Cargando…By Martín Francisco Elizalde for CIG®. The case of Elizabeth Holmes and Theranos, her company based in Palo Alto, Calif. Defrauding investors and defrauding doctors and patients. Theranos was valued at $9 billion. However, its technology never worked as advertised. Now Holmes faces up to 20 years in prison and a $3 million fine.
Elizabeth Holmes was the «Golden Girl» of Silicon Valley and America’s youngest female self-made billionaire. The name of her success was Theranos, a company founded by Holmes and headquartered in Palo Alto, California. Theranos was a privately held healthcare and life sciences company with a stated mission to revolutionize medical laboratory testing through supposedly innovative methods of drawing blood, analyzing it and interpreting the resulting patient data. A dream come true.
Unfortunately, the dream did not last: in 2018, Ms. Holmes and Ramesh «Sunny» Balwani (her former lover and former president and COO of Theranos) were indicted on two counts of conspiracy to commit wire fraud and nine counts of wire fraud. Wire fraud, along with mail fraud, is considered a federal crime. According to the indictment, the charges stem from allegations that Holmes and Balwani participated in a multi-million dollar scheme to defraud investors and another scheme to defraud doctors and patients. The defendants, according to the indictment, used interstate electronic wires to purchase advertisements intended to induce individuals to purchase Theranos blood tests at Walgreens stores in California and Arizona.
According to the indictment, the defendants also allegedly made numerous misrepresentations to potential investors about Theranos’ financial condition and future prospects. Their vision attracted investors, from Rupert Murdoch to Silicon Valley’s Tim Draper, and within a dozen years, Theranos was valued at $9 billion. Yet it was all a fraud, according to federal prosecutors: its technology never worked as advertised. Now Holmes faces up to 20 years in prison and a $3 million fine. She has pleaded not guilty.
A fraud is always a fraud, no matter how tempting and industrious its perpetrator may seem – or even be. However, it may be useful to note three facts about this particular fraud:
First, at bottom, Ms. Holmes probably considers herself an entrepreneur. Entrepreneurs raise hundreds of thousands of dollars based on ideas that may or may not come to fruition or even be profitable if they do. Failure is considered a necessary part of business. «It’s still, in my opinion, a child of this culture,» said John Carreyrou, a former Wall Street Journal reporter. «It sailed on this myth of the genius founder who can see around corners.»
Moreover, criminal prosecutions in Silicon Valley are a rarity. Even a guilty verdict against Ms. Holmes is unlikely to change that. Federal prosecutors in Northern California took only 57 white-collar crime cases in fiscal 2020, down from 94 in 2019, according to researchers. While 2021 is likely to see an uptick, the total will still be well below the heyday of prosecutorial action in 1995, when 350 cases were filed. Moreover, it is said (and published) that had Ms. Holmes been an older man rather than a young, attractive woman, her case would most likely not be front-page fodder.
Finally, and from a practical standpoint, David Alan Sklansky, co-faculty director of the Stanford Criminal Justice Center, says, «to prove someone is guilty of a crime, in technology or outside of it, it’s not enough to show that statements were made that were false,» he said. «You have to prove intent to deceive. That usually requires a large investment of resources: time, prosecutors and experienced investigators. That’s an investment the Justice Department hasn’t made for two decades.»
We will soon see if these three points have any bearing on the outcome of the case.
References:
Photo by Max Morse for TechCrunch TechCrunch, CC BY 2.0 https://creativecommons.org/licenses/by/2.0 , via Wikimedia Commons
https://www.wired.com/story/theranos-and-silicon-valleys-fake-it-till-you-make-it-culture/
https://www.washingtonpost.com/technology/2021/08/31/theranos-elizabeth-holmes-trial-silicon-valley/
https://www.nytimes.com/2021/09/17/podcasts/elizabeth-holmes-gender.html
https://www.nytimes.com/2021/09/07/technology/silicon-valley-prosecutions.html