What Elizabeth Holmes did wrong

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Elizabeth Holmes, the former CEO and founder of failed blood testing startup Theranos, was found guilty on four charges of defrauding investors…

She was found not guilty on three additional charges concerning defrauding patients and one charge of conspiracy to defraud patients. The jury returned no verdict on three of the charges concerning defrauding investors, and Judge Edward Davila, who is presiding over the case, is expected to declare a mistrial on those charges.

The charges Holmes was found guilty of include one count of conspiracy to defraud investors, as well as three wire fraud counts tied to specific investors. Holmes faces up to 20 years in prison as well as a fine of $250,000 plus restitution for each count.

Make no mistake – Elizabeth Holmes has been found guilty of serious crimes and should be punished accordingly. But my highly cynical, perhaps world-weary take is this: They got her on wire fraud related to lying to her investors. They did not find her guilty of trying to kill people via faulty medical tests and equipment. So, let’s think about what she did in the context of the investment fraud. Should there be future trials about endangering patients (and, undoubtedly, there will be), she should be 100% held responsible if found guilty. But that’s not what happened this week.

My friend Jim Chanos has quipped that we are living through “a golden age of fraud.” The golden part is that a lot of guys (all guys) have been able to make outrageous claims, in full public view, and then get enough runway (time, money) to see those claims go from being bullshit to reality. The “fake it til you make it” ethos has literally led to trillions of dollars in market capitalization. Even in situations where regulators (or fed up investors) had been able to step in and force a founder to step down – think WeWork, Uber – the end result is still hundreds of millions or even billions of dollars accumulated, regardless of all the bad press and legal maneuvering. Adam Neumann’s grandchildren will never work again. Even the schmuck from Nikola – post lawsuits and prosecution – will probably be living in a nicer house than you are right now. There’s just so much money involved…

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Elizabeth Holmes was doing something worse than pretending a car could drive itself, or putting people into unlicensed taxis with unvetted drivers hoping for the local laws to change, or outrageously double-dealing against investors in real estate deals. Her fraud was committed in the medical arena, which is more directly “life or death” in the eyes of society. This is the first thing she did very wrong and why she’s being treated more harshly than so many others. It’s not cute. It’s not “Ohhhh you little scoundrel you!” It’s f***ed up.

Importantly, that was not what the jury said she did. The guilty charges were all related to investment crimes, not patient-related crimes.

Some other stuff she did to earn a harsher prosecution and, potentially a tougher sentence:

Ripping off rich people. This was Madoff’s big mistake. You steal from the poor, you have a better shot at skating. You steal from the wealthy and they pull levers. Not only the wealthy – she also stole from powerful people – a General and a former Secretary of State and some famous venture capital titans. And, for this crowd, worse than losing money is losing respect. She humiliated her entire board and shareholder base. They publicly promoted her. It was a fiasco. She had to pay.

Not enough runway. Had she another 18 months and an extra $500 million, maybe she pivots toward something testing related the company actually can do. Maybe they “learned from their earlier trials” with the original product they were selling and finally got it right. Maybe there was a recall because some of the equipment they shipped to Walgreens was faulty but wait! Here’s the fix! Who is to say that with more time and money she couldn’t be running a massive public company right now? All I’m saying is, we’ve seen it before. Sad but true.

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Too obvious. Her story was too good to be true. Her fake voice was too ridiculous to not want to poke around further. There was a journalist who bravely and meticulously dismantled her entire story for all the world to see in the Wall Street Journal. If not for his work, she may have gotten away with a lot. If your investors eventually make money, they probably don’t come after you for stuff that happened beforehand. Why would they? They’re shareholders – if the stock is up they become as stoic about the murky origin story as an Easter Island statue.

Girlboss. This is probably the most controversial part of my take, but I feel the same way about some aspects of this as I did about Martha Stewart going to jail for a tiny insider trade while so many professional investors didn’t. Something about seeing all these billionaire boys faking their way toward legitimacy while she potentially does 20 years on some of these charges doesn’t sit right with me.

She’s a criminal. She committed a crime. But the backdrop against which she made this attempt should be taken into account. The backdrop, once again, is a golden age of fraud. She was charged with lying to investors and found guilty. In other corners of the public and private stock markets, this would be (and has been) spun as “exaggerating.” I don’t want her to be excused. I just feel like everyone else should be treated similarly. If you’re fining some executives while lighting her up on a pyre, and your reasoning is that patients are involved…I’m not sure that’s how the law works. Or ought to work.

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