Too, Uh, Blonde To Jail?
Mike Blake writes at Reuters that Elizabeth Holmes, the founder of the blood testing startup, Theranos, "has been charged with engaging in a 'massive fraud' by the Securities and Exchange Commission":
The SEC says she and the company's president raised more than $700 million using an "elaborate, years-long fraud in which they exaggerated or made false statements about the company's technology, business, and financial performance."No, she won't be going to jail over this. In fact, even though she faces some serious penalties over the charge -- she's losing control of the company and won't profit if it is sold -- she also doesn't have to admit wrongdoing as part of a settlement with regulators.
...The SEC investigation has been underway since 2016, and it's not the only one. The Department of Justice is also investigating the matter -- but that's a separate case. That one, in theory, could lead to criminal charges, but the SEC reportedly wouldn't comment on the matter.
This is pretty standard practice with the SEC. The regulator explains on its website that, while it works with law enforcement agencies, it's investigations lead to civil or administrative actions. It routinely penalizes brokers and traders by banning them from working in the industry or accepting outside money.
...Here's are some of the things Holmes has agreed to do to settle with the SEC.
•She'll give up financial and voting control of the company.
•Holmes has to pay a $500,000 fine.
•She cannot be a director or officer of a publicly traded company for 10 years. Theranos is a privately-held company, which means she can continue to be CEO.
•She has to return 18.9 million shares of Theranos stock.
•She will give up her majority voting control of the company by converting her shares to Class A Common shares from Class B Common shares.
Justice bought!
(A court still has to approve the settlement with Holmes.)
More on her fraud here.
And an interesting piece by Bloomberg's Matt Levine that ends like so:
Theranos really did deceive its investors, and they really were victims of its fraud. But they weren't the only victims. The problem with launching a blood-test machine that doesn't work isn't just that you swindle the investors who funded the machine's development. You are also out there performing a lot of fake blood tests.The Wall Street Journal has reported on the "trail of agonized patients" who got blood-test results from Theranos that turned out to be wrong, and Theranos ultimately "voided" two years of results from its machines because they were not sufficiently accurate.
Building a fake blood-testing company that raises hundreds of millions of dollars from investors is bad, certainly, but it's not really any worse than any of the other securities fraud that we so often delight in around here.
Building a fake blood-testing company that performs fake blood tests on thousands of people is much worse, even if it doesn't count as securities fraud.
How many stories did I see about the 19 year old supergenius girl who dropped out of Stanford to start this amazing company, you go girl, girl power, woohoo girl power!
What a bunch of terrible, lazy, incompetent, internet karma whoring journalists.
jerry at March 14, 2018 11:44 PM
The Pussy Pass.
Snoopy at March 15, 2018 3:34 AM
On Theranos' Board of Directors, 2014:
former Secretary of State Henry Kissinger
former Secretary of Defense Bill Perry
former Secretary of State George Shultz
former Senators Sam Nunn & Bill Frist
former Marine Corps General James Mattis
former Wells Fargo CEO Dick Kovacevich
Snoopy at March 15, 2018 5:38 AM
Boards of directors really need to pay more attention. Journalists really need to check facts. go girlj!!!! woo hoo!! Yeah, cheerleading the "right" things sure takes precedence over one's responsibilities these days.
cc at March 15, 2018 5:49 AM
On the 'Justice bought!' line, this is how the SEC works. She isn't being treated this way because she is female, rich, or connected. The reality is if the SEC tried to take this to court they would most likely lose. So the SEC makes deals like this most of the time.
Ben at March 15, 2018 6:30 AM
She gets the P-pass. Based on scale for how they jailed Martin Skrelli, she deserved 700 years in prison for her fraud.
Remember, she threatened the health of poor inner-city folks who relied upon the Walgreens in-store clinics to monitor their health conditions because she was a con artist.
Remember, if Hillary Clinton was elected president, Fraud Barbie would be right up there with Nasty Girl in running things, and this fraud - brought to you by Chelsea Clinton and the Clinton Crime Family - would have been the recipient of a doubling-down by the US taxpayer. (You can see how she was a fundraiser for the Clintons, and the Clintons got behind her little fraud here - that's how she made it this far.)
El Verde Loco at March 15, 2018 6:35 AM
In case you question the Clinton campaign connection: http://archive.is/iSxcO
"Next Monday, Holmes is hosting a fundraiser for Hillary Clinton’s presidential campaign in Palo Alto. The event includes a conversation with former First Family member Chelsea Clinton, and participants who pay $2,700 get to go to a “host reception” with Chelsea."
