The Theranos Decision
By now, everyone knows that the former wunderkind of Silicon Valley and media darling Elizabeth Holmes has been found guilty of four of the eleven counts against her in a California federal court. Sentencing is pending, but jail time is likely. If Martha Stewart got 6 months for lying to the feds, Elizabeth ought to be put away for a lot longer for defrauding investors.
Ms. Holmes was the CEO of the now defunct company that had promised to reinvent blood testing using microscopic amounts of blood to do over 100 separate tests. The Theranos technology never worked and Elizabeth’s main defense was that she didn’t know enough about the science to know she was over-promising and if she did, her abusive live-in relationship with Sunny Balwani, her second in command, made her do it. Mr. Bulwani will have his own trial later this year.
The case was a long and complex one and is well laid out in the book Bad Blood by John Carreyrou of The Wall Street Journal who broke the story of the Theranos fraud in October of 2015. If you want an easy way to get the gist, listen to the Bad Blood podcast or its follow-up, Bad Blood: The Final Chapter which was recorded as the trial was getting started so provides an interesting perspective as Ms. Holmes was mostly convicted for lying to investors, but acquitted on issues regarding patient safety. This is indeed strange but the documents introduced by the prosecution put the fraud against investors most directly at Ms. Holmes’ feet.
We should no longer be surprised by lying and cheating in the American business community. Bernie Madoff ran a Ponzi scheme for years and sucked some of the most famous and prominent investors into his house of cards. Of course, Enron is exhibit one of bad behavior and lying to further the wealth of the few on top. Andy Fastow, CFO of Enron who pleaded guilty and served six years in jail, likes to say his award as CFO of the year in 1999 and his prison ID card were awarded for the very same behavior. And, he’s right. People with money cannot get enough of well-spoken crooks.
This blog has often deemed stupidity the most powerful force in the universe, but lying, greed, and fear are close behind. All of this plays into the Theranos story. To think that a 19-year old college dropout who dressed like Steve Jobs and sweet-talked the very best of those on her board (Henry Kissinger, George Schultz, James Mattis) speaks to the board’s ignorance, her ability to tell a great untruthful story, and everyone’s fear of being left behind or being made to look foolish. In the end, her board looked ridiculous.
The lesson here is that if something looks too good to be true then it probably is. Silicon Valley has lived on “fake it ‘til you make it” claims for decades. Start-up leaders always over-promise. Fast-talking entrepreneurs have been trying to emulate Jobs, Bezos, and Gates for a long time, but very few have the deep knowledge and insight to actually change the world and blood testing on which people’s lives depend is not a software endeavor. They all seem to have chutzpah though.
The ultimate lesson of Theranos is that good people were taken in by really bad ones. Was justice done in the trial? Sentencing will determine that. Elizabeth Holmes, so manipulative that she would give birth on the lead-up to the trial to try to gain sympathy, needs to go away for a good long while. But, I doubt it will matter. I predict she’ll be back. After all isn’t Martha?
It is the night of the living dead in Silicon Valley and the zombies never go away for long. They just recycle on new TV shows.