Healbe Hustle: The full story of how a failed Russian cake shop owner humiliated Indiegogo and took "the crowd" for over $1m

For the past three weeks, I’ve been reporting on a company called Healbe and their Indiegogo campaign for a seemingly-miraculous calorie counting wristband, the GoBe. I’ve shared with Pando readers each new scientific red flag, each new comical statement from the company’s CEO, each new piece of bluster from their PR flacks, and each inexplicable head-in-the-sand response by Indiegogo.

It’s been clear from the start, though, that the Healbe is no ordinary hustle and CEO Artem Shipitsyn no ordinary hustler. And so, while reporting each new twist, I’ve also been trying to look backwards -- to understand the whole story of how Shipitsyn’s ‘miracle’ wristband reached the point where it was able to attract over a million dollars in donations and humiliate one of the largest crowdfunding platforms on the Internet.

That story began 15 years ago, in St Petersburg, Russia.

In 1999, according to Healbe’s Indiegogo page, scientists at a St. Petersburg-based company called Algorithm began working on a technology to monitor human glucose levels non-invasively -- that is, without drawing blood. This is something that doctor after doctor has described to me as the “holy grail” of medical technologies for the world’s 380 million diabetics. And it’s a problem medical laboratories have been trying to solve since 1975, with no good solution yet.

Algorithm reportedly began trading in 1993. According to subsequent claims by Healbe, between 1999 and 2003 the company completed more than 500 tests on its non-invasive glucose monitor. No records of those tests appear to have ever been published.

There are conflicting accounts of what happened to Algorithm’s technology between the early 2000s and May 2012 when it suddenly appeared on Indiegogo as the core of Healbe’s “GoBe” device. And by “conflicting” I mean even the company can’t seem to agree on its own history.

According to Healbe’s Indiegogo page, the technology was completed by Algorithm in 2003, but the research paper Healbe subsequently produced to defend its technology says that Algorithm was still refining it all the way through to 2011.

Shipitsyn was an owner of a marketing agency called Iridium and, according to one media profile, briefly the proprietor in 2010 of a cake shop that went bankrupt.

Dr. Vladimir Leonidovich Emmanuel, the doctor whose testimony Healbe cited on its Indiegogo page, told Pando via email that the technology was shelved in 2004 for a lack of funding. This is apparently corroborated by a Russian media profile of Healbe, which also references the technology having being shelved for many years.

Whichever version of events is true, we know that Algorithm wasn’t in a hurry to do anything with its medical breakthrough, nor was it keen to publish any test results. Instead, in 2003, Algorithm joined forces with Boston-based Gen3 Partners to provide outsourced R&D facilities as Gen3’s official ‘Global Innovation Center’. Since then it doesn't seem to have been actively involved in developing its non-invasive glucose tester.

Monetizing a Miracle

Doctors I’ve spoken to about Healbe find Algorithm’s inability or unwillingness to profit from its ‘breakthrough’ one of the strangest parts of the story. If the company really had come up with even a vaguely accurate way to non-invasively measure blood glucose the idea would be worth billions. “If you have this technology, you don’t need to find these strange uses for it. They could sell this to 35 million people in the US alone, overnight,” says Dr. Peter Butler, a professor of medicine in UCLA’s division of endocrinology.

Still, Algorithm’s research remained unexploited until May 2012 when Artem Shipitsyn appeared on the scene. Shipitsyn was an owner of a marketing agency called Iridium and, according to one media profile, in 2010 was briefly the proprietor of a cake shop that went bankrupt. One Russian newspaper reported that Shipitsyn and his partners had spent five years trying to get funding to buy Algorithm’s technology. According to one of those partners, Yevgeny Sokolov, they ultimately paid less than 10m rubles ($280,000 USD) for the intellectual property.

Shipitsyn later told a Russian website that he chose Indiegogo over Kickstarter largely because the latter has “higher barriers to entry.”

Shipitsyn founded Healbe with two others, George Mikaberidze and Stanislav Povolotsky. According to company materials, after Healbe “acquired” Algorithm’s technology it immediately re-imagined it as a health device, with the new twist that information about glucose could be used to automatically measure calories.

