I was watching this series [on Disney] about Theranos. It does provide an accurate means to compare to companies in the AWE startup scene.
The question is: what is fraud and what is just excessive optimism? That question is hard to answer. And it is hard also because in the nature of being a company depending on external investors, you may benefit from painting a rosy vs a grim picture. And if you don’t exploit this, you are likely to not get many investors.
Elisabeth Holmes was convicted. So that gives us concrete information about where the line goes for what a court of law would consider illegal.
I will quote chatgpt here:
Me: tell me about the verdict in the holmes theranos trial
Chat: Elizabeth Holmes, the founder of Theranos, was found guilty of investor fraud. The jury convicted her on one count of conspiracy and three counts of wire fraud related to defrauding investors. However, she was acquitted on charges related to defrauding patients and three additional wire fraud counts. The trial revealed that Holmes made false representations about Theranos’s blood testing technology and its financial prospects to investors. Despite claims of revolutionary technology capable of performing a wide range of tests with just a few drops of blood, it was found that the technology had significant accuracy and reliability issues and relied on conventional machines for many of its tests.
Holmes was initially charged in June 2018, and in November 2022, she was sentenced to 135 months (11 years, 3 months) in federal prison for her crimes. The sentence also includes three years of supervision following her release from prison. The case against Holmes and Theranos has been a significant subject of public interest, highlighting issues of deception and integrity in the tech and startup sectors oai_citation:1, Northern District of California | Theranos Founder Elizabeth Holmes Found Guilty Of Investor Fraud | United States Department of Justice oai_citation:2, Northern District of California | U.S. v. Elizabeth Holmes, et al. oai_citation:3,Theranos founder Elizabeth Holmes is found guilty of defrauding investors.
Me: Explain the conspiracy conviction
Chat: The conspiracy conviction against Elizabeth Holmes relates to her involvement in a scheme to defraud investors through her company, Theranos. In legal terms, a conspiracy charge implies that there was an agreement between two or more persons to commit a crime, and at least one of those involved took an overt action towards that end.
In Holmes’ case, the conspiracy charge was focused on defrauding investors. The prosecution argued and presented evidence that Holmes, along with others at Theranos, knowingly engaged in a scheme to mislead investors about the capabilities and performance of Theranos’ blood-testing technology. This involved making false claims about the technology’s abilities, its accuracy, and its validation by the medical and pharmaceutical communities.
The evidence showed that Holmes and her associates used a variety of methods, including presentations, marketing materials, and financial statements, to make these misrepresentations to investors. The goal was to secure investment and boost the company’s valuation based on claims that were not true.
Holmes’ conviction for conspiracy to commit wire fraud indicates that the jury found enough evidence to conclude that she was part of a deliberate plan to deceive investors, and that she took active steps as part of this plan. This is a serious federal crime that underscores the importance of truthful and transparent communications from companies to their investors, especially in the healthcare and technology sectors, where the implications of misleading information can be particularly significant oai_citation:1, Northern District of California | Theranos Founder Elizabeth Holmes Found Guilty Of Investor Fraud | United States Department of Justice oai_citation:2, Northern District of California | U.S. v. Elizabeth Holmes, et al. oai_citation:3,Theranos founder Elizabeth Holmes is found guilty of defrauding investors.
Me: Tell me about the wire fraud
Chat: Wire fraud is a federal crime that involves using interstate communications (like phone calls, emails, or the internet) to carry out a scheme to defraud someone of money or property. In the case of Elizabeth Holmes and Theranos, she was convicted of wire fraud for her role in using electronic communications to deceive investors about the capabilities of Theranos’ blood-testing technology.
Specifically, Holmes was found guilty of three counts of wire fraud against individual investors, involving wire transfers totaling more than $140 million. This means that the jury concluded Holmes used electronic communications to make false representations to these investors, which influenced them to invest substantial sums in Theranos.
The nature of wire fraud means that the deceit doesn’t have to be successful for a charge to be valid; the act of attempting to defraud through electronic communications is enough. In Holmes’ case, the prosecution demonstrated that she used emails, financial statements, and other electronic means to mislead investors about the true state of Theranos’ technology and financial health.
Holmes’ conviction on these counts underscores the severity with which the legal system treats fraudulent business practices, especially when they involve deceiving investors and misrepresenting the truth in order to obtain financial gain oai_citation:1, Northern District of California | Theranos Founder Elizabeth Holmes Found Guilty Of Investor Fraud | United States Department of Justice oai_citation:2, Northern District of California | U.S. v. Elizabeth Holmes, et al. oai_citation:3,Theranos founder Elizabeth Holmes is found guilty of defrauding investors.