"According to an email sent out to potential attendees, the fundraiser will take place at the Theranos Palo Alto headquarters."
I remember hearing every identity-uber-alles type backed by foundation money preach at every entrepreneurial event about how great it was that this perky blonde cutie just needed to "think different" to "show the boys how it's done' - even though her machine defied chemistry by taking such minute samples. Siemens and Phillips were just mean old German guys who wanted to take too much blood!
El Verde Loco at March 15, 2018 6:39 AM
There's still a lot more to this story. People in the medical lab industry are seriously pissed. Theranos' direct-to-consumer marketing was designed to bypass the FDA and state regs that other labs have to comply with. Typically, in a lab of 30 or so employees, one of those is a full-time compliance officer. (And that person is one of the highest paid.)
Labs have to maintain quality control. They run (expensive) control specimens at least once a week (daily for the busier labs), and they do statistical process analysis, comparing against the same model of machine at other locations. It's actually fairly similar to some of Deming's manufacturing methods. A good working knowledge of probability and statistics is required. So far, nobody has been able to find where Theranos ever ran any controls, or how they did statistical process control on machines that were unique to them. So even if the machines had worked, the results would have been at best suspect, without any evidence of process control.
Cousin Dave at March 15, 2018 6:47 AM
It's actually kind of a shame, because the medical lab industry in the U.S. has reduced to basically a duopoly -- Labcorp and Quest Diagnostics -- and they could use some competition. I was told yesterday that both of these companies have demonstrated some testing services using the same one-drop-of-blood method that Theranos was advertising, and that some of it sort of works but a lot of R&D remains to be done.
I am reminded of this.
Cousin Dave at March 15, 2018 6:55 AM
Amy, you missed two of the best, if not most convincing, passages in that piece:
[…]Let the buyer beware.
You want a silver lining?: Consider this list of pathetic, humiliated old men.
Crid at March 15, 2018 7:39 AM
But even mocking her for a "celebrity" board is too gentle. Make even a casual study of SV VC's: One of their first moves when backing in a startup is to bring in people with genuine realm expertise to advise the hotshot founder.
Holmes did all it with lipstick and a fashionably ill-fitting blouse.
Crid at March 15, 2018 7:47 AM
Ah, "domain knowledge."
If I remember correctly but may not, one of the great wrinkles in this story is the estrangement of Shultz and his son when the kid called bullshit.
Crid at March 15, 2018 7:49 AM
Verde, Shkreli is very much the exception. The man essentially pissed of a lot of people and then further pissed of a lot of powerful people when they were forced by their constituents to deal with him. The man appears to enjoy being an asshole. And that is why 'discretion' should scare all of us. Shkreli's real crime was pissing people off. It he wasn't so abrasive he would never have seen a jail and only a slap on the wrist fine. And that's not right. There is no law against being a jerk. Those same abuses of 'discretion' could be used against any of us.
Ben at March 15, 2018 8:31 AM
Martha Stewart is on line one, something about going to jail and the tatts to prove it.
I R A Darth Aggie at March 15, 2018 8:36 AM
Consider this list of pathetic, humiliated old men.
I'm pretty sure they were well paid to be on the board.
I R A Darth Aggie at March 15, 2018 8:42 AM
> they were well paid
Certainly some are still sufficiently active in life that they can anticipate smirks and snickers in social gatherings.
She makes it look like an almost admirable con: Who knew lives of achievement could be so lonely, so needful of attention from a fertile hipster of gentle fashionability? (Lipstick and gothy eyeshadow and faux turtlenecks, but no tats or transdermal hardware.)
Crid at March 15, 2018 12:53 PM
More Big Picture on Holmes and American commerce:
While financiers must never lie, people must be free to believe in things that aren't real, including the likelihood of revolutionary technologies.Ben, bless his twisted little soul, is correct about Shkreli.
But if Ben and another of other commenters here and elsewhere in our culture were forbidden from believing in things that weren't real, they'd be in prison.
I still think Facebook is a loathsome scam.
Crid at March 15, 2018 9:42 PM
The settlement was of the civil case...it seems quite possible that a criminal case might be brought as well.
Indeed, two criminal cases: one for securities fraud and one for violation of the applicable FDA regulations.
Schultz's behavior was inexcusable: apparently, his reaction to potential bad news was to react with anger toward the messenger.
David Foster at March 18, 2018 6:19 AM
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