Theranos, CEO Holmes, and Former President Balwani Charged with Fraud
sec.gov
sec.gov
“The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.”
For all those entrepreneurs are trying to "fake it until you make it" be aware that the SEC considers your strategy both fraudulent and they feel they have the jurisdiction to prosecute you. And while I doubt the SEC is going to go after every CEO that raised a Series A on a pitch deck that was pure fantasy, the people who participated in the round might bring them in if it served their purposes.
https://news.ycombinator.com/item?id=11973102
https://www.vanityfair.com/news/2017/01/theranos-investor-cl...
Re a previous Holmes forfeiture: "Warmenhoven added Ms. Holmes showed “a level of selflessness and grace reflecting her commitment to the company’s success.”
Think about the decision that he had to make in 2016. He had to choose between admiting his mistake and doubling down. The downside of admitting his mistake is that he's guaranteed to get negative points; the upside is that it will minimise futures downsides. By dubling down, he's guaranteed to reduce his negative points in 2016 but exposes himself to magnified upsides (if he's proven right) and downsides (if he's proven wrong) in the future.
Now think rationally how you'd choose. The second strategy is a lot riskier so it better have better return as well! But the second strategy can only have higher reward if you either believe high probability of future upsides (i.e. Theranos might be faking till you make it, but they'll make it) or low probability of future downsides (i.e. I'm not sure what's going on, but definitely not fraud). I submit that the only way that you could come to believe either is if you're hugely misinformed about the company.
I.e. that guy is just a bit incompetent.
Draper has no doubt had many chances in his life to provide negative but true and positive but false comments on his investments. If society punishes negative but true comments he's damn well going to notice and make fewer of them. If society further fails to punish positive but false comments about his investments, he's not going to invest the mental resources that would be required to avoid them.
A little experience substitutes for a lot of strategy.
"Venture capitalist Tim Draper, an old family friend of Theranos founder and CEO Elizabeth Holmes, who led an early $1 million investment into the company (split between two investment firms).."
This is an incredibly defeatist/self pitying line of thinking that I'm seeing more of (the world is stacked against me, you have to be born into it, etc) and is related to a lot of other self-defeating thought patterns. It's not going to help you or anyone else who subscribes to it. Maybe it's just that bad news is much easier to see, thanks to the web, so people think bad behavior is more common now, and it's turning people cynical.
Doubt it. I don't think In-Q-Tel/CIA will write you a check because you just happen to have this shiny new search engine that may or may not change the world.
https://www.cia.gov/library/publications/intelligence-histor...
"Close" does not mean part of the organisation. The founder Norman R. Augustine isn't even a CIA person. It is somewhat similar to a spinned-off company which runs independently but has tight connections (and a contract, in case of In-Q-Tel) with the organization that spinned it off.
* In-Q-Tel (theoretically) may have other contracts and major partnerships.
* In-Q-Tel gets to pick who they invest into; CIA may express interest in a particular area or a company but In-Q-Tel manage their portfolios.
* While In-Q-Tel is non-profit, the profits flow back and the employees may profit from it. Meaning, while part of the funds come from the CIA (taxpayers), part come from the past profits.
More detail to those interested in law: https://scholarlycommons.law.northwestern.edu/cgi/viewconten....
It's fairly unusual for the US, but similar structures exist in countries trying to nurture their startup ecosystem.
Anecdata, but: I left academic hard science because I realized it was too difficult to get ahead; moved to the bay since I can code and it was a way to create a runway and find myself, and pitch companies. Got a contract coding gig, because a professor on the board of my roommate's company was impressed that I had independently implemented his prototype as a personal side project. Applied to 10+ startups for "real programming jobs", including through triplebyte, rejected by all, finally got hired by a roommate's friend (on reputation only) whose company needed asses in seats for an investor meeting.
Meanwhile, I'd been pitching 3 biotech ideas and one tech idea (I had written verilog for a hardware prototype of a deep learning chip) and got no bites on any of my pitches.
Finally, a friend offered me a VP product position (because he needed someone he could trust) which I was about to jump ship for, and then my current CEO counter-offered by agreeing to put his personal money as a lead in one of the biotech startups I'd pitched (that was somewhat meritocratic because he has seen how I operate as a coder in the company and was impressed, and I think he figures, probably correctly that if I'm that good a coder then my biotech skills are even better because that's what I'm formally trained in)
Since getting here, I haven't once advanced through pure merit, and have always advanced through connections.
I got my first foot in the door via an internship on a referral from a friend who had interned there the year before. I had no formal credentials (just taking CS classes on the side of an Econ degree in college), but I had spent all of my math/CS classes studying with this kid. He knew I was smart and put his own ass on the line to get me an interview.
You can be successful purely by reading books in a room, writing code alone, and building some brilliant startup. (E.g. look at the CD Baby guy, what's his name). But it's SUPER unlikely. You're way better off being a social human being, building relationships/trust, and paying it back/forward to folks that do right by you when you know you deserve it.
A lot of the SV narratives circle around meritocracy (or other ways of 'hacking the signalling game' even. And when you say "it's SUPER unlikely", I think you're 100% correct. And so challenging the meritocracy myth is important.
That was 20 years ago. As much history as Larry Ellison's story in 1970s. Things have changed a lot, and the Silicon Valley today is a poster child for cronyism.
The VCs don't even bother opening "cold emails" (a ridiculous term for something that purports to be an open club). It's a herd of arrogant hipster bros who have no clue what they're doing and try to CYA by "warm introductions" (when their bet fails, they can shift the blame on a 3rd party).
The investment is not completely off-limits (my own story is a testament to that), but it's magnitudes harder to get if you're not connected, and oftentimes you have to pay through the nose to the "people who know people". I also know some rare cases when super-angels answer to complete strangers and subsequently invest, but these are exceptions rather than the rule.
Can you back up this statement? Why is it self-defeating? You put it in your post as if it somehow logically follows from the rest but it doesn't.
The claim is that people who were not born or just lucked into connections with the rich and powerful are going to have to work significantly harder or get lucky to get access to those opportunities. While the people that do, can put some work in and basically claim the opportunity or just simply try again without significant loss or even having to settle for less.
"Lots of counterexamples" don't mean anything unless you can show that there are in fact so many counterexamples that they outnumber them in a similar ratio as the people in the first group utterly outnumber the people in the latter group. Or even by a factor of ten.
But they don't and almost nobody would be having this discussion if they did.
> Maybe it's just that bad news is much easier to see, thanks to the web, so people think bad behavior is more common now, and it's turning people cynical.
And you're going to need more than those words to properly argue that this is a bad thing.
Because a lot of bad news wasn't visible enough. And people have been underestimating the magnitude of bad behaviour. And a lot of people in a lot of places in the world most definitely aren't being cynical enough.
Sure there are psychological downsides to being bombarded with bad news and negative information all day, and we need to find ways to handle that, for our collective mental health. Doesn't mean the bad news is somehow wrong or faulty.
Generally, "they're family" sounds like a sensible default attitude for a VC towards their investments.
The complaints further charge that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters...[i]n truth, Theranos’ technology was never deployed by the U.S. Department of Defense...
For example, you can say "We are building a tester that can run tests using only a drop of blood." and "We have test results from blood showing markers" and never mention that the "test results" came from an industry tester and not the "tester you are building". The implication is that your tester did that but you didn't actually say that. What I read from the press release was that this sort of messaging was going to be actionable. If you look at various full disclosure rules the SEC has for public companies, this felt like a shot across the bow to startups that they would do well to think about that instead of glossing over bad news.
> claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014. In truth, Theranos’ technology was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014.
This was not even a forward-looking statement, it was an outright lie in the legal document.
One can do pretty much whatever they wish with accredited investors' money, but it has to be disclosed in the PPM.
Even if you have a line item where all the money will be spend on CEO's dog's private jet travel, accredited investors who have reviewed and signed the PPM have no legal recourse.
In Theranos case it looks like a straightforward misrepresentation of facts, which is a red flag for SEC.
I wouldn't suggest lying about anything in the aviation sector either.
Well, I'm sold!
Not joking, I have heard this pitch.
http://mobile.abc.net.au/news/2018-03-13/drone-delivery-syst...
> claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters
That is clearly a statement looking at past events, so if it was false it was clearly a lie
> the company would generate more than $100 million in revenue in 2014.
The important word there appears to be "would", in which case it was a forward-looking statement so easier to argue it was based on projections that just didn't pan out.
