The world. And i have to say i personally was shocked to see that the journal would publish Something Like this, when we had sent them over a thousand pages of documentation demonstrating that the statements in their piece were false. Bill george is Harvard BusinessSchool Professor and cnbc contributor. Jeffrey sonnenfeld is associate dean with yale school of management. Great to have you with us. Collectively, including jeff who is going to join us soon, you called the science into question, you called the company a scam. You called the ceo a bad actor. A lot of ground to cover here. Lets start off with you. You equate Elizabeth Holmes with the likes of mike pierson, the outgoing ceo at valeant and Martin Shkreli, the bad boy poster child of bio vehictech. Theyre doing great harm to the pharmaceutical industry. And such a contrast to somebody like ken frazer at merck. It worries me a great deal, particularly in a Political Year when they get a lot of political pushback. Theranos has never been forth coming about its test results. They never shared with anyone. Im on the board of mayo, where it has a big blood testing business. Wont share anything about how they do things. And you just cannot change medical therapies without adequate testing and validation by Major Medical centers, more than one. Multiple centers. And if you do, youre asking for trouble. They got trouble. This is the closest thing that the government has to a Death Penalty to ban her for two years. Shes shutting the whole company down. This is very serious. And frankly i think the allegations are very serious. They should never have gone ahead without adequate testing. Can you imagine if they did testing and they didnt do testing you missed some cases of cancer, missed some hepatitis c or hiv aids. How many of those does it take to get a center like a mayo in deep trouble. To that point, bill, want to bring in les. Hindsight is 20 20. You say it was so obvious that the science just was not there. In fact, you say she basically was trying to warp laws of physics in three ways. Why was it so obviously flawed in your view . Private portfolio of companies. We look at Companies Like this all the time. And the basically it is a it is complicated. Microfluidics wouldnt allow the world to do what she did and without evidence, you know, making such a big leap for us, just looked really bad. I say we have other companies in our private portfolio like Health Engine where we deep dive diligence and so my question would be to the investors, i mean, where were they . And why werent they doing the kind of diligence we do when we look at private companies . This one should have been pretty easy to spot. According to the notes, it says we should explore the question whether or not she got as far as she did because shes a woman. So lets explore that question. Did she get as far as she did because shes a woman and Silicon Valley has very few successful women they can point to . Listen, i would like to see a lot more successful women in Silicon Valley and all over the country. People women like cheryl sandberg, very successful and i just like to see more doors open. I had the same hope for Elizabeth Holmes everyone else had. I think we didnt we didnt dig into the story. I was reading coming down here the New York Times article last fall, the style section. This is exactly the example of a golden girl, but she didnt do her homework and you cannot put peoples lives at risk unless you do testing and you have it validated by Major Medical centers and you reveal it. She said she wouldnt be transparent because she didnt want her competitors to get the data. Shes arguing for the cost transparency. You cant talk out of both sides of your mouth. All those things are true. All the things we heard. Did people look the other way or were they willing to ask fewer tougher questions because shes a female . I think we bought we drank the koolaid and we like the story and it was it was too good to be true. Frankly if something is too good to be true, it really is. She got the celebrity none of those people know anything about anything. Two of the doctors she had quit two years ago. Once a celebrity board, having people like Henry Kissinger and George Schultz, give me a break. Im not going to pretend i have any clue about the science. I have no idea. This could be the greatest thing since sliced bread, may work ten years out, i have no idea. When we look at the board, and i made this mass take yesterday, guys, you go to theranos website, it says board and consultants. I thought bill frist and other senators were on the board, theyre actually just consultants. Jeffrey sonnenfeld, what management mistakes can you see at theranos, what have they screwed up on the management side . They have gone through some dramatic changes, youre right to be confused. At one point bill frist and bill fogy of the cdc, Henry Kissinger, George Schultz, they were on the board, it was a celebrity rollup. Thats a danger sign. When you see those celebrities stapled together, theyre not people with experience in the field, time to do the diligence. It is a danger sign. Not only did the original scientists disappear in this case, because he killed himself, and left the note saying the thing doesnt work, not specifying what it was and poor widow threatened with defamation for even revealing that. But on top of that, the original board of scientists quit. These are warning signs. When they say the stuff doesnt work, why is this still out there . Why does walgreens have a partnership . Theyre trying to get out of it. This is a private company, last valuation was 9 billion. If this were a publicly traded company, we would be seeing the stock decline day after day after