The ongoing relationship between Algorithm and Healbe is another murky aspect of the story. Healbe began applying for its patents in August 2013. To date it has three Russian patents that we know of: “A Method of Human Blood Glucose Concentration Measurement,” “Sensor for Measuring Impedance of a Human Body Area,” and "Method for Measuring Human Organism’s Calorie Intake during a Meal."

Of the three Russian patent numbers on record for Healbe, we’ve only been able to read one in full. On that, Algorithm and Healbe are listed as co-applicants. Dr. Emmanuel told Pando that Healbe was founded especially to get new funding for Algorithm’s technology and that Healbe’s research and development team was composed of the same scientists that had worked on the project a decade earlier. Algorithm scientists are credited on Healbe’s Indiegogo page and wrote the company’s latest research paper. The authors of the paper reference the “Healbe project” as existing as early as 1998.

According to an interview with Shipitsyn in a Russian business magazine, published in late March 2014, Healbe quickly raised six million rubles from Alexei Jilin, the Managing Director of Starta Capital in Moscow, equivalent to roughly $170,000 USD. This was apparently enough to get Jilin a 20 percent stake in Healbe, another bargain price for a technology with such massive global potential.

By May 2013, Shipitsyn and Healbe had produced a run of 45 bands that he told the reporter worked poorly, were fragile and inconvenient to wear. Shipitsyn told one journalist that, following that disastrous early run, Starta Capital invested another three million rubles and that another investor, Dmitry Chaly had put in seven million. This would put total investment at $450,000 USD.

In early 2014, before the Indiegogo campaign started, Shipitsyn was quoted as saying that Healbe had $2.1 million invested. Later, as the Indiegogo campaign approached $900,000, he would revise that investment number up to $3 million. Shipitsyn has said that Healbe needs $6 million (or $6.5 million depending on which of his estimates you take from which article) to begin production in China. It’s unclear where, if anywhere, Shipitsyn has found the additional money. In one profile in early April, he spoke about crowdfunding as only being a good option for companies struggling for venture capital and that Healbe began its campaign with little money.

Healbe has refused to comment on its investors.

Coming to America

In the fall of 2013, Healbe hired Greenland, NH-based MicroArts Creative Agency as its PR representatives. In the press release announcing the partnership, MicroArts boasted of its role in launching GoBe:

MicroArts’ work on GoBe included strategic brand positioning, product naming, product and corporate logo design, development of consumer website and an Indiegogo launch strategy which included a social media strategy, a blog content strategy, an influencer outreach program, contest development and video production.

Brain Blanchette, MicroArts President, said, “We’re excited about the role MicroArts played in helping Healbe introduce GoBe to the world on Indiegogo.” He added, “It was a complete collaborative effort between MicroArts, the Healbe Corporation, and the team from Levin Consulting that’s resulted in the success GoBe is having on Indiegogo. In January of 2014, Shipitsyn flew to the US to visit MicroArts’ office, where he recorded the video which would later be used on Healbe’s Indiegogo page. He then traveled to the Consumer Electronics Show (CES) in Las Vegas, where Healbe shared Ohio-based distributor Levin Consulting’s booth with 16 other companies.

Returning to Russia from the USA at the end of January 2014, Shipitsyn made a four minute presentation about Healbe to a crowd of investors at Demo Day hosted by a local Moscow business incubator called API Moscow. The incubator, which had opened in September 2013, was now Healbe’s official base of operation.

The Scampaign

On March 5, the company opened up its Indiegogo campaign, choosing a “flexible funding” option which meant it would receive whatever funds were raised, even if the campaign failed to meet its target. Flexible funding also means that donations made by Paypal are released directly to the company, not held until the campaign closes.

Healbe’s campaign quickly flew past its $100k target. Shipitsyn later told a Russian website that he chose Indiegogo over Kickstarter, which he acknowledged had a larger user base and access to more support, largely because the latter has “higher barriers to entry.”

Shortly after the story was published, an Indiegogo rep called me, furious because I’d written that the company had detected no “red flags” with Healbe's campaign

On March 20th, Pando published my first article about Healbe and the GoBe device. At that point the device had raised over $700k in a little over two weeks. Before publication, an Indiegogo spokesperson told me that, “We have no reason to believe that this company’s Indiegogo campaign is at all fraudulent.” The site’s help center guaranteed to catch “any and all” cases of fraud on its platform.

