Things can move quickly in Silicon Valley. From dropout at the prestigious Stanford University to the most successful female self-made billionaire worldwide. And now a convicted fraudster.
On Monday, Elizabeth Holmes (37), founder of biotech company Theranos, was found guilty of, among other things, defrauding investors and endangering patients. Holmes claimed that she had developed a device that could do extensive blood tests via blood tests. According to her, you could check a drop of blood for hundreds of diseases, such as cancer and cardiovascular disease, in a few minutes. In reality, she used Siemens equipment for that – Theranos’ own equipment didn’t work at all. Holmes faces 20 years in prison.
It is an important case in several respects, which came to the fore in 2013 after sleuthing by journalists from The Wall Street Journal. In recent years, tech bosses have had little to fear from investigative services in the United States, according to The New York Times.
Entrepreneurs of large tech companies have rarely been sued for fraud in the past, and there were even fewer convictions. The latest case dates back 18 years, according to The New York Times. The American Martha Stewart was convicted in 2004 for a dubious stock transaction that she had made a few years earlier.
The focus of the lawsuit against Holmes, whose company ceased to exist in 2018 after being sued, was the question of how much better an entrepreneur can sell reality to his investor. Because: it is typical of Silicon Valley that founders of companies not only sell projects, but also dreams. But how far can you go there?
Holmes raised a billion dollars for her invention within a few years
Companies that display spectacular inventions often make large investments, even before they have put a product on the market. Not only in biotech, but also, for example, in the world of electric driving and commercial space travel.
In just a few years, Holmes raised a billion dollars for her invention, including from former Secretary of State Henry Kissinger and from media mogul Rupert Murdoch. She sold them too-good-to-be-true stories, laced with lies. Her device would be a game changer in the health industry: blood tests would become accessible to everyone in the world. But when curious investors asked if they could view the thing, they invariably got nothing.
She also told her investors that her company worked closely with large pharmaceutical companies, such as Pfizer; Documents sent by Holmes and her colleagues featured the pharmaceutical company’s logo to enhance credibility. But there was no such collaboration at all, it was entirely made up.
Holmes also told lenders that she had made a deal with the Ministry of Defense so that it could be tested in war situations. That was also not true, the ministry was very critical of Holmes and her company.
Also read: How Guilty Is Elizabeth Holmes?
Perpetrator or victim?
Were they lies or was it future music? According to the defense of Elizabeth Holmes the second. They were all long-term plans that she disclosed to her investors.
Moreover, Holmes was not a perpetrator, but a victim, the defense argued. She’d been too gullible, relying on the expertise of more knowledgeable colleagues who’d told her all sorts of things about the blood-testing machine’s capabilities. In addition, she was a victim of her business partner and ex-lover, Ramesh Balwani. According to her lawyer, he had exploited her physically and mentally. Balwani will later have to answer to the court.
Holmes herself stated that she presented her investors with plans for the future. It was her long-term plan. For the next five, ten, fifteen years – quite normal in Silicon Valley.
The verdict of the twelve-member jury, eight men and four women, shows that Holmes’s story failed to convince them. The jury found Holmes guilty on four of the 11 charges. She has defrauded investors for millions and she has lied to patients about lab results and falsified those results.
The jury had sound clips that showed that Holmes was selling falsehoods. According to prosecutors, Holmes’ company would never have raised so much money if it had been honest.
Holmes was acquitted by the jury on four other counts, including misinforming the public. In addition, three charges were dropped because the jury could not reach a mutual agreement and a unanimous verdict is required to reach a conviction or acquittal.
The defense’s argument touched a nerve in Silicon Valley because it put the finger on the sore spot within the tech world: how far can you go with making (false) promises to investors?
In any case, the jury brushed off Holmes’ argument about ‘future plans’. And Jessica Roth, a professor at New York’s Cardozo School of Law and a former district attorney, sees Holmes’ conviction as a warning about the promises entrepreneurs make to investors. “It clearly shows that there is a difference between the truth and optimistic goals,” she told The New York Times.
Whether investors and entrepreneurs in Silicon Valley learn from this case, according to experts in American media, remains to be seen. The interests and hunger for success are probably too great. “I think we’d like to believe that this case will help us push the boundaries less ethically and in integrity,” Jennifer Chatman, a professor at the University of California, told the US tech website. Protocol: “But unfortunately I don’t think that will be the case.”
Holmes is likely to appeal the ruling.