day. In terms of board liability, what sort of liability does that board of directors have because of the publicly traded company, th there would be lawsuit s at this point. They would have tremendous lawsuits. In terms of what who knew what when they quit the board, a good question. Their names were used as bait, to attract other investors. Did they roll up their sleeves and take a look. Did Henry Kissinger and George Schultz and sam nunn, this is not their sphere. What responsibility should they have . We saw in the cases of worldcom and enron, they were individually eventually culpable and held accountable with great finds. Is that necessarily is that necessarily a tell . Obviously Henry Kissingers political chops are unquestioned. He was on the board of another company i cant remember that had a big problem a couple of years hollinger and aig. Thank you. Conrad blacks company. Is this a lesson for investors when you look at a board and go, i know that guy is and look at her, shes whatever theyre not directly related to either a, running the company or b, the core business, the company is engaged in. Is that necessarily maybe not a red but maybe a yellow flag. That is a big danger flag. If you see the marquis names, it is probably time to pull out. This is a company puffery, pushiness, promotion, but the politics of it, look at Silicon Valley snake oil that got caught up in this, very prominent investors, steve jerveson, and Larry Ellison and people think who is it because shes a woman . No. I heard you trying to bait that before. Hold on. Wait. Im going to hold on. In the notes, it says bill geor told one of our producers he thinks we need to explore the question of whether or not i didnt bring it up. I bring it up because i am bringing it up with you. Harvard guys are cowards, ill tell you, there are times where there are times i think it is high profile. High profile. There are women. I think marisa mayor sa mayer ig a tougher time because shes a woman. If you look at investors who uniquely targeted the bank of new york and the ceo of pepsico, the ceo of kraft and dupont and add it all up, what is it . High performance. Some women have been unfair targets. This is not an example of that. You look at Martin Shkreli getting away with what he got away with and hes a guy. Look at mike pierson, hes a guy. I do think it has to do with smoke screens and people not doing their homework and Due Diligence and not gender on this to that point quickly, bill. Well, i would say that before hold on, guys. Hold on, guys. Let me ask les a question here since we have this little moment here. What Ripple Effect does this have on funding other Biotech Companies out there in Silicon Valley, does this gum up the works, make people question every single slide show that is presented to them about the wonders of whatever new process the Company Claims to have. Absolutely. It should. I think jeffs point and the snake oil sold and the valuations sold without a lot of diligence, i think a lot of this is going to come home to roost over time and i think a lot of people invested just because of famous names. It is not just health care. A lot of it in technology too. I think were going to see more of these kinds of blowups. Maybe not to the same extent of this, but i see valuation compression certainly in private health care, which we would welcome because we think private Health Care Valuations have gotten out of whack. You said a lot of things Like Snake Oil in this interview, how confident are we, what if it works . What if this is right . Too early to tell. Everything Elizabeth Holmes is saying proves to be correct and everybody else is wrong and the cdc is behind the times. What would that mean . It doesnt work. She had 250 she said she could do and they didnt work. Not yet. Spacex, five rockets before they successfully landed one. Im just playing the other side, guys. Just saying, what if brian, show me show me the data. Show what, les . I say you have to have data to support all these claims. Without data, it doesnt matter. Still waiting for enron to come around and show the numbers. I dont think you think this is enron . I dont think i dont it may not be as deliberate. But certainly the cms certainly thinks there is a lot of questions here that are enronesque. You said something i wanted to hear it. Bill, bill. I agree with les. I agree with les. We got to see the data. Medtronnic would never submit a product without data, with mu i multiple medical centers. They need to talk to les, talk to les, not to people with that looking at false business models. You have to show us the data. She said she could do we have to wrap it up. I will say this, when Elizabeth Holmes in that sound bite said i sent the journal a thousand pieces of information, that, to me, the flag goes up because nobody should need a thousand pages of data. Thats you go through this the government said the exhibits are missing. It is not there. And furthermore, the pinprick she said she could do, it doesnt work. 250 tests, didnt work. Guys, got to leave it there. Ivy league panel thank you. Bill george, well see you later. The news alert from the bond market. 30 year bonds up for auction as the u. S. Government borrows more money. How did they do . This one was a lot like yesterdays ten year, the grade, aminus. A half a grade shy of yesterdays a. It was a good auction. Matter of fact, lets go over the internals. Reopen 30. It is 29year, tenmonth, yield 2. 596 at auction. I did a quick glance, back to the credit crisis this is about the fourth lowest yield, only been let me rephrase, only four yields lower, really, since the credit crisis. Put that in perspective. The bid to cover, the best since december of last year. Not that long. 2. 