Theranos verdict is a cautionary tale for failed entrepreneurs

“Fake it until you succeed” may work in Silicon Valley, but that slogan doesn’t work in federal court.

A jury in San Francisco found Theranos founder Elizabeth Holmes guilty on Monday about a conspiracy to defraud investors in her blood-testing startup and three counts of electronic fraud.

The Stanford University dropout has attracted investors with his promise to revolutionize the healthcare industry by performing multiple blood tests from a single drop of blood. But the company’s $9 billion valuation collapsed after questions were raised about its technology in 2015 and 2016.

The ruling will also reverberate in the tech and investment communities.

While entrepreneurs often promise investors the best of luck, Theranos is completely deceitful. Holmes admitted on the stand that she had modified the documents to include the pharmaceutical company’s logo and that her “Edison” machine could only perform 12 types of tests, despite her public claims that more than 200.

Fraudulent trials of US corporate executives have been rare in recent years. Some recognize that the Sarbanes-Oxley corporate accounting reform, adopted after a series of scandals in the early 2000s, improved the accuracy of public company reports. Others argue that the Justice Department has failed to keep an eye on white-collar criminals, something President Joe Biden has promised to reverse.

Either way, tech companies, especially those that haven’t gone public, have historically enjoyed more leeway on their promises even as valuations rose. billions of dollars. Now some of those superstars have fallen to earth, and a reckoning is imminent. Nikola’s former chief executive, Trevor Milton, is scheduled to stand trial for fraud in April, for claims he lie to investors about the technology of the electric truck company.

A rare female founder and one who deliberately compared Apple’s Steve Jobs, Holmes won over an all-star board and attracted breathless media coverage of both his ascent to the throne. her amazing depression and decline.

But this outcome is not the result of hasty judgment: guilty verdicts were delivered after a 15-week trial and more than 50 hours of deliberation. Theranos employees testified about the gap between her claims and reality, while investors described her financial pitches.

The jury was not convinced by Holmes’ efforts to place the blame on others at the company, including former chairman Ramesh Balwani, who she accused of mental and physical abuse.

Holmes is expected to appeal, a process that could take years. But the divisive ruling will make it difficult for her to argue that she was unjustly made a scapegoat. The jurors comprehensively rejected attempts to hold her accountable for erroneous blood test results reported to patients.

They appear to have taken seriously the judge’s directive that charging the patient would require them to discover that Holmes persuaded the client to use her tests instead of a traditional lab. The jurors also failed to reach a verdict on three counts related to investors putting their money in even after Holmes denied their request for additional information.

Some apologists have said that Holmes should prison is spared because she has been punished enough. It’s ridiculous. Privileged people using their connections and credentials to steal do as much damage to our society as those using rudimentary methods.

Investors have poured cash into thousands of tech startups in recent years, and some of them are sure to disappoint. Holmes’s beliefs are a timely warning that there is an important difference between cheerful optimism and outright fraud.

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