By that point, though, there were plenty of reasons to believe Indiegogo was hosting a fraudulent campaign: Medical experts I consulted for the story hooted with laughter when I shared Healbe’s claims, at least until I told them how much money users had already pledged. Other red flags included the fact that Healbe had made no mention of being based in Moscow, instead listing San Francisco as its base of operations. As far as I’m able to tell, Healbe's entire US operation is limited to the offices of MicroArts in New Hampshire and its lawyer’s office in Redwood City which it lists as its mailing address.

Shortly after the story was published, an Indiegogo rep called me, furious because I’d written that the company had detected no “red flags” with Healbe's campaign. After a full day of back and forth between Indiegogo reps, marketing head Shannon Swallow confirmed that the campaign had been examined and passed the site’s fraud checks.

After that, Indiegogo went silent.

Over the next two weeks, expert after expert lined up to explain how the GoBe could not possibly work as advertised. My favorite quote came from Zubin Damania, a Stanford-educated, Las Vegas-based doctor: “That’s some straight Ghostbusters, Peter Venkman bullshit,” he told me. The lack of published research also continued to baffle the medical tech community:

[T]he technological breakthroughs claimed by Healbe couldn’t “just magically come up out of thin air,” says Ries Robinson, the CEO of Medici Technologies, who has a Masters in mechanical engineering from Stanford and a degree in medicine from the University of New Mexico.

Robinson compares it to the “sudden” appearance of Tiger Woods. To many it seemed like Tiger Woods broke instantly into superstardom in the late-1990s, but when people read behind the headlines they see that Woods was phenomenal back when he was five years old. Healbe’s GoBe device would be a medical revelation but, Robinson says, they would have to be improving upon a trail of other advancements that would be quickly evident and demonstrable. The people involved in the company would have storied scientific backgrounds traceable to more than one Indiegogo campaign and would be able to spin off a litany of research about why this could be done.

“If you’re a legitimate company, you’re aware of the research,” Robinson says. On March 31st, asked about the lack of research, MicroArts’ Meghan Donovan responded with a statement that: “Healbe has conducted internal testing on GoBe and is in the process of securing third-party testing to officially validate the product’s claims and accuracy. We will be posting more information on our patents and investors in the future.” The company would also be adding in an FAQ to more specifically describe how it automatically tracked calories later that week, she added.

Indeed, Healbe did update its FAQ, but rather than describing its science, it simply explained why there was no paper trail of innovation.

To develop its non-invasive glucose reader, Algorithm had apparently used the methodology of “TRIZ” (Theory of Inventive Problem Solving) pioneered by a Russian inventor and science fiction author Genrich Altshuller. The whole point of TRIZ is that giant innovative leaps come apparently out of nowhere. Thus there was no history to show regarding the development of GoBe. QED.

As questions continued to be raised about the scientific claims made by Healbe, refund requests began to pour in. Initially the company tried to convince concerned supporters to wait: several told us they’d received emails from Shipitsyn and his team encouraging patience, and promising more proof soon.

But when a subsequent video “demonstration” of the GoBe only prompted more refund demands, Healbe apparently relented and began returning money without argument. Still the total ticked closer to a million dollars, although it’s impossible to know the real amount raised as refunds are not deducted from the final tally.

PR, Offensive

The release of the video marked the beginning of a PR offensive, coordinated by MicroArts’ founder, Brian Blanchette. Healbe produced its medical expert, Dr. Vladimir Leonidovich Emmanuel, and a short research paper. Blanchette also began commenting on the various Pando articles about Healbe, attacking my reporting, accusing Pando of misrepresenting MicroArts' (on the record) statements and insisting, repeatedly, that the Healbe functions as claimed. When invited by my editor, Paul Carr, to speak directly to Pando in order to correct any alleged inaccuracies, Blanchette responded "If I wanted to do an interview with Pando I would have, I don't." Blanchette subsequently erased all of his comments.

In on of those subsequently deleted comments, Blanchette accused Pando of picking and choosing which experts we consulted, and ignoring the “proof” provided by Dr. Emmanuel. Blanchette was wrong -- I had exchanged several emails with Dr Emmanuel, who showed no hesitation in answering my questions.

