David Min
//White-Collar Crime—The Fraud and Deception of Theranos//
Fake it ‘til you make it. That’s how many might characterize the mentality of Theranos’ disgraced founder and chief executive officer, Elizabeth Holmes, who headed Theranos, a company that claimed to pioneer finger-pin prick blood tests. Despite the technological flaws in Theranos’ testing machinery, Holmes deceived investors and the public into believing in the technology’s efficacy through false claims. As a result, in 2018, the Securities Exchange Commission (SEC) charged Holmes and her company president, Ramesh Balwani, with several counts of fraud. This past month, a Californian jury convicted Holmes of four counts of fraud, each bearing a 20-year maximum prison sentence, acquitted her on four other counts of fraud, and was unable to reach a decision on another three. Although her sentencing date has not been set, legal experts believe Holmes will receive a less harsh punishment than the maximum. While tech entrepreneurs should not face criminal charges upon product failure, Holmes crossed the line into fraud by deceiving both investors and the public. Allowing the entrepreneur to go unpunished would set a dangerous precedent for startups and condone fraud and deception. If Holmes appeals her case, the higher courts should abide by the lower court’s ruling.
Theranos was founded back in 2003 by 19-year-old Stanford University dropout Elizabeth Holmes. It claimed its main technology, the Edison, efficiently and effectively conducted blood tests using a nanotainer (very small container) with just a small blood sample. Soon, Theranos began attracting high-end donors and investors, raising over $700 million in investments. Supporters and donors ranged from the former Secretary of State, Henry Kissinger, to former President Bill Clinton, who helped the company gain national and international recognition. Throughout Theranos’ operations, Holmes fostered a culture of secrecy, even suing three former company employees for alleged disclosure of Theranos’ technology. Many of Theranos’ deals remained shrouded in mystery, including a $350 million deal with the supermarket company Safeway. Other partners included Capital Blue Cross, Cleveland Clinic, and Walgreens, which used Theranos’ faulty machines to test patients.
Later in 2015, a series of Wall Street Journal articles exposed that Theranos used retailored traditional blood-testing machines rather than its own technology. Facing fraud charges, Holmes claimed that the disclosure violated a trade secret. The prosecution argued that, despite knowledge of the technology’s flaws, voiced by Theranos’ chief scientist Ian Gibbons and others, Holmes had continued to promote her product, making explicitly false claims and presentations. By 2015, the Food and Drug Administration discovered “major inaccuracies” in Theranos’ machinery. This led to several effects on the stakeholders, including investors and patients. Regarding patient safety, the incorrect results impacted the patients and families who received them—with fear and false information regarding their health. For example, one healthy pregnant patient was falsely informed of a miscarriage, and another believed that her former cancer had re-emerged. Investors like Rupert Murdoch and the former Secretary of Education, Betsy Devos, lost a great deal of money.
Additionally, called the “next Steve Jobs” by Inc. magazine and the “world’s youngest self-made female billionaire” by Times, Holmes had enormous potential to revolutionize the biotech industry and to change the world. Yet, even now, she fails to fully accept the responsibility of Theranos’ lies and deceptions, directing the attention to Balwani and other senior employees and scientists. While Holmes’ sentencing remains unclear, the judicial system must deliver justice. If Holmes appeals her verdict, the higher courts must uphold the convictions. To give Holmes a slap on the wrist would set a dangerous precedent for the tech industry and budding entrepreneurs. It would communicate that deception is acceptable, and failure should be avoided at all costs. Yet, failure is not a crime—fraud is. This precedent could, in the long run, encourage potential entrepreneurs to take shortcuts and prioritize their own success and reputation over the actual mission of their organization—which will prove harmful to progress.
Elizabeth Holmes exits the courthouse
Elizabeth Holmes walks into federal court