Morning Brew: Bad blood

MARKETS

• U.S. markets: Falling industrial stocks made one thing clear: investors are still concerned about a trade war.
• International markets: European and Asian stocks seemed to agree.
• Crypto: Bitcoin dropped below $8,000.

HEALTHCARE

SEC Charges Theranos CEO and Founder Elizabeth Holmes with Fraud

On the Ides of March, it's only fitting we tell the story of a visionary leader's fall from grace.

No, not Julius Caesar, but Elizabeth Holmes, the CEO and founder of game-changing blood testing company Theranos. She, along with the former president and the company itself, has been charged by the SEC for "massive fraud."

The penalty for "massive fraud":

* Pay a $500,000 penalty
* Surrender voting control of Theranos
* Give up serving as an officer of a public company for 10 years

Let's go back to the beginning

The year: 2003. The setting: Stanford University.

Elizabeth Holmes, age 19, dropped out of college to start a healthcare company called Theranos. The technology Holmes promised was revolutionary: instead of patients going through expensive, drawn-out blood tests, her portable device could produce the exact same results with just a prick of the finger.

Her profile skyrocketed. As Theranos raised more than $700 million, Holmes became the youngest self-made female billionaire in the world. She graced magazine covers with her black turtleneck outfits and drew comparisons to Steve Jobs.

Then the journalists showed up

Well, one in particular: John Carreyrou of the WSJ. He began snooping around Theranos and found that things weren't quite as they seemed.

For example, a senior employee divulged that Theranos used its proprietary device for only about a dozen of the hundreds of tests it conducted (for the rest, it used equipment from competitors).

There were other...exaggerations:

this is a funny tweet

In a series of articles in 2015, Carreyrou revealed Theranos to be "in effect, a sham."

That drew an investigation from the feds...

...which ended yesterday, with the SEC concluding Holmes, former president Ramesh Balwani, and Theranos dragged investors through an "elaborate, years-long fraud in which they exaggerated or made false statements about the company's technology, business, and financial performance."

If you're thinking: "Hey, this would make a great movie," you'd be right. There's a film adaptation in the works, with Jennifer Lawrence starring as Holmes.

GROCERY

Walmart Goes National with Home Grocery Delivery

Live Grocery Madness look-in: In the heavyweight battle of #1 seeds, Walmart (-0.70%) has come out in Q2 with a full-court press on Amazon (+0.18%). The retailer says it'll be expanding home grocery delivery to 100 U.S. cities by the end of 2018—around 40% of all households.

And considering Walmart delivers groceries in only six metros currently, it's a huge ramp up in strategy. Maybe slowing online growth last quarter also had something to do with it.

Nuts and bolts: The service will cost $9.95 with a $30 minimum order. Uber and other crowdsourced delivery companies will bring the order to your porch.

What it means: The days of hour-long supermarket excursions are quickly fading (maybe a good thing). Sparked by Amazon's purchase of Whole Foods, grocers ranging from Target to Kroger to Costco are investing heavily in bringing aisles 1-14 straight to your front door.

MEDIA

Disney Restructures to Reflect New Strategy

Disney (+0.16%) is out to dethrone Netflix (+1.79%) in streaming. Its latest move? A new business segment devoted to direct-to-consumer technologies and international expansion.

Translation: Disney will bombard you with its newly announced streaming service, its (pending) acquisition of Fox assets, and sports streaming service ESPN Plus until you remember House of Cards as just another Lifetime holiday special.

The other details: Disney's Chief Strategy Officer Kevin Mayer will take the helm of the new segment, while its products and media operations will be placed under the parks and resorts business.

As Disney goes all-in on its direct-to-consumer model, we'll be keeping a close eye on its yet-to-be-named streaming service. Unlike Netflix, its vast archive of content from Marvel films to Star Wars gives it a head start without having to license.

But the real question is: can it keep up with Netflix Originals? Or can anyone for that matter?

LAW & ORDER

How to Not Get Away with Insider Trading, by Equifax

If being indicted for insider trading is on your to-do list, read this next part closely: former Equifax senior executive Jun Ying was charged with selling $1 million in Equifax stock...before its massive data breach was released to the public.

Ying's DIY steps for getting indicted:

Step 1) Find out about the hack on Aug 25 and text your co-worker, "Sounds bad. We may be the one breached."

Step 2) Find a computer, and type in something along the lines of, "What happened to Experian's stock in 2015 after its data breach?"

Step 3) Exercise all available stock options, sell that stock for $1 million, and save yourself $117,000 in losses before the bad news leaks.

All this actually happened. In fact, three other top Equifax officials together sold $1.8 million in shares after the breach was discovered.

They haven't been charged...for now.

WHAT ELSE IS BREWING

• Meet your new director of the National Economic Council: Larry Kudlow.
• Broadcom (-0.24%) officially withdrew its bid for Qualcomm (+0.70%).
• Retail sales continued to slip for the third straight month.
• Chipotle's (-2.22%) CMO is out.
• Google (+0.79%) is banning all cryptocurrency related ads.
• Reporting earnings today: Dollar General, Broadcom, ADT, Overstock.com, Ulta Beauty, Revlon

WATER COOLER

BIGGER PICTURE

They say a picture is worth a thousand words….which is nice, because we definitely don’t have room for a thousand words.

For some future NBA stars, March Madness is a time to shine. For other future prospects, it's the end of the line.

That's because some men don't just bond over beers and bets come tourney time. Vasectomies have become so synonymous with March Madness that groups of friends often schedule appointments for tip-off weekend together. After all, what better way to enjoy the highs and lows of the tournament?

Researchers studied a sample size of 235,000 vasectomies in the U.S. across a 2-year span. On average, 279.5 vasectomies were performed each week. The first week of the NCAA Tournament? 364 (a 30% increase).

Number of vasectomies (weekly avg vs. first week of tournament):

Some credit this phenomenon to an ad that debuted eight years ago. One innovative urology clinic in Oregon produced the video "Snip City," which proposed, "You go in for a little snip, snip and come out with doctor's orders to sit back and watch non-stop basketball."

It wasn't long before other clinics caught on.

So if you or your significant other are looking for tickets to Snip City, consider the tournament's unofficial motto: "March Madness—only the top seeds make it."

THE BREAKROOM

WHAT THE CREW IS READING

A Brief History of Time, by Stephen Hawking. As if we could pick anything else this week. Stephen Hawking, the famous theoretical physicist who died two days ago, wrote this masterpiece as a high-level guide to the cosmos for the average person. It’s sold over 10 million copies...and counting. If you want to feel insignificant (but more informed) pick up this book.

RANK BY MARKET CAP

American auto companies: Ford, GM, Tesla

(Answer located at bottom of newsletter)

BRAIN TEASER

A local school teacher wanted to share 703 sweets equally among the pupils. If there were more than 20 pupils, how many sweets did each receive?

(Answer located at bottom of newsletter)

Breakroom Answers

Rank by Market Cap
Tesla ($55.2 B), GM ($52.8 B), Ford ($43.8 B)

Brain Teaser
19 sweets for the 37 pupils. Besides 1 and 703, 19 and 37 are the only factors of 703.