Nic Coury / AP
Selling an idea in Silicon Valley takes not only great vision, but also bragging rights and shouting, says Margaret O’Mara, technology industry historian.
“Telling a good story is part of being a successful entrepreneur in convincing investors to put money into your business,” she said.
And that’s exactly what Elizabeth Holmes, the former CEO of Theranos, did. She drummed up investments with a dream that bordered on the fantastic when she promised to transform healthcare. The company’s portable blood test device could analyze the blood count of a finger prick for thousands of diseases, she vowed.
In the process, federal prosecutors claim she and Theranos number 2, Ramesh “Sunny” Balwani, broke the law by deceiving investors about how well business is and the capabilities of its testing machines, in addition to allegedly false or erroneous test results Patient.
In Silicon Valley, the process has sparked a debate: since Holmes was following a game book used by dozens of technology CEOs, why is she the only one to be prosecuted when a company collapses after a scandal?
For Ellen Pao, the former Reddit CEO who is a vocal critic of gender discrimination in technology, sexism is partly to blame.
“When you see which CEOs continue to wreak havoc on consumers and the marketplace, it’s the people who look like the venture capitalists who are mostly white men,” said Pao.
She points to Adam Neumann, who drove WeWork into the ground; former Uber CEO Travis Kalanick, who stepped down following a sexual harassment scandal; and Kevin Burns of Juul, who stepped down over questions about the company’s role in fueling the youth vaping epidemic.
There were lawsuits, settlements and other consequences – but in particular, Pao emphasizes, no criminal prosecution.
“That all these people continue to lead their lives and are not held responsible for all the damage they have done sends a message,” she said.
What makes Holmes’ case different?
Former prosecutors who tried white-collar crime say there are several reasons why Holmes stands out among disgraced technology CEOs.
First, the supposedly fraudulent behavior was egregious: Holmes told the world it had a miracle machine that would turn laboratory science on its head. Prosecutors say the technology has done little compared to their claims.
Mark MacDougall, a former federal attorney focused on Justice Department fraud cases, said Theranos is a biotech company that is increasing the stakes.
“It allows the government to claim, with some evidence, that the health of individuals, the health of innocent people, was at risk,” MacDougall said.
Another reason Holmes was charged, according to former prosecutors, was that the government alleged it received evidence that it acted willfully, which can be difficult to prove in fraud cases.
“This is often the hardest part of a business case to prove,” said Hartley West, a former senior attorney for the Northern District of California attorney who oversees Silicon Valley.
“Occasionally you find a case where there is an email that says, ‘Boy, I hope we can scam all these investors,’ but that’s very rare,” West said.
Prosecutors have not produced such a document from Holmes, but through emails, text messages, testimony and other evidence, prosecutors say, they can show that Holmes “knowingly and deliberately” cheated on investors and patients – something their defense team says , is wrong. Her team argues that she is being wrongly charged as the CEO of a failed startup.
Evidence that Holmes is guilty will tend to demonstrate their intent, since exaggerating financial projections and running a clandestine business are not federal crimes.
Prosecutors considering charges against corporate executives need to be certain that the person most likely intended to break the law. But MacDougall said government attorneys also need to be careful not to abuse their law enforcement powers.
“When you start to require anyone considering starting a business, expanding a business, developing a new product, to think first, ‘Can I be prosecuted for this?’ They are tinkering with something that is very basic to growth and the economy, “he said.
Silicon Valley is now saying: “This is not us”
As a pitchwoman, Holmes called the Theranos device “the healthcare iPod”. She wore black turtlenecks in a not-so-subtle nod to Apple co-founder Steve Jobs.
With Holmes now facing fraud charges and years in prison if convicted, it has become common for technology leaders and venture capitalists to argue that their case is an isolated incident and not an industry indictment.
“The gap between what she and her co-workers said, what Theranos did, and what she actually did was so great,” said O’Mara. “It’s very easy for Silicon Valley to just say, ‘This is not us.’ “
Pao, meanwhile, said she was not defending Holmes’ actions, which she believed were encouraged by the risky and rewarding culture of venture capital.
She said prosecutors should have tried Holmes, but Pao wants a wider discussion in Silicon Valley about why other CEOs accused of wrongdoing don’t face criminal charges.
“Why don’t we hold other people accountable so we can avoid all the damage that is happening in the tech industry?” She asked.