That wasn't illegal at all though :)
Just that he lied to his investors about the source of the returns.
I assure you, it is only possible to avoid risk if you're a small fish and extremely careful. For instance, you have a good chance of getting away with skimming a neighborhood stock fund you setup. If you are managing or receiving millions of dollars in investment, you can bet anything fishy will show up on the SECs radar at some point. Most people with large sums of money don't get where they are by being stupid with it, and if they are the victims of fraud, they know where to go. While the SEC can't bring criminal charges, they have top notch investigators. Once they smell the fish, they won't stop until the entire scheme is unraveled.
I can't speak directly to the observation you made, but I personally know a high up SEC investigator, and he obsesses about the most minute details of the cases he works on and lives to take on the toughest cases possible. My guess is distribution of cases the SEC prosecutes are very heavy tailed. There are many dumb cases that are very easy to find and prosecute that involve 10s to 100s of thousands of dollars. Think skimming, ponzi schemes etc. The more sophisticated and larger cases are also more risky (for the fraudster), harder to execute, and much more rare. That might explain your observations.
In 1999, financial analyst Harry Markopolos had informed the SEC that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. According to Markopolos, it took him four minutes to conclude that Madoff's numbers did not add up, and another minute to suspect they were likely fraudulent.[73] After four hours of failed attempts to replicate Madoff's numbers, Markopolos believed he had mathematically proved Madoff was a fraud.[74] He was ignored by the SEC's Boston office in 2000 and 2001, as well as by Meaghan Cheung at the SEC's New York office in 2005 and 2007 when he presented further evidence. He has since co-authored a book with Gaytri Kachroo (the leader of his legal team) titled No One Would Listen. The book details the frustrating efforts he and his legal team made over a ten-year period to alert the government, the industry, and the press about Madoff's fraud.
https://en.wikipedia.org/wiki/Bernard_Madoff#Investment_scan...
2. Madoff was caught because his scheme fell apart, not due to any SEC or other government action.
>...avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught.
This statement is mostly what I was responding to. Here is a thought experiment. For the sake of this experiment lets say our economy is perfectly competitive. If all an entity had to do to get away with fraud was "set your mind to not getting caught," then every entity that participated in the economy would be committing fraud because it is in their best interest. That sounds wrong, probably because it is. White collar criminals don't plan on getting caught, they do everything they can to get away with their crimes. To me, that qualifies as setting their mind to not getting caught. Well, they get caught anyway.
The companies you bring up (enron, worldcom, madoff) are outliers in the world of securities fraud. they achieved unprecedented levels of success and then failure. Using these cases are counterpoints to an argument that financial crimes are hard to get away with seems silly to me. After all, none of these frauds were successful in the end, instead, people ended up in prison.
>...avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught.
The experiment is a simple application of the economic theoretic framework to the statement above. Nothing more. There isn't all that much to argue about here, as long as you accept the framework upon which almost all of theoretical economics is based.
A sufficiently large enough example which failed to be stopped by investigators for a decade could easily outweigh thousands of outliers ultimately being a serious net-negative and outweighing such a dismissal of facts...
The fact such a blatantly wrong example proceed to scale up for a decade and encompass billions of dollars before being shutdown is quite a good example of how any one investigator's knack for detail in their own limited exposure to particular cases (as in your personal analogy) is hardly sufficient to dismiss the idea that all complex cases need not worry of SEC investigation. Quite the opposite.
If anything that means the SEC has smart people but only a limited capacity of attention as they tend to obsess over details in individual cases (as that is what is required in a significant percentage of them). So as long as you're not one of the easy cases (obvious ponzi schemes or involving large sums, significant amounts of people, or popular advertising) then it's not as worrying a threat as they'd like to make it appear.
IMO that is naive. He is an outlier. Sort of like saying committing mass acts of terrorism is easy because 911.
I can't find it now, but I do recall the SEC itself putting the number of frauds they uncovered in the low single digits. I might ask my SEC friend himself what percentage of the iceberg he thinks is uncovered.
The point is, fraud is risky, and it isn't easy. You basically have to be willing to give up your life as you know it. Sometimes I wonder whether fraudsters have an internal dialogue about whether it is worth the risk. And for the fraudsters who aren't psychopaths the guilt of defrauding friends and people who trust you must be enormous. Sounds like a stressful day job that I won't ever be entertaining.
IBM's Watson comes immediately to mind.
The difference is whether or not you can come through with some percentage of your promises. The ones who can eek out some kind of repeatable traction long enough to exit are successes, the ones who never get to scale are frauds.
That isn't "We are on shaky ground with new, unproven tech." That's "We know it doesn't work. We are comfortable lying about it because money."
All of the industry AI labs follow the same pattern, even (perhaps especially) the en vogue ones (well, I guess depending on wtf "solve intelligence" is supposed to mean...). Watson is just old enough that it's now obvious the advertising agency was given too much leash.
Ditto for self-driving.
Ditto, in fact, for basically any basic or applied research happening in the research arm of any for-profit organization. And at a lot of universities besides! In fact, as far as I can tell, positive PR is some non-trivial aspect of the ROI for industry research labs.
BUT... there's a HUGE GAAP ( ;-) ) between marketing hype and lying in financial disclosures. One is eye-rolly and should be called out on internet message boards and during sales pitches. The other is criminal.
Holmes was, in many ways, embodying that HN mentality, acting on the basis:
- that an entire industry has been doing it wrong
- that it can be fixed by a low-bureaucracy, Angel-funded startup
- that once you have enough success you can just rewrite the laws that were slowing you down
- that no one knows what they're doing anyway, major projects are 100% guesswork, and you should just "fake it till you make it"
- that any skill is just a matter of 10,000 hours of practice
- that you can outsmart an industry before even passing or placing out of sophomore level classes
- that any self-doubt must be Impostor Syndrome, and so it's not worth your time to even check if that doubt has a factual basis
Yes, I've posted this twice before but I'm citing it and admitting to it, and it got heavily upvoted both times (thanks to Algolia for making comments so easily searchable btw):
Hopefully we're about to land in a cultural place where getting an education is seen as getting an education, rather than either a panacea for individual success or a complete waste of time/money for the docile masses.
Arrogant, presumptive behavior is annoying -- but I think it's important to keep a bright line between that and dishonesty, because one self corrects and the other doesn't. And, a pinch of presumption is necessary for exploration.
Edit: If you have a good answer, then I would suggest we start posting that as the advice ("here's how you know if you're good enough") rather than immediately tell everyone they have they have Impostor Syndrome (as seems to be common practice).
IDK, I feel like that's a sweet spot most people hit at the end of a PhD. Enough confidence in yourself that you can expend lots of resources trying hard things.
Enough humility to recognize that you'll probably fail at most of those things.
And most importantly, the project management, risk management, and communication skills to hedge your big bets.
Enough experience working with top-tier people to know that all of these things are learnable skills that other successful folks are using (including fields medalists and including high-school dropouts).
Maybe there's a difference between the "informed arrogance" of a researcher working on an open problem in their field (or a serial entrepreneur trying to disrupt a huge industry) and the "uninformed arrogance" of a charlatan, hack, or (in this case) fraudster?
That is, if you believe that you can't learn kernel hacking, that's (potentially) impostor syndrome. Lots of people have in fact learned kernel hacking, you can learn it too. Your self-doubt about it is based on (falsely) thinking that you are individually incapable of doing a thing plenty of others have done. But if you believe you can't build a perpetual motion machine, that's just thermodynamics. Nobody has built a perpetual motion machine, and doubt about your ability to do so (which isn't really self-doubt) will be quickly confirmed by a survey of the literature.
No, the fact that others have learned it is not (strong) evidence that you can learn it too; you would need to know how similar you are to those people, and whether those dimensions are relevant.
IOW, exactly the diagnostic criteria I suggest we search for rather than immediately skip to "so what, other people thought that too".
>Your self-doubt about it is based on (falsely) thinking that you are individually incapable of doing a thing plenty of others have done.
That's generally not what is happening in practice. People don't de novo say "I can't ever do this". Rather, they attempt (or otherwise survey) it, find difficulties ("I can't consistently understand how the stack is doing that"), see others that have no similar difficulties ("what? It would have taken me a day to work through that and it comes naturally to you"), and on that basis conclude that they're unlikely to succeed as well.
"You have Impostor Syndrome" doesn't make any headway on the core problem.
Those folks exist, but I meet plenty of basically honest people who are arrogant before experience and humbled after. Far more than the raging narcissists who will do what Holmes is accused of, though those get attention.