4. 65. 1 on indirect since the fall of last year. 10. 8 on directs. 24. 1 go to the dealers. This was an a minus auction. The best part, 2. 596 was well below the bid side of the one issue market, which was 2. 615. That gave it horsepower. Were done. Markets usually rally after auctions. Lets see. Back to you. Lets see. Thank you, rick. Straight ahead, jack lew talking about the u. S. Government borrowing money. Except today hes weighing in on the administrations crackdown on corporate inversions. We asked him if the u. S. Government is targeting specific mergers. Well tell you what he said. With workers striking against verizon and now mcdonalds, is capitalism under attack . Well bring you the debate. Youre watching cnbc, first in business worldwide. Ow. Are you okay . Yeah, i just got charged for my credit monitoring. Thats how i know its working. Ah. You know you can go on creditkarma. Com and check it out there. Its completely free. Really . Yeah oh, that didnt hurt at all. Yeah, completely painless. Credit karma. Give yourself some credit. We believe in the power of active management. Anagement, we actively manage with expertise and conviction. So you can invest with more certainty. Mfs. Thats the power of active management. Welcome back. U. S. Treasury secretary jack lew appeared on cnbc today, again cracking down on corporate inversions, an area he says are of deep concern. Take a listen. Everyone who engages in business knows that it is subject to changes in law or rulings. And i think the important thing here is that everyone has been on notice for a very long time. It hasnt been a secret that this is an area of deep concern. Bipartisan concern. My only frustration is that legislation hasnt been enacted to deal with it in the best way. But we remain focused on what administrative tools do we have to stop the pipeline as much as we can until congress acts. Bill george is still with us. Were also joined now by cnbc contributor jared bernstein. I think some of the pushback on what treasury did was maybe even less about inversions themselves and more about sort of the rules of the game being changed midway through the fourth inning. Your reaction to that . I think that thats a fair critique. On the other hand, this is the third of three interventions they have done and as you just heard secretary lew say, there is nothing new to what theyre doing here. Ever since the Obama Administration came on the scene, back when i was working for them, they had been trying to reform the Corporate Tax code and trying to create very significant speed bumps in this road toward corporate inversion as a system of tax avoidance rather than tapping some of the benefits of globalization. They havent been able to do that. They dont have a willing partner in congress. I think jack lew is right. Just because they have a do Nothing Congress doesnt mean they should have a do nothing treasury department. Ive argued about health care spending, why do we spend so much time talking about spending and not enough time talking about why were so sick. Why do we consume so much health care. It seems like were talking about inversions the same way. A lot of talk about the mechanics and less about why would Companies Need them in the first place . Im not sure i agree in the following sense. We had lots of discussions including on this show about the deep problem with the Corporate Tax code, which is a huge mess. Obviously the statutory rate is too high, but the effective rate, what companies actually pay, is ten Percentage Points below that for Domestic Companies and were like 15 for multinationals. There say great deal of unfairness in the corporate code and the administration i know for a fact, they released a new white paper on this, very much wants to do business tax reform, they dont have a willing dance partner. You come on our air and saying that essentially that it is a tax code that needs to be reformed. If youre a ceo, lets say youre the ceo now of a publicly traded company, and what is your next sort of page out of your playbook, if inversions are off the table at this point . Well, it is not clear, you know, that im very concerned about u. S. Corporations being taken over by European Companies. Pfizer is now worth more to a roche or novartis or senofi than to the american shareholders because the tax code is not resolved. Jared has got it right. We need to fix the core problem. This is like having skin cancer and you put a bandaid over it. And thats not going to solve the problem. The cancer can still spread. We have got to solve the problem. I agree with him, there are a lost in lot of inequities in the tax code. I think we need to get to a better tax code and we need to solve the problem. I want to build Great American companies. I think this is taking away from that. Lets go to a territorial tax system. I want to underscore, bill that Ripple Effect that youre forecasting. You think there is going to be a wave of takeovers of American Companies by Foreign Companies because of these new inversion regulations. But thats sort of the intended consequence of the treasurys action . The inversions of the unintended consequence of having a dysfunctional Corporate Tax system. I say go to a territorial tax system, tax people where the money is earned, these companies all pay tax, lots of u. S. Tax. Every other developed country in the world has lets tax them where the money is earned instead of forcing to bring it back. Theyre not bringing it back. So why not solve the problem . You get the last word, but, bill, if you were still the ceo of medtronic, would you invert . They already have done it. They did it for the right reasons. I would only do it if there was a very stron