January 7, 2022

Elizabeth Holmes

Elizabeth Holmes was convicted Monday of duping investors into believing her startup Theranos had developed a revolutionary medical device that could detect a multitude of diseases and conditions from a few drops of blood…

“A jury convicted Holmes, who was CEO throughout the company’s turbulent 15-year history, on three counts of wire fraud and one counts of conspiracy to commit fraud after seven days of deliberation. The 37-year-old was acquitted on four other counts of fraud and conspiracy that alleged she deceived patients who paid for Theranos blood tests, too.” AP News

There’s widespread agreement that Holmes is culpable:

“Holmes likely understood that she was misleading patients and investors about the company’s questionable operations. But like so many start-up founders before her, she might have sincerely believed she was conveying a greater truth about her firm’s supposedly incredible potential. It’s certainly telling that right up to the end, Holmes never sold her stock, even though it would have been normal to sell at least a small amount and realize some cash…

“But fake-it-until-you-make-it doesn’t work with a health-care start-up. Morally, overselling someone on your buggy electronics or overhyped subscription service is very different from administering a lab test you know to be unreliable. Even assuming you are the sort of sociopath who just doesn’t care about the risks you’re taking with patients’ lives, trying to fake a diagnostics company still looks completely daft.”
Megan McArdle, Washington Post

“Even fully accepting Holmes’ account of sexual and psychological abuse by [her business partner Sunny] Balwani, which he denies, we ought to be intensely skeptical that the abuse somehow explains or justifies her comprehensive fraud, perpetrated via well documented lies and maintained over years. For example, Holmes testified that she personally added the logos of pharmaceutical companies to reports which claimed to validate Theranos’ research, when no such validation had occurred. She admitted that she knew, but didn’t disclose, that Theranos often used altered devices made by other companies to run their tests. Importantly, Holmes testified that Balwani didn’t control the claims she made to business partners, investors, or to the board…

“Throughout history, feminists have fought against patriarchal legal systems that have assumed women are ‘noble, pure, passive, and ignorant.’ These norms have been used to deny women the right to vote, own property, fight in war, run for office, and occupy the C-suite. The struggle for agency has been a long one, and of course that agency goes hand-in-hand with the type of accountability Holmes now faces. By painting Holmes as a victim, her lawyers tried to exploit important new concern for victims of abuse brought about by #MeToo. They sought to cloak their case in feminism, but really they suggested that a women like Holmes didn’t have the wherewithal to run a complex scheme; the real culprit must have been a man. Luckily, the jury didn’t buy it.”
Lara Stemple, Slate

“Ms. Holmes said at trial that ‘there are many things I wish I did differently’ including soliciting News Corp. executive chairman Rupert Murdoch to squash Mr. Carreyrou’s story. News Corp. owns the Journal, and Mr. Murdoch refused. But Ms. Holmes otherwise remained unapologetic. Perhaps she deluded herself into believing the phantom technology she promoted would soon materialize…

“Each of the four counts for which she was convicted carry a potential 20-year prison sentence, which is excessive. The investors she defrauded weren’t naifs. But she never did admit the truth that the company’s blood-test technology wasn’t what she promised, and for that she may now go to jail.”
Editorial Board, Wall Street Journal

Many also condemn Silicon Valley culture and those who supported and enabled Holmes:

“The technorati in Silicon Valley and beyond have long tried to separate themselves from Theranos… [But] Ms. Holmes, 37, used the mentorship and credibility of tech industry big shots like Larry Ellison, a co-founder of Oracle, and Don Lucas, a Silicon Valley venture capitalist, to raise money from others. She lived in Atherton, Calif., amid Silicon Valley’s elite and was welcomed into their circles… [Lucas’s] nephew’s firm, Black Diamond Ventures, invested $5.4 million. Other Silicon Valley investors included ATA Ventures and Beta Bayview, a fund operated by Crosslink Capital…

“Dixon Doll, founder of the Silicon Valley investment firm DCM, also invested, as did Reid Dennis, founder of the venture firm IVP, which has backed tech companies such as Slack, Twitter and Snap. Draper Associates, founded by the venture capitalist Tim Draper, also invested in Theranos… No industry wants to be judged only by its worst actors. And many venture capitalists who heard Ms. Holmes’s impossibly lofty claims didn’t fall for them. But if anyone in Silicon Valley was suspicious of her proclamations, none spoke publicly about it until after things went south.”
Erin Griffith, New York Times

“By some measure, the trial of Holmes was also the trial of the ‘fake it until you make it’ Silicon Valley mentality. Jina Choi, director of the SEC’s San Francisco Regional Office, said in a statement that ‘The Theranos story is an important lesson for Silicon Valley. Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.’…

Entrepreneurs should learn from Holmes that wishful thinking is not the same as reality, and that liars will get caught sooner or later. There is also a lesson for future investors: don’t be fooled by the founder’s charisma. Do your homework through comprehensive due diligence, so you don’t end up throwing money down the drain.”
Helen Raleigh, The Federalist

“Holmes would have been a modest fraudulent enterprise without the help of the media. The image of a young woman leading a multibillion-dollar corporation was ‘a fact too good to check.’ Holmes was showered with attention from being featured by former President Bill Clinton to breathless stories on virtually every network and newspaper. With dozens of journalists doing puff pieces, virtually none actually looked into her product or the underlying technological claims…

“Holmes knew the media would shed the constraints of objectivity in favor of her irresistible story. She was the hero the times called for, including Time magazine itself. Time gushed that Holmes was ‘striking, somewhat ethereal, iron-willed, she is on the verge of achieving her vision.’ The fact that the vision turned out to be fraud is just another inconvenient fact. F. Scott Fitzgerald once said, ‘Show me a hero and I'll write you a tragedy.’ Neither Holmes nor her tragedy was entirely self-made. It took a collective effort and this verdict should have come with a list of unindicted co-conspirators.”
Jonathan Turley, Fox News

Some, however, note that “If the lesson you learned from Theranos’s fall in 2015, or 2018, was ‘I am not going to invest in any tech companies with charismatic founders and vague promises unless I’ve done thorough rigorous diligence, and if those founders object to that then they are not getting my money,’ then you have missed a lot of good deals and the founders have not missed your money…

“Betsy DeVos is still rich despite blowing $100 million on Theranos, and lots of people who have casually rushed into fundraising rounds or SPACs or crypto Ponzis or NFT drops or whatever in the last few years have done quite well. In a generally rising market where lots of fortunes are being made quickly, rushing to back popular projects without a lot of due diligence seems to work, and if you back enough of them you’ll be fine even if a few are frauds. The ones that work make you rich; the ones that are frauds give you an entertaining story.”
Matt Levine, Bloomberg

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