As a recent dad, I think a lot about sending my guys into a world with 10B people in it, moving incredibly fast publicizing accomplishments (real and otherwise) in ways that make it seem like every niche is filled up. It's clear to me that irreverence for status quo and honesty with themselves are going to be equally important in them finding a niche for themselves.
Is that the HN mentality? It might lean more that way now, I suppose, but I've always felt it was more in the "scratch your own itch" territory and less in the "complete industry outsider disrupts XYZ industry with revolutionary ideas" area
- that it can be fixed by a low-bureaucracy, Angel-funded startup
- that any skill is just a matter of 10,000 hours of practice
Some of these things are correct sometimes. Many industries have been doing things wrong for very long, and massively productive changes disrupted the industry. Who knew that boiling water would change the coal industry forever? Some guy came up with the pump idea and changed everything. The mine owner that invested in him made a lot of money. The industry changed. Things like that happen.
I get that we sometimes have gut feelings that we can't explain. We have to be honest with ourselves though. "Is it just that I don't want to face reality, or is there truly something that I can't put into words drawing me in this direction?"
What if some 20 year old business major drop out said they are going to make chipsets double the speed of the old and lumbering tech companies like Intel? Everyone here would say no way and never think that would be disrupted so easily. So yes it is a case of people with HN mentality thinking that well taking blood via a venous draw and giving me my results a day later is cumbersome and stupid, and rife for disruption. Someone thinking outside the box despite me or that person knowing next to nothing about clinical lab tech can easily make it better than Roche, Quest, Lab Corp, Abbot etc. because they can move quicker, and disregard the old paradigms. With no consideration for the physical impossibility with known scientific knowledge!
So yeah please by all means look at how smug a lot of us were on earlier Theranos postings about the Steve Jobs of med tech. It is a valuable lesson to learn. Not everything is inconvenient for no reason, and not everything can be disrupted without some serious demonstrable tech.
https://news.ycombinator.com/item?id=8181339 https://news.ycombinator.com/item?id=7951019
There is no "HN mentality", just a large statistical cloud that people see what what they want in. Most of that cloud has been the opposite of what you're suggesting. Commenters here have been not just skeptical but cynical and outraged by Theranos for years, to the point that it became tedious. It looks to me like you're engaging in a bit of revisionism for the purpose of posturing above the community. That is a popular sport but a distasteful one.
Would you mind giving some guidance on what I should have done in the situation? I was doing the best I could against the constraints. The situation was that someone made point X, to which I have point Y as a reply. Both X and Y, in some form, have been posted numerous times.
Should I:
1) Not reply?
2) Reply, but make sure to reword Y each time?
3) Link to a previous version of Y?
4) Copy-paste a previous Y but not admit to it so it's not clear I did anything wrong?
I chose 5) copy-paste the best previous version of Y and be transparent that I"m doing so, and why I thought the circumstances merited it. You think that's the wrong choice. 4) and 3) don't seem much better based on what you've said.
I'm guessing you want 2), but IMO that's even worse because it disconnects the discussion from previous ones and forces us to retread the same ground more clumsily.
>There is no "HN mentality", just a large statistical cloud that people see what what they want in. Most of that cloud has been the opposite of what you're suggesting. Commenters here have been not just skeptical but cynical and outraged by Theranos for years,
That's kind of my point. The typical comment is outraged at Theranos. But the typical comment is also endorsing the very kind of behavior that avoids and ignores those very same warning signs. "Well sure, I consistently said over the years to 'never listen to the haters'. But I didn't mean when they were right, of course!"
"HN [most often] tells everyone that no one knows what they're doing either" is not revisionism. Revisionism would be claiming outrage that someone would press ahead when they didn't know what they were doing.
I don't agree with you at all about what the typical HN commenter is endorsing; it seems to me you're adding a lot of interpretation to a lot of disparate information and constructing something of a straw man.
By the way, if anyone is interested, only a small minority (10% if that) of HN users are in Silicon Valley. And plenty of those identify more against it than with it.
Faking it implies you want to give others the impression you’re already a big shot, and it dilutes out the accomplishments of people who actually made it.
The downside should be that if you’re faking it and you don’t make it, your shame should be relentless and brutal, and no one should ever take you seriously again. Also, even if you make it you will feel alone and empty in your success, because everyone will have long thought you already “made it” and you have to continue hiding your true story. There is no one to celebrate with except those who are also in on it.
Where as if you would have just been humble and true to where you currently are, people have headroom to express sympathy and support should you encounter a setback.
I don't think so. Self-doubt is natural. Mandatory, really. Someone who never has moments of self-doubt is a bad investment risk; it means they probably aren't thinking hard enough about what could go wrong. But concealing those doubts is also mandatory: if you can't, it may be a sign that you have more problems than you know how to deal with.
If you choose to ignore it and fake your way up, you are not being brave, you are being delusional. I'm not sure if delusional people are good investments.
For example you lie about how your marketing efforts are reaching customers who are signing up in droves while you use mechanical turk and other techniques to make the observable metrics go up. At some point your visibility reaches the point where you actually are reaching your customers and so you can stop doing the shady stuff. By doing this you avoid the inefficiency of the whole "we aren't sure you can do this" discussion which helps no one.
On the outside, one clean narrative, traction and growth from day 1, now a multi-million (or billion) dollar business. Or as my Grandfather would say, all yummy sausage and no discussion at all about what not-yummy things are in there too.
Everyone should believe in themselves. That is just a given, if you don't (or can't) then you won't reach your expectation. There isn't any "faking" there as far as I can see (unless it is suppressing your own doubts about the effort).
This is 100% correct. I also know a fair number entrepreneurs who engage (or have engaged) in exactly what you describe. Also, it's a short and murky step from many of the "naughty" stories that are lauded in entrepreneur lore, to outright fraud. Too often, we make post hoc rationalizations for unethical behavior, based on outcome.
It's a huge dilemma if you want to behave ethically, but you're competing with lots of people who don't have that limitation.
Staying vigilant against the normalization of deviance[1] is difficult even in ideal situations. Choosing to normalize deviance as a business strategy is practically guaranteed to rapidly accelerate deviations from acceptable behavior.
In any system - including every business - resilience and safety means fixing small problems before they grow into bigger, more damaging problems[2].
> rationalizations for unethical behavior
Often, it doesn't even need to be rationalized. When deviant behavior is slowly normalized in small steps, the human mind tends to only see the "small, insignificant problems", and often skips[3] over big changes that should be "obvious".
[1] https://en.wikibooks.org/wiki/Professionalism/Diane_Vaughan_...
[2] https://www.youtube.com/watch?v=PGLYEDpNu60
[3] https://www.cse.iitk.ac.in/users/se367/10/presentation_local...
First you shade the truth slightly. You're uncomfortable at first, but the line seems to work, so you try it again. You use it another 10 times and you start to believe it.
And then you shade the truth a little more. After the hundredth pitch, you're a fabulist, and you barely noticed.
I was sympathetic to the Theranos side of things until I learned they actually submitted fraudulent test data. That was the point where it became clear to me they were not confused as to where to draw some line. They were being willfully deceptive. Deception like that doesn't grow out of confusion. It grows out of clarity that you are selling BS.
This thread is the first time I've heard it applied seriously as to encourage lying and fraud.
Another similar common saying is "dress for the job you want, not the job you have." But sayings imply that you should act as if you've made it even if you haven't. You aren't "what you want to be," but you can present yourself in that way.
Finally, while you may have met many people who have turned "fake it" into lying and fraud, they are not the majority.
> Everyone should believe in themselves.
At least you admit here admit I'm right.
> By doing this you avoid the inefficiency of the whole "we aren't sure you can do this" discussion which helps no one.
Pretty sure that it would help investors differentiate between those who can actually make it, and those merely good at faking it and making observable metrics go up ... especially if the ones actually capable of making the <big thing> don't make the metrics go up quite as high as the ones putting their effort into faking it.
And like another commenter said, that difference might well be worth billions.
Almost like they're asserting a confidence in a belief that isn't really merited -- wish we had a term for that.
It's essentially someone stating a vision they have as reality, which is fraud.
Every building is a blueprint at some point. Some jabroni pointing at the sky and describing what will be is part of the dilemma of innovation and construction.
Startups engage in all sorts of puffery, trying to project the appearance of success long before they have actual success. Fancy websites, fancy offices, sales and investment pitches that cherry pick stories, numbers, and milestones that give an enormously positive impression of what's generally a very bumpy reality.
