A Movie That Will Help You Understand the Meltdown of Theranos

In a dispatch that will live in the annals of estimation errors, Forbes has concluded that rather than being worth $4.5 billion, Theranos founder Elizabeth Holmes is worth nearly one dollar. If you round up. Be fair call it zero.

With federal regulators circling and a likely raft of lawsuits to come from people harmed by all of the company’s now withdrawn blood test results, Theranos is becoming one of the epic collapses of a much-hyped company in the history of American capitalism. John Carreyrou and the Wall Street Journal deserve another Pulitzer for seeing through the mirage, not least because the firm sicked high-powered lawyers on them to suppress the story.

How can a company that so many smart people were convinced was the next big thing turn out to be a house of cards? I hope Carreyrou writes a book explaining Theranos’ particular story, but in the meantime, the best explanation one can have comes from a terrific documentary I recommended a few years ago. I am re-upping that film review here: its content is as fresh as today’s headlines.

How did one of the country’s largest companies go from riches to rags almost overnight, if it ever truly had riches in the first place? That question is skillfully and intelligently answered in this weekend’s film recommendation: Alex Gibney’s 2005 documentary Enron: The Smartest Guys in the Room.

The title refers to Ken Lay and Jeff Skilling, who convinced themselves and the world that they had a created a new kind of company that could make unprecedented profits in the energy sector.

As one insider puts it, as each quarterly report approached it seemed the company was not going to make its numbers yet somehow it always did, and then some. Enron’s astronomical reported profits did not gain credibility in a vacuum: its books were audited by Arthur Anderson, its accounts were interconnected with those of some of the nation’s most trusted financial firms (e.g., Merrill Lynch) and all the “objective” stock analysts were singing the company’s praises. But of course it was all a lie, and it unraveled with shocking speed and horrific destructiveness.

This movie adroitly combines interviews of journalists, former Enron insiders and political figures with archival news footage (e.g., Skilling and fellow crook Andrew Fastow’s Congressional hearings) and some truly damning movies made by Enron executives themselves. Although it’s a bit long-winded at 110 minutes, the film has an admirable ability to explain even to financial novices how Enron executives defrauded investors (not least its own rank and file employees) as well as put California through living hell by intentionally starving the state of electricity.

When this muckraking documentary came out, some critics complained that the film massaged the facts for the sake of left-wing axe-grinding. The narrator being staunch anti-capitalist Peter Coyote and one of the key interviewees being the lawyer who led the class action suit against the company (Bill Lerach) could trigger worries for some viewers that the film is simply comfort food for socialists. But any concerns about bias disappear as the film unfolds because the perpetrators so thoroughly hang themselves before the viewers’ eyes. The film accuses Enron of dodgy “mark to market” accounting and backs it up with Skilling himself appearing in a company produced comedy sketch where he brags about the phony nature of Enron’s books. Likewise, the accusation that Enron traders delighted in destroying California with contrived energy shortages and price gouging is immediately backed up by audiotapes of traders laughing over doing just that (Most disgustingly, cheering on a raging wildfire because it is damaging power lines).

Gibney has done a public service with this movie, but it doesn’t feel like eat your peas viewing. It’s fascinating, disturbing and compelling throughout. And also, there is something refreshing about a movie in which white collar criminals who steal billions actually go to prison in the end. Those were the days.

[Cross-posted at The Reality-Based Community]

Keith Humphreys

Keith Humphreys is a professor of psychiatry at Stanford University. He served as a senior policy advisor at the White House Office of National Drug Control Policy from 2009 to 2010.