A Blog by Jonathan Low

 

Jan 4, 2022

Will the Elizabeth Holmes Guilty Verdict Really Change Silicon Valley?

Doubtful. 

Most tech companies flogging vaporware have at least some basis for their claims, however far-fetched or aspirational they may be. Her device never worked. Never. Secondly, she was a woman in a largely male world so many will dismiss the applicability of the verdict to the broader industry. Thirdly, she was convicted of defrauding investors, but found not guilty of defrauding members of the public who took her tests. Which tells founders, investors - and you - where the line not to cross lies. In other words, it's ok to lie as long as investors are in on it. JL

Rachel Treisman reports in NPR, Image by Nic Coury in the AP:

Holmes was convicted of three counts of wire fraud and one count of conspiracy to commit wire fraud for lying to investors. She was found not guilty on four other charges that she intentionally deceived patients who received faulty results from Theranos tests. They unanimously agreed that she intentionally scammed investors by making outright lies about what her startup's technology could do. "It's unheard of in Silicon Valley to see a tech startup CEO convicted in a criminal trial." (But) many see Theranos as a one-off, too specific to draw broad conclusions. Holmes' conviction isn't going to change that industry.

After a monthslong trial and a week of deliberations, a jury has found onetime billionaire and Theranos CEO Elizabeth Holmes guilty on four of 11 charges of defrauding company investors and patients.

Holmes founded the biotech startup when she was just 19, claiming she had invented a way to scan for hundreds of diseases with just a drop or two of blood from a single finger prick. Her investors and board members included big names, like former Secretary of State Henry Kissinger and retired four-star general and former Defense Secretary James Mattis.

NPR's Bobby Allyn, who has been covering the case, offered some insight into how Holmes was able to convince such accomplished people to back her company, calling her "famously charismatic" and noting that many people found her "downright entrancing." She wore a black turtleneck like her idol Steve Jobs, spoke confidently, surrounded herself with credible people and refused to answer probing questions about how her technology worked under the guise of protecting trade secrets.

"I saw her every day for many weeks, and she has an aura about her," he told Morning Edition. "Every time she would walk by I would feel it."

Holmes raised billions of dollars for the devices, which produced flawed or false results for patients. Investigations into the company by the Wall Street Journal and the federal government led to its collapse in 2018, and the government argued during the trial that when Theranos' technology failed, Holmes covered it up.

The jury's verdict was mixed.

Holmes was convicted of three counts of wire fraud and one count of conspiracy to commit wire fraud for lying to investors about devices developed by Theranos.

She was found not guilty on four other fraud-related charges connected to allegations that she intentionally deceived patients who received faulty results from Theranos tests offered at Walgreens locations in California and Arizona. The jury could not unanimously agree on three additional fraud charges, which are likely to be cast aside.

Holmes' sentencing date hasn't been set yet. While she faces the maximum penalty of 20 years behind bars, legal experts tell Allyn she will likely face a lesser punishment.

On whether the jury's verdict was a surprise:

Allyn said some had speculated that the jury would not be able to agree on any of the charges facing Holmes, since they had been deliberating for a long time — 50 hours over seven days. And that's not its only significance.

"The fact that they unanimously agreed that she knowingly and intentionally scammed investors by making exaggerated claims and sometimes making outright lies about what her startup's technology could do was pretty stunning," he said. "It's almost unheard of in Silicon Valley to see a tech startup CEO be convicted in a criminal trial in the wake of a business collapsing, so this is a pretty big deal."

On what the case could mean for Silicon Valley, where exaggeration and self-promotion are key:

That's the big question, Allyn acknowledged. He said many people see Theranos as a one-off, or too specific of a case to draw any broad conclusions. Others disagree, seeing it as a symptom of a larger problem in Silicon Valley — which he describes as the "fake-it-til-you-make-it culture that is based on exaggerations."

Allyn says most of the "long-timers" he's talked to have said Holmes' conviction and possible prison sentence are not going to change the culture of that industry.

"People are looking at this and have already learned lessons, and the go-go-go culture in Silicon Valley is just going to keep chugging along," he said.


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