I personally don't like that, but the game is the game. But it's very easy for that puffery to slide over into outright fraud when things get desperate. Which is why I'm so glad that the SEC is going after Theranos with great vigor. Hopefully these clowns will end up sharing a cell with Shkreli, giving every would-be startup CEO a clear example of what happens when they push it too far.
And it can even be fine when things are beyond the state of the art, as long as the CEO has the bravery to look reality in the face and either a) find another way, or b) say "sorry, startups are gambles, and this one's a busted flush".
And it's the liars and charlatans that really get to me. I figure it's at least 30% likely that I'll end up in jail because somebody says "blockchain" to me one too many times regarding some application which would be better off done with a MySQL database.
Of course, the benefit from the puffery might outweigh whatever legal risk exists. I’d call that a “calculated risk,” not “fine.”
If it's a significant factor in a buying decision, it's not immaterial. If it's not material, it's probably not worth lying about.
Yes there is. You're selling investors on capabilities you don't have, or at least intentionally misleading them about your abilities. Unless you're explicitly telling them that you WILL have "The best automated way to do X!" and are working hard on it, you're deceiving them.
If you can make the automated technology before I find out, well, maybe I won't sue you, but that sure doesn't make it right or acceptable.
It is plain dishonesty.
I have never heard of someone using "fake it until you make it," referring to Wizard of Oz or Concierge as William Pietri (gosu Lean practitioner) below has mentioned.
> in actuality you have a horde of people doing the work
> There is nothing wrong with this
um in what universe does "technically legal in the US of A" equate to "nothing wrong with" ?
using legality as a shortcut for a moral compass is putting the cart before the horse at best, but very often argued out of laziness or pure self-interest at worst. it's a narrative that causes people to stop introspection and think about what is actually right or wrong, instead going for the much, much easier choice of what is legal and what is not. not easier because the legal system is simpler than ethics (it usually isn't), but easier because the choice is made for them.
and as your post demonstrates, once the choice is made, it's easy enough to conflate legality, lawfulness and judgement with morality, rightfulness and justice.
but once you poke at that distinction, the argument just falls apart.
there isn't "nothing wrong with this".
all you're really saying is that it's probably not illegal.
> Ms. Holmes and Balwani falsely claimed to investors [...] and that Theranos would generate more than $100 million in revenues in 2014, the SEC said in its complaints. In fact, the company’s revenues were a little more than $100,000 that year.
I couldn't figure out why investors were putting all that money in. Telling them you were making $100m makes the investments make a hell of a lot more sense.
What's 3 orders of magnitude between friends? She deserves prison time for this.
Sigh. The SEC is concerned with lying about actual numbers. Not about future projections. What a terrible comment on a startup forum. "Fake it until you make it" it as about having confidence -- not about lying to investors. Please downvote this parent comment.
Our experiences are different I suspect, Check this out https://www.sec.gov/fast-answers/answers-regfdhtm.html. I sat in the courtroom once as one of the officers of a company was being prosecuted for violating this disclosure rule. There are a number of regulations that the SEC enforces that have nothing to do with "actual numbers" and everything to do with information asymmetry where the company knows something and the investors don't.
They have historically been all about that when non-accredited investors are involved (aka public companies). And reading their action with respect to Theranos suggested to me that they are going to bring that hammer into the startup space.
What this has to do with the parent comment? I'm asking these because I'm not sure I follow the reasoning. Your concern is that the SEC has very strict reporting standards and regulations. These are intended to provide a fair field between all investors (accredited and non-accredited) in order for the market to function in a more efficient way. In exchange for this increased cost of regulation upfront, the transaction between investors on the company's shares have a much lower friction (and transaction costs).
Private companies have lower regulation because the assumption is that the investors willing to buy shares are open to assume higher transaction costs in terms of due diligence. Obviously, reporting the false could open the company to lawsuits, but that's also part of the potential cost for the investors.
The choice between being a public company and a private one, in the end, is a function also of this trade-off. If I understand your reasoning, you fear that the SEC forcing himself into the private market could increase the regulatory cost of all startup. Am I right?
If that is correct, my answer would be that the SEC is not imposing the full regulation but just a minimum level of accurate reporting on behalf of the investors. This is because there's an assumption that a well behaved private market is essential to make the economy more active (imagine if this level of lying was accepted, how many investors would be willing to invest?). On the other side, I see the risk of a slippery slope and having the SEC power to grow to large and kill the startup ecosystems. I don't have a clear answer for that.
So stylism aside, you have correctly surmised my concern that the SEC is looking to move into private markets more aggressively. I think the reason for that is nuanced but having lived through the dot.com bubble and watched how the government responded to that bubble (Sarbanes Oxley anyone?) And the huge losses that are being taken by the large banks as their Unicorns died in this the Unicorn bubble, basically accredited or not investors with lots of capital get mad when they are mislead, and their anger typically results in them getting their "friends" to do something about it. We currently have an integration between banking interest and the administration that is as deep as it has ever been. So there are many contacts both official and unofficial between Wall Street and DC.
There is also the perception of the disproportionate channeling of wealth creation to a smaller number of people through private company 'trading'. Add the antics of Uber and Theranos to the mix and it provides a convenient place for the powers that be to take "logical" and "needed" steps to curb the abuses. Generally resulting in more regulation and more risk on startups.
He is the main reason we know know what Theranos was doing.
He had his life destroyed, he knew it would happen, what Theranos would do to him, and he did the right thing all the same. Tyler Shultz is a hero.
Never let someone tell you that you don't matter. Try hard to do what is right. We need more people like him, be one of them too.
Be like Tyler Shultz.
https://www.vanityfair.com/news/2016/11/explosive-new-detail...
Edit: Pic: http://www.dailymail.co.uk/news/article-3944392/Theranos-whi...
"With Theranos I learned that entrepreneurs have to sell their vision," he said. "But you have to have some line between having a vision and seeing something that’s just not there."
"[Flux Biosciences] is developing point-of-care medical tests on blood, urine or saliva. Right now the company is working on a test for testosterone in saliva which could give a consumer health information but wouldn't serve as a diagnostic test that would affect medical care, as Theranos' tests aimed to."
https://www.forbes.com/sites/elliekincaid/2017/10/03/after-b...
By going public Tyler Schultz very likely saved lives.
I can only wish him the best in his new endeavors. For certain, anyone doing business with him knows his handshake is worth something real.
https://www.wsj.com/articles/theranos-whistleblower-shook-th...
> Tim Draper, the founding partner of Draper Associates and Draper Fisher Jurvetson, appeared on television on Tuesday—not for the first time—to defend Holmes and Theranos. In an interview on Closing Bell, the world’s most loyal V.C. said Holmes has been “totally attacked,” and that she is “a great example of maybe why the women are so frustrated.”
Same narrative that was invoked in defense of Ellen Pao in her game of thrones with billionaires.
There are people who are fighting for a noble cause, and then there are parasites that use it for their selfish gain.
Nowadays, you have many, many successful female tech entrepreneurs: stitch, bumble, ipsy, etc... and hopefully we are past the fawning phase and can apply critical thinking.
I think a stronger case could be made that she was mistreated than that Elizabeth Holmes was. I don't know enough to have a position on whether that's right or wrong in Pao's case, but I can see the argument. I think Holmes was pretty clearly being attacked for all the right reasons however, and not for being a powerful woman CEO/founder.
He went on to start a biotech company (that seems to be doing alright) and was a Forbes 30 under 30 in 2017...
I don't see how his life was destroyed...
http://archive.is/wO4B0#selection-955.0-958.0
> He says he was told by his parents that Ms. Holmes called the elder Mr. Shultz in the summer of 2015 to complain that their son was being unreasonable. Tyler Shultz says he also got a tip that private investigators were watching him.
> In a conversation in his parents’ kitchen, they pleaded with him to agree to whatever Theranos wanted, he says. Even though his heart sank when they discussed selling their house to cover the costs of defending him against a potential Theranos lawsuit, Mr. Shultz didn’t make a deal with the company.
> His parents said in a statement: “Tyler has acted exactly like the man we raised him to be, and we are extraordinarily proud of him.”
"His parents said in a statement" -- I remember when reading this story when it was originally published (2016) thinking how odd it was that his parents didn't agree to be interviewed in person. Or at least were worried about speaking out of turn at that point in time.
