“The guilty verdicts in this case reflect Ms. Holmes’ culpability in this large-scale investor fraud, and she must now face sentencing for her crimes.” – U.S. Attorney for the Northern District of California
We have been tracking the Elizabeth Holmes Theranos trial for nearly three months. We discussed witnesses, prosecution and defense. The 37-year-old woman, a former champion to some, is now facing three counts of wire fraud and two counts of conspiracy to commit wire fraud. She should be somewhat grateful; there were originally 11 counts against her, now there are only four. It is enough.
According to California law, the felonies must be booked for sentencing within the next few weeks. Holmes, of course, has the right to appeal and to drag this out. That is her right. On the other hand, the government has the right to retry the counts against her that hung up the jury. It seems a risky gamble on Holmes’ part.
Wire Fraud
It is one thing to deceptively claim that a magic “black box” can analyze hundreds of blood tests from a single drop of blood, but it is quite another thing to fraudulently take someone’s money for the magical black box and cash the check.
The Theranos executive team had no ethical qualms about taking investor money and depositing huge sums of money into their operational accounts. Such transfers climbed into the hundreds of millions of dollars.
The investors were incredibly wealthy however, that doesn’t mean they deserved to lose it. Fraud is fraud no matter how we wish to view it.
Throughout the course of this trial, it was made apparent that the web of deception Elizabeth Holmes and Ramesh Balwani weaved extended into all areas of the presentation of the technology.
The jury did not buy patients themselves were defrauded. The blood tests from the “MiniLabs” were unreliable from the start. The company had no choice but to bring in conventional blood testing machines and re-test full blood samples.
Nevertheless, every aspect of the way in which Theranos presented (and misrepresented) their technology was intentionally deceptive. Virtually every claim they made, including the pharmaceutical companies and U.S. Army laboratories successfully using the technology were false.
Don’t Go Down the Sorry Path
According to Yahoo! News (January 3, 2022):
“The landmark case, one of the most closely watched in Silicon Valley history, establishes a new bar for the extent to which startup ventures and their founders who overhype the capabilities of their products and services can steer clear of the U.S. Justice Department’s scrutiny.”
Elizabeth Holmes emulated other Silicon Valley rising stars who over-hyped the technology without regard to the consequences of their obvious, impending failure. As I have stressed from the beginning of the trial, the key difference between the Theranos debacle and other high-tech failures was that human lives were at stake.
I would urge those who are afraid to judge Holmes in the light of her criminality to avoid the temptation. True, she was a 19-year-old Stanford dropout when she launched Theranos, but confusing her with an innocent, wide-eyed kid would be a major mistake. She lied without compunction in order to achieve fame, wealth and status.
The true fools were those who fell for her beauty, charm and big promises.
Holmes never held the technology up to the light of truth. This was evident from the start. Her board members weren’t healthcare professionals but celebrities, retired politicians and personalities. She kept the technology hidden from investors. She consistently lied in describing the capabilities of the technology.
Every type of fraud needs a lack of oversite in which to thrive. Theranos used a kind of shell game to consistently hide its technology from investors. Looking back, while it is hard to justify their behavior, it is even more difficult to rationalize the lack of due-diligence on the part of huge organizations.
For Theranos, it was always about the greed and the need to make it big in technology. Holmes wanted power. The image she had for herself was more important that the success of the blood testing.
How could Theranos rationalize taking so much money from the investors? They believed in their own lie. Success was “somewhere, out there.” Even while failing, the company was taking more funds for launching. Despite their own technicians waving red flags and seriously doubting the viability of the technology, Holmes and Balwani saw only the glamor of fame and fortune.
Ultimately, neither the Justice Department nor Theranos emerged as winners, but ethics itself.
LEAVE YOUR COMMENTS!
Good analysis, Chuck. I got interested in the case when I learned a former Chief of Naval Operations, ADM Gary Roughhead fell for her pitch. He and I were “young” commanders in 1992 when I commanded Naval Station Pascagoula and he the new warship USS Barry. Holmes also played Sec of Defense GEN Jim Mattis like a fiddle, too as she did former Sec of State George Schultz. She could talk a good game and dazzled those “old” men with her charms and youthful allure.