The Theranos Sentence

The Theranos Sentence

By

Leonard Zwelling

https://www.nytimes.com/2022/11/18/technology/elizabeth-holmes-sentence-theranos.html

Erin Griffith wrote the post mortem on Elizabeth Holmes in The New York Times on November 19. It wasn’t in the obituary section. It was on the front page of the business news.

For those who have not paid attention to the trials and tribulations of Ms. Holmes, she was the so-called entrepreneur and the brains behind the blood testing company Theranos. She was a Stanford drop-out who claimed to have invented technology that would allow a portable blood analyzer to determine the results of a thousand or more lab studies from a drop of blood. She found high rolling investors to the tune of $945 million and her company was valued at $9 billion at one point.

Here’s the problem. It was all a lie. She never had the technology and her investors never asked the right questions nor got a reasonable demonstration of the technology at all. Her board was loaded with older white males high in stature (Henry Kissinger, George Schultz, James Mattis) and low in skepticism. They all went along with her scheme because she dressed like Steve Jobs, talked like Tallulah Bankhead, and was young and pretty. She had found a mentor and partner in Ramesh “Sunny” Balwani who was tried on his own for fraud. Both he and Ms. Holmes were found guilty of multiple counts of fraud.

On November 18, Ms. Holmes was sentenced to over 11 years in prison (which may be served near Houston). Mr. Balwani will be sentenced on December 7. She was guilty on four counts; he on twelve.

The Times article described how Judge Edward J. Davila doled out the punishment. Various parties had recommended different terms of incarceration. Ms. Holmes’ lawyers had requested 18 months of house arrest. The maximum sentence recommendation for these counts is 20 years. A probation officer suggested nine years. In the end, despite having a one-year-old at home and being pregnant with her second child (she is not married but has a significant other), Ms. Holmes is paying the price for her lying and cheating and stealing. She’s going to jail.

The judge is quoted as saying:

“Was there a loss of moral compass here? Was it hubris? Was it intoxication with the fame that comes with being a young entrepreneur?”

“The tragedy in this case is that Ms. Holmes is brilliant.”

I want to take issue with that last statement. Elizabeth Holmes is only brilliant at one thing—self-deception. She may well have believed in her scientific nonsense and in her belief got others to have faith in her ideas and expertise. But in the end, she had no expertise and she had no brilliant idea. Isaac Azimov, H.G. Wells, Arthur C. Clarke, and Jules Verne had brilliant ideas, too, but at least they were story tellers, not business people. They were writing science fiction. No one’s life depended on their stories nor was investor money at stake, let alone the reputation of Walgreen’s and Safeway, as was the case with Ms. Holmes and her non-technology.

The lesson here is a simple one. When something sounds too good to be true, it probably is. And if it’s not too good to be true, prove it’s true.

Elizabeth Holmes and Sunny Balwani committed fraud and fooled a lot of smart people as has been documented in books, movies, and podcasts.

The judge got the sentence right, but his analysis wrong.

Keep this firmly in mind when a leader of industry, politics, or medicine promises miracles. It’s likely too good to be true and likely to be false no matter how “brilliant” the leaders claim to be.

I have fallen for such schemes myself. More than once. The lesson of Theranos is not that Elizabeth Holmes was imbued by hubris despite being brilliant. It is that she was a common huckster who fooled some really smart people with her mindless passion. Enthusiasm is not intelligence.

The resultant sentence was both justice and a warning to other scam artists. This can happen to you no matter how brilliant you may be.

Ask anyone who invested in cryptocurrency. I never did understand crypto except as a mode of exchange for money launderers and drug dealers. Now it seems no one else understood it either.

Everyone wants to be a billionaire. The surest way to get there is to actually invent something meaningful and prove its value. Neither Ms. Holmes, Sunny Balwani nor the crypto genius Sam Bankman-Fried did that and so the trials of the first two and the likely trial of the third.

https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html?searchResultPosition=2

In the end, there was no there there in the case of any of these three and in a whole lot of other high-flying ventures. And that, kids, is why we need regulators and this is what happens when they are lax or non-existent.

People are people. Some cheat and take advantage of others. Eventually the system catches up to them—even to Donald Trump it seems. Maybe.