This is exacerbated by the dynamic that the part of the press you'll feel most eager to speak to, is that which are making upsetting misrepresentations about you or something you care about -- ie., those who have something to gain by manipulating you to say something controversial or incriminating.
https://en.wikipedia.org/wiki/George_P._Shultz
https://en.wikipedia.org/wiki/Charlotte_Mailliard_Shultz
It's unlikely that $400k will drive the family to bankruptcy.
Also, Tyler opting to become a whistleblower on Theranos caused a strain between his grandfather, who is a Theranos board member, and his own family.
So unless they resolve the impasse, it is unlikely that the grandfather will offer a helping hand (financially) to his son and grandson after outing the fraud in a company associated with him.
The entitled thug...
Someone help me out: Does this settlement really make the affected parties feel the pain? Does it discourage other companies from attempting the same thing? Given the scale of the fraud, shouldn't these two simply be in prison right now?
Compare and contrast with Shkreli sentencing. Some animals are more equal than others.
Most rich criminals know that when you scoff at the law, you should do it quietly.
Justice has been served.
Junk away....
At a certain point you have to wonder why did a 21 year old get paid 700 million dollars on good faith to start a pharmaceutical company with little oversight? I remember reading about the board a few years ago and just looked it up again. Several generals, Henry Kissinger...huh?
This is all seems pretty obvious in hindsight.
Until you said 'her', I actually thought you were referring to Shkreli. He ran a hedge fund starting at 23, and when he lost a lot of the money, he made bigger bets and tried to earn the money back rather than admitting his losses.
> I remember reading about the board a few years ago and just looked it up again. Several generals, Henry Kissinger...huh?
Shkreli raised money from Steven Cohen's SAC Capital, the family of Fred Hassan (former CEO of Schering-Plough), and Brent Saunders, the current CEO of Allergan.
Their stories, though they differ in industry, seem quite similar when compared in detail.
"These idiots aren't getting their money back, wait for my next play..."
"If I can hold them off for another year, we'll have a big breakthrough..."
Making larger bets to cover for an hide losses is a very common story for traders on wall street. Buying an AIDS drug to price gouge is not. In contrast, it seems like Holmes had an earnest desire to improve medical tech.
Again, I'm speculating, we'll see if this unfolds any further. Fun story to follow.
She should be in jail. Kids have gone to prison for marijuana possession and this lady walks? Martha Stewart and that Martin guy went to prison for less.
EDIT: Which part of this statement are the downvoters disagreeing with ?
... and a decision on when it is worth it to pursue a case. Unless the chance at conviction is zero, there is some politically determined risk threshold involved. Not only is the decision on the threshold political, but the risk itself is determined by the resources at the defendant's disposal. I am not saying that their decision is necessarily biased against poor people, but I am pointing out that there is a political stance involved no matter which way you come down on this issue.
There is no allegation of pulling strings and getting SEC lawyers to decide something based on her name, her connections. They act according to policy, based only on objective measures of the case.
But, it can be the policy of the SEC to objectively consider chances of winning (or getting a fraud conviction) and proceed to trial only if the chances are better than 90%, and it can be the policy of the SEC to go to trial on even 10% chances of winning, to generate as many fraud convictions as possible (at great expense to the tax payer).
Both policies are valid (I think), and the choice is political (subjective). A presidential candidate might get elected on a platform that includes going harder after well connected rich people doing white collar crimes, and then appoint a new head of the SEC to enact this new policy of being willing to spend more money to try to get people in jail for fraud.
But I think you're getting downvoted because you're arguing that white collar crime, even at scale, isn't worth prosecuting, and ignoring the perverse incentives that result from such decision-making.
I agree she got away lightly.
States vary in their impeachment proceedings and what burdens must be met.
Changing that "likely to be" into a "may be" would make the statement true(r) without the if-clause.
Also if the if-clause stated "suspected of" rather than "convicted of", then the "is likely to be" part would be true in general.
https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United...
I think this sentence is accurate: If you are suspected of drug dealing, any asset that you can't prove you received through other legal means is likely to be subject to seizure.
I think this sentence is accurate: any asset that you can't prove you received through other legal means MAY be subject to seizure.
I think this one isn't accurate, though: any asset that you can't prove you received through other legal means is likely to be subject to seizure.
Maybe I'm just surrounded by extremely lucky people, but none of the people around me (all of whom aren't partaking in illegal behavior / have never been suspected of illegal behavior) have had the police show up and randomly take their stuff.
I'm going to hazard that location, socio-economic status and skin color each could have more to do with it than luck.
This “punishment” doesn’t seem like one. She should be in jail.
"I thought we could do it. It started with a single, tiny lie and then it snowballed. I get out of control. I took some time off and now I'm starting my own company. We will be the most transparent company in the world and we're innovating X!"
Something along those lines. It's not a life or career ender IMO.
I think most people would take a lifetime of "humiliation" if they got to live an unreasonably extravagant life for a while then return to an upper middle class lifestyle, occasionally having news articles written about them until it all fades away completely after 5-10 years. A sentence of "humiliation" would only make scams like Theranos a more appealing idea to many people. And frankly, if someone could go so deep with a scam like Theranos, I don't think they/Holmes have much of a sense of shame to begin with. They'll justify their fraud to the very end.
The job of the SEC is to protect investors so they are probably doing the right thing here.
The government still should go after them for endangering people’s lives. There should be long jail terms for that.
But the SEC won't, because that's not what they do. And this is, I think, as it should be.
Will it though? Surely Holmes still has a few million stashed away somewhere that she can live comfortably off of? This settlement isn't going to leave her destitute.
Either that or I'm sure she set up some clever offshore accounting structure that has $10M stashed in the cook islands or some shit. As soon as you get some cash, I think "rich person 101" is you set up some complicated structure to hide rainy day money for this very reason. I would venture to guess she took home at least $50MM in all those rounds of investment (maybe more? i have no idea how that works.), I doubt she blew it all or was stupid enough to leave it in plain sight.
The big difference is for all the time invested, her current stock is worth zero.
https://www.bloomberg.com/view/articles/2018-03-14/theranos-...
> Holmes was paid a salary of approximately $200,000 to $390,000 per year between 2013 and 2015. During the same period, she also exercised approximately 53.7 million stock options and received super-majority voting, Class B common shares, which granted her almost complete voting control over the company. Holmes has never sold any of her Theranos stock.
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-4...
Here Holmes not only doctored power point presentations to baloon numbers to investors, but put thousands of lives in danger (if some were lost, we will eventually find out) by providing wrong results for tests to many patients that lives relied on it, and she gets jail-free card and slap on the wrist.
[1] https://www.cnbc.com/2018/03/09/pharma-bro-martin-shkreli-se...
https://www.npr.org/2016/04/19/474868428/innovative-blood-te...
https://en.wikipedia.org/wiki/Directors_and_officers_liabili...
As part of the settlement, there was no actual admission of wrongdoing or fraud, so it's quite possible that the insurance would pay the fine.
[0] https://www.forbes.com/sites/matthewherper/2016/06/01/from-4...
They have only civil authority.
They refer criminal cases to the US attorneys/DOJ, and offer assistance. All evidence suggests they did so here.
The decision to criminally prosecute or not is out of their hands.
yes, people should inform themselves before talking. Jail time and other penalties will depend on the Justice Department
https://www.sec.gov/oiea/investor-alerts-bulletins/ib_invest...
EDIT: Thanks everyone for the information -- very interesting.
Random government authorities can't bring criminal proceedings anymore than the meter maid writing a parking ticket has the ability to haul you to court for parking in the wrong place. They send the information along to the people who do have that authority and act on it if they see fit (prosecutorial discretion).
The key words in the article are "civil, not criminal".
My keyword is why.
Separation of powers. The SEC is part of the executive branch. The judicial branch is responsible for bringing suit.
If you want the why for that why, that's a philosophical discussion that probably won't be well served by a HN comment thread.
Why would the SEC be able to imprison people? That's not their job. They also can't set the prime interest rate or grant radio spectrum rights to AT&T.
The concept of limited government demands that certain powers must be separated such that they never come together in the same person. That simple measure ensures that tyranny can arise only through conspiracy, cooperation, and collusion between multiple bad actors, rather than just one person acting alone. Why can't your HOA put you in jail for not mowing your lawn often enough? Because the kind of petty nagging nitpicking bastard that typically volunteers to serve on the HOA enforcement committee makes the absolute worst kind of cop. The power goes right to their heads, and they abuse the heck out of it to further their own goals and agenda.