Emmanuel explained he’d had a modest role in the development of Healbe, centered around analyzing experimental and clinical data provided by the company. Emmanuel said that, according to the data, the GoBe can measure glucose, roughly. He qualified repeatedly that even this would have a big margin of error.

On Indiegogo, Dr. Emmanuel had made no claims about GoBe’s ability to measure calories, nor did he claim to have personally tested the device. Rather, he could only confirm in general terms that “the presented version of the hardware and software system is coherent with contemporary ideas.”

“Widespread use of the device will determine the limits of its informativeness, identify constraints and calculate risks,” Dr. Emmanuel wrote to me. In other words: we won't really know how well GoBe works until people start using it.

Science

Every time Healbe released new scientific claims, I shared them with a new round of scientists and experts. The response to the company’s “research paper” was emphatic. UCLA’s Dr. Peter Butler - an endocrinologist with more than three decades of medical experience in patient care and diabetes research - said simply that Healbe’s workings lacked any credibility and did not make scientific sense.

"People who struggle with weight loss will believe in anything. You're making sales on the back of desperate hopes."

“In figure 1. [referring to the chart inside the paper] they compare blood glucose by measurement and by their device. There is no relationship whatsoever between these variables,” Butler wrote to me in an email.

“In the description they claim the device is measuring intracellular glucose concentrations, a value for most cells that is almost zero. There is no data provided that indicates that any of the remarkable claims for the device are based on substantiated experimental evidence. Since the starting point for what are presumably a series of calculations based on many unstated assumptions is the supposed glucose measurement, and since this appears to be without any ability to measure glucose, I am unable to find any credibility in any of the subsequent unsubstantiated claims for the device.”

Dr. Mark Savant, a San Francisco physician, was confused after looking at Healbe’s paper. “I mean, it has got graphs and everything. But they’re referring to their own tests and I don’t see enough evidence to make it plausible,” he told me.

Savant too was baffled by the lack of third party tests. “The product defies the laws of science as I understand them,” he says. “But if you had made a breakthrough like this independent testing would be your first move. Just doing this again and again and again. It all comes down to being able to prove it.”

Other doctors had different concerns. That Healbe explicitly notes pursuing a weight loss tool with its technology over creating a device to measure glucose non-invasively, made Dr Yoni Freedhoff, an Ottawa University medical professor and doctor, extremely skeptical.

“That they didn’t go that route speaks volumes as to their ability to convince scientists of their device’s abilities and the science behind it,” Freedhoff said. "To me it seems like you're trying to focus on a group of people more likely to believe in this. People who struggle with weight loss will believe in anything. You're making sales on the back of desperate hopes."

Even Healbe’s patents failed to impress the experts with whom I spoke. As University of Pennsylvania law professor and intellectual property expert R. Polk Wagner put it to me, the only thing a patent really proves is that something is in itself patentable. One hundred and fifty years ago people had to produce a prototype to get a patent, but not anymore. “The invention of things like the car made that a more cumbersome requirement,” Wagner said.

If a company can coherently outline a scientific enough sounding explanation about how something works, a patent office is not going to investigate. It doesn’t have the capacity to.

“No one is really going to look twice unless you try to patent a perpetual motion machine,” explained Wagner.

Hunting Healbe

Meanwhile, my quest to get hold of a GoBe -- or at least find someone who had actually tested the thing -- continued. In one surreal exchange in Pando’s comment section, someone apparently connected with Healbe offered to fly me to St Petersburg to see their research lab (presumably he was referring to Algorithm’s lab) for myself. My editor responded that Pando would be glad to fly me to Russia at our own expense, but only if Healbe allowed us to bring an independent expert to text the device. The company did not respond.

Throughout my reporting I’ve spoken to several people who claim to have seen the GoBe in real life, not just in the photos and videos that Shipitsyn and his team have posted online. But no one outside of Healbe can vouch for having seen it working. MicroArts’ Meghan Donovan and Brian Blanchette, designer Josef Forakis and Levin Consulting’s Bob Marcantonio have seen it, they say, but they can’t talk about using it. Asked about the device, Blanchette told TechCrunch’s Matt Burns that “it works” but when Pando asked him if he had personally used the device, he stopped answering questions. Marcontonio claims that retailers have seen working samples, but when I asked him for the names of those retailers, he declined, citing reasons of confidentiality. Donovan and Forakis also say they saw the Healbe, but only on other people’s wrists.

