Bad Blood: Theranos founder found guilty of fraud

January 10, 2022

3 min read

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What's going on here?

Elizabeth Holmes, founder of health technology company Theranos, has been found guilty of conspiracy to commit fraud against investors and three charges of wire fraud in a California trial.

What does this mean?

Jurors found Holmes guilty of defrauding investors by knowingly lying about Theranos’ blood testing technology and its ability to detect diseases like cancer and diabetes with just a few drops of blood. Had this treatment actually worked, it would have revolutionised the health industry.

Holmes pleaded not guilty on all of the charges levelled against her, and may well appeal against the convictions. Sentencing will take place at a later date, most likely after the trial concludes against her former partner Sunny Balwani, which relates to similar charges. Each of the fraud counts Holmes was found guilty of carry a maximum sentence of 20 years’ imprisonment.

What's the big picture effect?

Technical, white-collar fraud cases such as this one against Holmes are notoriously difficult to prosecute, notably because of the fact that prosecutors must show that the accused actually intended their deception. Attorneys and jurors must also review considerable amounts of documentation and evidence from numerous witnesses: the prosecution in this case called 30 witnesses. Some also believed that Holmes, who had just had her first child, would be seen as a sympathetic character during the trial. She even made a surprise testimony, something which criminal defendants in the US are not required to do, in order to reassure the court that she was unaware of the issues with Theranos’ technology and had complete confidence in her company. The jury was unable to reach a consensus on three of the eleven federal charges, and considering these difficulties, it is perhaps impressive that the prosecution did succeed on four of them.

The verdict has certainly sent a cautionary message to those operating in Silicon Valley and beyond about the severity of misleading investors. One of the key defence arguments was that Holmes never sold her shares in the company. Her representation argued that if she was indeed a fraud as was being alleged, she would have cashed out when she could, so this indicated that she had a true belief in the goal Theranos was aiming for. This argument evidently did not sway the jury, and the case seems to imply that a defendant may indeed be both: someone who believes in a company’s goal and someone who has committed fraud.

The key takeaway from this landmark case is that faking it until you make it can be a slippery slope. It is well known that start-ups have to project confidence and offer innovation to secure the investments they often need to get themselves off the ground, but Holmes’ bold claims went beyond grandeur into the territory of misrepresentation. Former assistant US attorney Kevin O’Brien described Holmes as her “own worst enemy” due to the fact that several of her interviews and speeches were used against her by the prosecution. The fact that she often talked in general terms during these public statements was not enough to undermine the consistent deception she exhibited. In the wake of this judgment, entrepreneurs seeking investment will certainly want to think about whether their elevator pitches breach the extremely thin line between the apparently endemic ‘fake it until you make it’ mindset, and fraud.

Report written by Laura Wiles

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