The question we should be asking is why do the federal criminal investigators and prosecutors seem to pay less attention to financial crimes referred to them by the SEC than they attend to other crimes?
IF you are asking "Why hasn't the SEC been granted the power to send people to jail?", then that's a deeper philosophical question. There would be a concern that the diffusion of such powers could be abused or wielded by non-judicial-experts who aren't necessarily acting in the interests of justice and broader public policy, and more generally the principle of separation of powers discourages such to prevent tyranny/the abuse of state power.
Here is the law and reasons: https://www.justice.gov/usam/usam-9-27000-principles-federal...
Here are the statistics https://www.bjs.gov/index.cfm?ty=tp&tid=63
1) https://www.oas.org/juridico/mla/en/usa/en_usa-int-desc-guid...
They cannot do other things just because "no law restricts it".
The exact authority grant is complicated.
You want:
https://www.law.cornell.edu/uscode/text/15/78d and following sections, plus a whole bunch of stuff enacted elsewhere.
The part you are probably most looking for is: https://www.law.cornell.edu/uscode/text/15/78u
There you can see most clearly their civil authority and what they are allowed to do. You can see it says "Whenever it shall appear to the Commission that any person is engaged ... in acts or practices constituting a violation of {a bunch of stuff} .. it may in its discretion bring an action ... to enjoin such acts or practices ... . The Commission may transmit such evidence as may be available concerning such acts or practices as may constitute a violation of any provision of this chapter or the rules or regulations thereunder to the Attorney General, who may, in his discretion, institute the necessary criminal proceedings under this chapter"
It then goes on to add additional monetary penalty authority that you see exercised here.
I believe the Justice Department brings all federal criminal charges [1] under the Federal Rules of Criminal Procedure [2]. Bringing criminal charges is specialized work. It makes sense to have the specialists handle specialist work.
[1] https://www.justice.gov/usao/justice-101/steps-federal-crimi...
What evidence? I have flipped through the SEC filing and some news articles and I don't see anything about it being referred to the DOJ.
Separately, I hope that they absolutely nail and jail Sunny Balwani, who threatened and intimidated whistleblowing employees with their careers for exposing the massive fraud that Theranos was.
Finally, we should be thankful that the SEC and agencies like DHHS and CMMS actually still have some teeth and reputability to follow through on issues like this and have not been totally gutted. Imagine 100 years ago when hucksters like this were touting every fake medicine under the sun and people were actually grateful for public-serving regulation. The order from CMMS to Theranos actually essentially said, "You are in immediate jeopardy of violating the law and must provide proof that you're reversing the harm caused by your inaccurate / fraudulent medical test results. Simply closing your lab will not remove this jeopardy." Thank god for rules.
No, Holmes and her people are bad people with negative personality traits. The folks going "Fuck yeah, this bullshit never made sense to me and I am glad to learn I am not crazy" aren't suffering some personality disorder. They just are glad to find reality aligns with their understanding of reality.
Also: Justice is a thing. Righteous anger over bad behavior is not schadenfreude.
Schadenfreude is taking joy in someone else's suffering.
Justice is taking joy in the meting out of suffering to people who deserve it. People argue about who deserves what, and laws and justice systems exist to manage those arguments. But the idea of righteous retribution for a wrong is pretty close to universal, and looks like schadenfreude to me.
"Two wrongs don't make a right" and all that.
Here's the nuance of her formula:
Commit fraud as an attractive, well-connected WASP woman who happened to be neighbors with well-connected VC Draper family.
Tell a great story: Stanford drop-out who studied Chinese, afraid of needles, wants to help the world.
Leverage Silicon Valley connections to pull in other really big fish, such as Kissinger, et al, who would be really, really embarrassed that they were so hoodwinked by an ingenue.
Use that cognitive dissonance to raise more and more money, while having no technology whatsoever.
Get even more and bigger fish such as Biden to vouch for you.
Wrap your company in total mysterious secrecy.
Declare anyone against you as against women in business. Works like a charm and will happen again in the future.
I dunno, I'd say it kinda failed here.
Meanwhile Shkreli - who's "victims" lost zero money - is going to spend 7 years in jail and has lost at least $10 million because the government decided to take it over.
I would love to see people complaining about gender gaps addressing the huge gender gap in our justice system, because cases like this are a slap in the face.
---
[1] https://www.reuters.com/article/us-theranos-sec/theranos-and...
1. Holmes is not out of the hot water yet. DOJ could still press charges and seek jail time.
2. What makes you think Theranos is paying her fine?
3. Holmes also loses 18.9 million (probably worthless) shares.
> Meanwhile Shkreli - who's "victims" lost zero money - is going to spend 7 years in jail and has lost at least $10 million because the government decided to take it over.
1. "no one was hurt" is never a valid legal defense. Not if you break into a company's networks. Not if you break into someone's house. Not if you sell drugs. And not if you commit fraud. In the case of fraud laws, the reason for this is actually obvious and rational: deterrence. No one ever thinks they're going to lose it all. If we only punished fraud that didn't work out in the end, the law would not have its intended deterrent effect.
However, "no one was hurt" can act as a mitigating factor in sentencing! However...
2. Character and remorse also matter in sentencing. As does settling. Who knows how much lighter Shkreli's sentence could've been if he settled. Or at least managed to just go home and shut up during sentencing.
Some of these observations might be troubling (e.g., being punished for exercising your right to a trial; going to jail for an extra year because you're an asshole in public) but they aren't gender issues.
> I would love to see people complaining about gender gaps addressing the huge gender gap in our justice system, because cases like this are a slap in the face.
This is a real problem [1]. But if you want to push the dial on this, maybe find someone other than Shkreli as your victim figure? (Also, the best way of closing this gap is probably less time for men, not more time for women.)
[1] https://www.law.umich.edu/newsandinfo/features/Pages/starr_g...
I think it's extremely misguided to regard fairness to criminals or defending them as victims as the goal here - the important thing is, as you seem to sort of agree, to deter bad actors and encourage good ones.
Oh, I didn't intend that as a defense of Theranos. I intended that as a justification for punishing Shkreli.
> the important thing is, as you seem to sort of agree, to deter bad actors and encourage good ones.
I think punishment has many societal functions, some of them more rational than others, but all legitimate in their own way.
I would certainly not say that all functions of punishment in society are legitimate. There was just a news article about someone whose exculpatory DNA evidence will not prevent them being executed. Assuming that sort of thing happens occasionally (regardless whether it's true as reported in this case) then it certainly serves a societal purpose to avoid admitting prosecutorial error, but it's not legitimate.
[1] https://www.spin.com/2017/08/martin-shkreli-jury-selection-t...
ie Sophia Amoruso, who ran her company into bankruptcy and immediately jumped into running a media company and having a Netflix show about women in business
Be a woman: “this woman used her gender to scam”
And yeah, bad actors will sometimes use accusations of sexism / racism / etc-isms to silence those speaking the truth about them.
> Holmes has never sold any of her Theranos stock.
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-4...
https://news.ycombinator.com/user?id=Theranos
First message was May 5, 2014
https://news.ycombinator.com/item?id=7701095
> Visit a lab for a Doctors appointment recently? Two vials of blood is a lot isn't it? Theranos is looking to completely redefine healthcare by solving speed and accuracy issues of current lab testing by combining SW engineering and life sciences using 1/1000 less blood than what is typically drawn today; our process have results in Doctors’ hands in as little as 2 hours allowing them to provide significantly more accurate treatments in a timely manner.
The first time someone replied:
https://news.ycombinator.com/item?id=8401792
> I was rather disappointed that the site doesn't say much about the underlying assay technologies you're using.
3 years ago, I never would have thought that such an outcome would actually happen.
Presumably she's still pretty wealthy, enough not to have to work again or to lie-low for the next decade before staging a comeback.
https://www.forbes.com/sites/matthewherper/2016/06/01/from-4...
> 4. Naughtiness
> Though the most successful founders are usually good people, they tend to have a piratical gleam in their eye. They're not Goody Two-Shoes type good. Morally, they care about getting the big questions right, but not about observing proprieties. That's why I'd use the word naughty rather than evil. They delight in breaking rules, but not rules that matter. This quality may be redundant though; it may be implied by imagination.
> Sam Altman of Loopt is one of the most successful alumni, so we asked him what question we could put on the Y Combinator application that would help us discover more people like him. He said to ask about a time when they'd hacked something to their advantage—hacked in the sense of beating the system, not breaking into computers. It has become one of the questions we pay most attention to when judging applications.