Blanchette communicated with the Daily Dot’s Rob Price for an interview that never ran. Price supplied his notes to Pando. Asked if he’d personally used the GoBe himself, Blanchette doesn’t respond, but says only, “Multiple members of the Healbe team have used GoBe.”

Last week a photo was posted on Flickr of a ripped open prototype of the GoBe, that showed the device’s internal electronics apparently in poor shape.

Experts to whom we showed the image remarked that the internal workings look like a very early prototype. The electronics are messy. There’s a substance used as a spacer, that one person said looks like hot glue. Other technical problems have come to light in the past few days. Despite Healbe’s claim to support all iOS and Android devices with its app, Shipitsyn commented on Indiegogo that the device uses BLE bluetooth, which as one commenter remarked, makes it incompatible with the first two generations of iPad, iPhones 1 through 4 with a similarly patchy record on Android.

Go Fund Yourself

Throughout the entire campaign, Indiegogo maintained its silence on Healbe -- only referring journalists to earlier general statements that, as a disinterested platform, Indiegogo has no responsibility for the scientific authenticity of devices promoted on it. But as other journalists began asking the company to explain how its fraud algorithm could possibly have approved Healbe, Indiegogo finally took decisive action...

...on April 3rd it quietly deleted the anti-fraud guarantee from its website.

On April 10th, Healbe finally pushed past $1m in donations. As I reported earlier this week, the donation which pushed Healbe over its $1m threshold was made by Kate Drane, Indiegogo’s own head of hardware. Pando confirmed with several other Indiegogo fundraisers that Drane frequently plays an active role in recruiting new campaigns to the site, undermining the company’s claim to simply be an impartial platform.

(Drane’s isn’t the only dubious transaction on Healbe’s campaign. As I was editing this article, I noticed that a single donor -- Ilya Gudovshchikov -- had donated $16,450 to the campaign, spread over 14 transactions in short succession. Shipitsyn is one of Gudovshchikov’s 74 Facebook friends and appears to work for Healbe in some capacity. Kickstarter bans anyone connected with a campaign from contributing to it, but Indiegogo has no such ban.)

On Friday morning, Indiegogo finally broke its public silence on Healbe, releasing a statement by CEO Slava Rubin:

To date, the Healbe team has been responsive and cooperative with our inquiries. Their campaign continues to follow our trust guidelines and they have voluntarily offered refunds upon request.

Regarding Healbe and the broader discussion about our approach, we see this as two separate topics: the issue of a campaigner who intends to deceive and the issue of the feasibility and deliverability of a campaign...

Rubin declined, however, to discuss the scientific impossibility of the GoBe device, saying only:

As to the second issue about the feasibility or quality of delivery, we know that potential contributors are best served when they get educated, know the facts and can therefore make informed decisions. Further throwing its lot in with Healbe, Indiegogo’s marketing and communications head Shannon Swallow took to the comments section on the Healbe page, thanking customers for their support and linking to Rubin’s statement.

End Game

There seems almost no chance at this stage that Indiegogo will suspend Healbe’s campaign. In any case, a late-stage suspension likely couldn’t rectify the scam: according to Indiegogo’s “flexible funding”, payments made via PayPal have likely already been released. Only standard credit card payments are held until the campaign closes. In some rare circumstances, PayPal will hold payments until the end of a campaign but a company spokesperson was unable to confirm if Healbe was subject to a hold, citing privacy policies.

Absent some dramatic pledge by Indiegogo to make good any future refund claims, or Paypal invoking its own anti-fraud policy, all Healbe's thousands of backers can do now is wait and hope: Wait for the GoBe device to be delivered, and hope that, despite all medical evidence to the contrary, it will work as advertised.

According to his most recent posting on Indiegogo, Shipitsyn is currently in China overseeing the device’s manufacturing, ahead of a promised July delivery date. See here for the latest updates on this story.

[Illustration by Brad Jonas for Pando]