the users of the products are
Theranos was in breach of the US Securities Act, the purpose of the Securities and Exchange
Commission (SEC) is to maintain the fair, orderly, efficient market, protection of investors and
to facilitate capital formation. To enable this to happen Theranos has been placed with a
responsibility of ensuring that it provides quarterly, semi-annually or annual financial reports.
The basis of this is that it will assist the investors to make sound decisions when it comes to
investments. Theranos through their president Holmes had made false claims that it had made
annual revenues of $100 million, this was a thousand times more than the figure that it had
recorded which was $ 100,000 (Carolyn, 2015). This was a total violation of the law as it was
LAW AND ETHICS
false information that was relied by the investors to make a decision that was not well informed.
Thornes in making this false annual report was undermining the objectives that are supposed to
be promoted by SEC in the security market. This was a breach of the law that sought to disrupt,
corrupt and fleece investors of their cash while relying on information that is not correct.
Clinical Laboratory Improvement Amendments of 1998, the purpose of this program is to ensure
that there is quality laboratory testing in the United States. The Centers for Medical and
Medicaid Services normally issues a certificate to all those licensed to undertake laboratory
services. Theranos had been issued with the said certificate but when an inspection was
undertaken, it was found that Theranos had not complied with the requirements of the certificate.
This, therefore, placed an imminent risk to the health of patients (Mole, 2016). This was a
violation of law which seeks to ensure that the health of patients is well promoted. The failure of
Theranos to rectify their mistake and comply with the regulations after their inability to comply
had been brought to their attention, shows a company that was not willing to conform with the
law. It portrays an image of a company that was driven with the intention of making money
regardless of the risks that it posed to their intended users.
When Theranos was formed, it was centered on consumers. In that, the consumers' interest was
to be taken first and revolutionized how medical field was going to operate. The main focus was
to be on the lab industry as the cost of lab testing was going to reduce. Also, it was going to
reduce the quantity of blood that was going to be used to conduct tests.
Theranos wanted to offer patients a chance of improving the diagnosis and treatment time span,
this was going to improve their health and also life span. This was going to make sure that the
proper medication was going to be provided to them. Also, pharmaceutical companies were
LAW AND ETHICS
going to work together with Theranos to help in the development of proper medicines to be used
Although, Theranos through her director Holmes had different intentions. It was a company that
was centered on making profits. This was to be achieved through dubious means, lying to
investors and even subverting the law. This did not seem to improve the quality of life of patients
but rather it exposed them to more health-related risks. The investors, on the other hand, were
lied to innovations that were non-existence, to profits that were not realized and partners were
made to rely on false information to make their decisions of investing in the business. Theranos
had completely digressed from the ethical principles that were used while it was being formed.
As a result of the activities of Theranos there were several impacts that were felt. It began with
the company falling from a rather profitable business to it being wounded up. The company was
not able to continue with its operations as it was not in the position to continue with its operation.
Several licenses that were obtained by Theranos were revoked as a result of them violating the
provisions of their license and the relevant laws.
Elizabeth Holmes was taken to court and faced numerous suits, from which she had to pay huge
sums of monies to settle them. She was also banned from holding any senior position in a public
company. This was something that she had anticipated while started the company, it has
completely ruined her as a person and any future ambitions that she might have.
Patients suffered the most as they took incorrect lab reports as being correct. For instance, Sheri
Ackert was a breast cancer survivor and Theranos that she had relapsed, this was uncommon.
She had to undertake an independent medical to confirm the report and she was found to be
normal (Previously High-Flying Theranos Provides Clinical Laboratories and Pathology Groups
LAW AND ETHICS
with Valuable Lesson on How Quickly Consumer Trust Can Be Lost, 2018). Another patient
who was a woman was wrongly diagnosed as having thyroid condition Hashimoto’s disease, she
had to change her lifestyle in order to adjust to her medical conditions. She also had to make
unnecessary regular medical appointments and took medications that she was not supposed to
take. Lastly, an Arizona resident, Steven Harmmons who had undergone heart surgery made a
visit to Theranos clinic five times to check the results of his blood-thinning drug warfarin. He
was switched to a different drug, as a result he had to undergo a second operation to drain blood
from the pericardial sac. He believed that if accurate tests were performed the second heart
surgery would have been avoided.
The recommendations to the company would have been as follows;
This whole event would have been avoided if Elizabeth did not rush for the labs. It would have
been great if Theranos had been focused on steady growth and make it occur progressively. This
would have made them be ready and have the right strategy in places to assist them in growing
the company steadily. This would have helped the company from being over-ambitious decisions
and making deceitful claims in order to record sales.
During the operations of Theranos, it ought to have proper employee supervision. This would
have made sure that the company was going to cooperate with the necessary and relevant laws
that were set in place. For instance, the license that was provided by the Centers for Medical and
Medicaid Services was canceled as a result of negligence. This means that the employee(s) or
whoever was employed to maintain the laboratory equipment was negligent while performing
their duty. As a result of this Theranos was found culpable of endangering the lives of their
patients by exposing them to dangerous health conditions.
LAW AND ETHICS
It would have also been important had Theranos maintained proper flow of information among
its employees. This would have provided the company with an opportunity to grow as they
would have shared information that would have helped the company to grow. The proper
utilization of employees would have been achieved if the employees were involved in the
The president of Theranos should have not lied to the investors by providing false information.
This exposed the company into more scrutiny as it was attracting unnecessary media attention. It
was a result of the greed of wanting to show that the company was doing well, it was the
beginning of the downfall of the company. This is because there was too much scrutiny into the
affairs of the company that exposed them. If proper records would have been declared it would
have saved the company unnecessary pressure and definitely its downfall.
Theranos should have never provided patients with lab results that they knew were false. This
was a wrong decision from the company as it was exposing the patients to misdiagnosis which
would eventually affect their health. This was a total departure from the ethical foundation that
the company was built on. The company engaged in unethical practice with the aim of promoting
their business and make immense profit. This did not only make the company violate the laws
and regulations that were set to govern them but also made them violate the ethical expectations
that patients and investors had placed or rather expected from them.
As a business Theranos had breached the duty of care that is owed to patients. The patients
believed that the operations of Theranos was to promote their health and treatment but that was
not the case. Furthermore, Theranos violated several laws in the course of their operations, this
LAW AND ETHICS
showed a company that was not formed in the interest of consumers but rather that of the
proprietors as they were looking to make a kill regardless of the circumstances.
Carolyn, J. (2015). The widly hyped USD 9 billion blood test company no one really
understands. Washington Post.
Mole, B. (2016). Theranos throws in the towel on clinical labs, officially pivots to devices.
Previously High-Flying Theranos Provides Clinical Laboratories and Pathology Groups with
Valuable Lesson on How Quickly Consumer Trust Can Be Lost. (2018, August 31).
Retrieved from Dark Daily: https://www.darkdaily.com/previously-high-flying-theranos-
Wong, J. C. (2018). Theranos and its founder Elizabeth Holmes charged with 'massive fraud'.