Too naughty, Sam? I suppose it all depends on whether or not you pull it off. If her oversold, semi-vaporwear tech ultimately panned out, and she ultimately got the Defense Department deals she lied to her investors about having, I could easily see her being held up as another celebrated example of "fake it 'till you make it." (Or until the SEC shuts you down for fraud).
"A chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel."
Meanwhile the crooks that caused the financial meltdown have not been charged with anything.
Bene vixit, qui bene latuit— "He lives well who conceals himself well."
Which by the way is completely legal and common in the pharmaceutical market, but the media outrage and SJW backlash made it seem illegal.
http://www.businessinsider.com/donald-trump-martin-shkreli-d...
I for one am appreciative that he called attention to the power monopolies have over the pricing of medicine.
He had the book thrown at him because he drew attention to what modern capitalism is.
Shkreli deserves what he got, but not because of his public bravado or raising the price of a drug, but because he actively embezzled money and created a Ponzi scheme.
"Prosecutors were focused on Shkreli’s leadership of two hedge funds, MSMB Capital and MSMB Healthcare, and a pharmaceutical company, Retrophin. Shkreli raised millions for MSMB Capital, but not as much as he told investors. When he made a bad bet that doomed the hedge fund, he launched a scheme to cover it up, prosecutors said. He raised more money for another hedge fund, MSMB Heathcare, which he largely used to fund the start up of Retrophin.
When disgruntled investors attempted to claim their profits, Shkreli used money from other investors and Retrophin cash and stock to pay them off, according to prosecutors." https://www.washingtonpost.com/news/business/wp/2017/08/04/m...
The Trump administration should've hired you as a consultant.
https://web.archive.org/web/20160604083644/http://static1.sq...
The book The Chickenshit Club https://www.amazon.com/Chickenshit-Club-Department-Prosecute... by a Pulitzer Prize winning journalist tells a more thorough and comprehensive, though infuriating and tragic, story.
For reference, the HQ they built in PA: https://www.google.com/maps/place/1701+Page+Mill+Rd,+Palo+Al...
Theranos was previously in 1601 California Ave (the old Facebook building), which was previously HP/Agilent.
Claiming you have contracts signed when you don't is fraud, but claiming you have $100M in DoD revenue when you don't is elaborate corporate suicide.
When the Department of Justice charges, convicts and throws her in prision -- then we can talk about the "number one rule."
IMHO the fraud wasn't the investors getting fleeced, it was the US public through obamacare payments made for pharmacy blood screening..
and given the players this will never, ever, ever see the light of day..
for now, it sounds like they are taking the fall to cover the higher ups to me..
https://en.wikipedia.org/wiki/Theranos
Since its incorporation in 2003, Holmes has been the company's chief executive officer. She recruited Channing Robertson, a chemical-engineering professor at Stanford, to be a technical advisor and the company's first board member during its early years. Sunny Balwani, a software engineer Holmes had met during high school, joined the company as its president and chief operating officer in 2009.[54] In July 2011, Holmes was introduced to former Secretary of State George Shultz, who joined the Theranos board of directors that same month.[55] Over the next three years, Shultz helped to introduce almost all the outside directors on the "all-star board," which included William Perry (former Secretary of Defense), Henry Kissinger (former Secretary of State), Sam Nunn (former U.S. Senator), Bill Frist (former U.S. Senator and heart-transplant surgeon), Gary Roughead (Admiral, USN, retired), James Mattis (General, USMC), Richard Kovacevich (former Wells Fargo Chairman and CEO) and Riley Bechtel (chairman of the board and former CEO at Bechtel Group).[55][56][57] The board was criticized for consisting "mainly of directors with diplomatic or military backgrounds."[11]
As of May 2016, the Theranos board of directors were:[64]
Elizabeth Holmes, Founder and CEO
Riley Bechtel, former Bechtel Group CEO
David Boies, a founder and the chairman of Boies Schiller & Flexner
William Foege, former director U.S. Centers for Disease Control and Prevention
Richard Kovacevich, former Wells Fargo CEO and chairman
James Mattis, retired USMC General
Fabrizio Bonanni, former executive vice president of Amgenhttps://taskandpurpose.com/mattis-theranos-questions/
for starters. Not to mention rushing approval just months prior to obamacare taking effect and conveniently lining up drugstore partnerships at around the same time.
The board composition makes everything all the more suspicious.
Not to mention the same executive of that western union..
The level of shrewdness of, and resources available to, people operating at this level makes any claims of 'over their heads' tantamount to 'gross negligence' at the very least..
the phrase 'plausible deniability' didn't get invented in a vacuum...
and lets not even get into the business about the researcher who committed suicide because he didn't want to lie long before any of this other stuff happened..
So i think unless her entire position is sold for more then $36 a share she has lost everything from the company.
No idea what her personal finances were going in to this event.
> Holmes was paid a salary of approximately $200,000 to $390,000 per year between 2013 and 2015
> https://news.ycombinator.com/item?id=16586011
> "on the front page, please check for duplicates before submitting"
But why it matters at all? Penalty should be proportional to the deed, not to the person's finances.
[1] https://www.theatlantic.com/business/archive/2015/03/finland...
I would argue the opposite, why do you think this is the case?
The SEC can only bring civil charges, not criminal ones. So SEC investigations won’t bring jail time by themselves, although if the FBI or other agencies get involved that could happen
Also, Holmes and Theranos settled, which probably had some impact that on the penalties they faced
The controversy there isn't whether you can transfer wireless power or not, but whether you can transfer enough in an easy enough way to make a practical consumer product.
If you want (alot) more detail this is a good thread to read http://www.eevblog.com/forum/projects/the-ubeam-faq/1175/
While not using the same Qi-like charging mechanism, the physics has been proven: https://www.disneyresearch.com/publication/quasistatic-cavit...
uBeam has said they are wirelessly transmitting power via high frequency sound. This link describes a method that uses magnetic fields.
More than just the financial fraud, these folks engaged in behavior that actively endangered the public. I hope this isn't the end of the government actions against them.
Her public behavior was exceptionally bizarre and almost none of what's been revealed comes as any real surprise. For timeline purposes:
Dec 24, 2017 - They get $100m lifeline investment https://www.wsj.com/articles/blood-testing-firm-theranos-get...
June 21, 2017 - Walgreens settlement https://www.wsj.com/articles/theranos-walgreens-reach-deal-t...
May 30, 2017 - Crisis on the Board https://www.wsj.com/articles/court-documents-shed-light-on-t...
April 21, 2017 - Caught using outside lab gear to fake tests https://www.wsj.com/articles/theranos-secretly-bought-outsid...
April 5, 2017 - Holmes found to owe $25m to her own startup https://news.ycombinator.com/item?id=14047457
Jan 19, 2017 - Closes last lab after failing inspection https://news.ycombinator.com/item?id=13433840
Jan 17, 2017 - second lab fails inspection https://www.wsj.com/articles/second-theranos-lab-failed-u-s-...
Jan 6, 2017 - Lays off 41% of workforce https://news.ycombinator.com/item?id=13338996
Nov 17, 2016 - Whistleblower comes out https://www.kqed.org/futureofyou/283681/theranos-whistleblow...
July 8, 2016 - Banned from operating a lab for 2 years https://news.ycombinator.com/item?id=12053721
Jan 27, 2016 - Letter from the feds https://news.ycombinator.com/item?id=10983747
Dec 20, 2015 - Some skepticism https://news.ycombinator.com/item?id=10765562
Oct 16, 2015 - Struggles with tech https://www.wsj.com/articles/theranos-has-struggled-with-blo...
From what I remember, HN and similar just had dozens and dozens articles each week on this case, far more than for other, comparable cases. MtGox was around the same time, I believe.
My subjective impression was also that Holmes featured far more prominently in the articles and discussions than male CEOs in other cases.
Here is one commentator in this thread comitting all sorts of crimes against grammar to accentuate her gender: “The FBI should recommend charges for this Holmes lady.”
Edit: I just noticed the comment I cited was by the same user I was replying to :) I guess my sexism-radar is well-tuned today.
>The FBI should recommend charges for this Holmes guy.
No one would think twice. Stop looking for reasons to be outraged, you'll be better off for it.
https://www.axios.com/tim-draper-keeps-defending-theranos-15...
Investor capital lost = ~$0
Elizabeth Holmes = $500k fine, D&O bar
Company value lost = ~$8 billion
“Investors are entitled to nothing less than complete truth and candor from companies and their executives,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is __ non-public, development-stage, or the subject of exuberant media attention __.”
Using tiny amounts of blood to do a whole entire blood workup.
> their (non-existent) tech
Some of it existed. It just required them lying about using other companies' products with a standard volume of blood. The rest of course was entirely made up.
> Anyone can think up some pie in the sky idea.
I agree. I just said the idea was good but unfortunately for her, even being a mega-uber-disrupter-genius like Elizabeth Homes, our level of technology isn't there yet and maybe never will be.
Behind Every Great Fortune There Is a Crime.
Very few super wealthy made their money honestly.
Thank you SEC and the Justice Department.
It seems like there is a lot of stupid money around and a lot of scam artists trying to suck the supply dry.
Nothing happens in a vacuum. If you don’t work hard to hype and oversell your cure for cancer, investors will be passing you by to invest in this nonexistant blood analysis product hyped to the skies.
In VC it doesn’t matter what’s you have. The game is to attract enough captital to the point where you can hopefully crate what you sold investors on already having before he house of cards collapses. It’s like one big hype/investment ponzi skeam after another, however companies can openly loose money for years after years without anyone calling bullshit as long as the prospect of gains are hyped enough. Though importantly, you have to work the right line between outright lying and hyping. Prefix everything with “might be” and “could potentially” dumb investors will still be fooled but you might survive the legal fallout more gracefully.
The correct move is to always be honest with results and to pursue one of two strategies. Spend the rest of the money they have attempting to perfect a machine that is likely to never work, or return the rest of your investors money and close up shop.
The healthcare market does not tolerate fuck ups. If you are working in this space you have to be tough and competent. Things need to work as advertised or you will be sued out of existence.
I agree courts, juries and judges are to be neutral, but a person like him just ends up getting under most people's skin. Even if there was no rational decision to go hard on him, I wouldn't be surprised if people subconsciously make that decision.
First of all, the Theranos people haven't yet been brought up on criminal charges, but it's still possible they could be, no?
Secondly, I think there were lots of material differences between the two cases that caused them to be prosecuted differently. You can't just lump every instance of fraud as the same thing.
[1] The reason I only kind-of agree: you're phrasing it in a way that makes it seem clear. But I can easily phrase it as "it makes sense that defendants who show remorse, and are therefore less likely to commit the crime again, will get a lighter sentence, as opposed to defendants who are much more likely to repeat the crimes".
Criminality and psychopathy are tightly correlated, particularly with fraudsters. Psychopaths are excellent at faking remorse and other emotions that they do not actually feel.
I would not want the punishment of a criminal dependent on their acting skills.
What happened to Martin is an injustice, and I'm saddened and disturbed by the people who celebrate it just because it was an injustice done against a "bad guy".
If you get pulled over and call the cops a dick the second he walks up to your car, you're gonna have a bad time (and you deserve it.)
Dumbfounded by your words, a 800% increase from the average sentence is, I think completely ok in a just system.
That he got an 800% increase in sentence doesn't matter, as long as the conviction fell within the ranges set up by the law.
You can call a judge biased, but if he feels it's a correct sentence, then you're out of luck. You do know that is why we have judges right? In part to make judgement calls on sentences.
1. giving the finger to Congress
2. refusing to settle and going to court
3. talking shit the entire time he was on trial, both to court journalists and on TV ("junior varsity", etc.)
4. offering money for Clinton's DNA while on bond shortly after she lost the most embarrassing election of all time (while hilarious and obviously satire, of course "they" used this against him)
And I'm sure someone else could add to my list. Meanwhile, I don't even know what Holmes looks like, let alone what her voice sounds like.
More seriously, this is why often people who know they've been caught dead-to-rights settle early: the government wants the W and doesn't want to have to spend money to get it. Shkrelli made them go for the conviction, and so he got the actual, un-discounted penalty.
Often does not imply most nor does it mean that there must be massive levels of fraud such that the SEC has to be involved.
"We had $50 million in bookings this year" - Misleading because it seems like that should mean $50 million in revenue but all of the bookings were for 10 year contracts so it is really only $5 million in revenue, but it is not fraudulent because it isn't factually untrue.
"We will be able to raise prices enough to be profitable" - Often optimistic to the point of delusion, but without a time machine it is not a statement of fact so it isn't fraud.
Investors know how to deal with that. What they don't know how to do is deciding if "those complicated papers that use words you never even heard before say we can do X" is a lie or not.
What they probably can't handle is outright fabrication.
Deliberately commit fraud for years and steal millions and millions of dollars; slap on the wrist.
Our system is so ridiculous.
Maybe that's coming but it doesn't seem like it, and that's the point of my comment. I didn't say "The SEC sucks", I said the system sucks.
Since the SEC only deals with civil penalties, they can act quickly and without the certainty required for criminal convinctions. They can also refer cases to the Justice Department, who can (and do) levy criminal charges.
Just because the SEC is the only body to publicly announce a resolution doesn't mean that Holmes or Theranos are off the hook criminally. The Obama DOJ initiated a criminal investigation in 2016 that is apparently still active and could absolutely result in jail time:
https://www.nytimes.com/2016/04/19/business/theranos-sec-jus...
Remember kids, the rich are not playing the same game the rest of us are.
Holmes' punishment is effectively nil. Meanwhile:
[1] A man sells $40 with of cocaine and eventually 5.9g of weed lands him 20 years in prison.
[2] "Illegal" voting lands a woman 8 years and deportation.
[3] Possession of a few shotgun shells gets a man 15 years.
Meanwhile, defrauding investors hundreds of millions results in... nothing, really?
There's a word for this.
Unacceptable.
[1] http://www.baltimoresun.com/news/maryland/crime/bs-md-ci-twe...
[2] https://www.nytimes.com/2017/02/10/us/illegal-voting-gets-te...
[3] http://www.nytimes.com/2013/08/11/opinion/sunday/kristof-hel...
Expressing emotion and anger can be healthy. But let's discuss this and find out why this is and can and what should be done?
* US justice system is designed for settlement. In US 97% of civil cases are settled or dismissed without a trial. 90% of federal criminal cases resolve without trial. 94% of state cases end via plea bargain.
* Normal criminals accept harder sentences when they plead guilty. Is it because it's easier to find them guilty or because they don't have access to better lawyers?
* Criminals can be put into prison only if they can be convicted. Many financial crimes are very hard to prosecute and end result is uncertain. Proving intent can be very hard. Concrete proof even harder. Getting something is better than getting nothing. When federal prosecutors go ahead, it's not uncommon that the result is acquittal.
sources and backround
The Difficulty of Proving Financial Crimes https://dealbook.nytimes.com/2010/12/13/the-difficulty-of-pr...
What prosecutors have to prove in order for you to be charged with a financial crime http://www.businessinsider.com/what-proof-for-financial-crim...
So what do we want? Do we want to relax the the burden of proof in financial crimes? More regulation and paper work that leads easier to prosecute trail (called bureaucracy that increases the cost of enterprise).
That is scary
Huh? A large percentage of those jailed in the USA have not been convicted of the crime for which they are charged. They are detained until trial because they cannot afford bail.
But Shkreli has brought on himself another order of magnitude of personal criticism because of his statements and actions beyond the price fixing. In my experience from the days after his sentencing, people who know nothing about tech or healthcare know his name and react to it with scorn, while quite few of them know the name of his funds or companies.
Less than a year later, before punishments really started to be officially levied against her and Theranos, a movie project with Jennifer Lawrence drew a frenzy of bidding.
https://www.vanityfair.com/hollywood/2016/06/jennifer-lawren...
edit: added "wasn't"
I tried so many times to get investment from his brother yet his brother just played along/followed his rich friends vs. helping out a distance family member. I even had a startup in which I met with Google per their invitation to talk about buying us and every huge tech name knocked on our door. We only received 25k of investment from a Baltimore incubator, yet tried to get additional but I'm not a cool kid or a kid with rich friends or parents with rich friends.
What Holmes did is most likely a fraud... but what the regulators did in this part above is pure and simple blackmail and extortion... the only problem is that who's gonna prosecute the persecutors....
This is really not far from wild wild west hundred years ago, where everyone was wearing guns at their belts. Truly mind boggling!!
Settling out of court is blackmail and extortion?
If they thought they were innocent they could have had their day in court but instead they basically pleaded "no contest" and took their lumps.
[0] https://en.wikipedia.org/wiki/Nolo_contendere#United_States