
Theranos Sued for Alleged Fraud by Robertson Stephens Co-Founder Colman - pinewurst
http://www.wsj.com/articles/theranos-sued-for-alleged-fraud-by-robertson-stephens-co-founder-colman-1480364852
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Naritai
So there have been several suits from investors / lenders at this point. I
read earlier an interesting point that these suits are essentially Theranos'
investors & bondholders for priority in the inevitable bankruptcy.

Because in a bankruptcy judgments are given priority over debt, if you holding
Theranos' debt you can try to jump to the front of the line by suing for fraud
(etc), in the hopes that you can get a judgement in your favor.

So the real takeaway is, it seems all these companies have concluded that
bankruptcy is inevitable.

~~~
jpeg_hero
I think not bankruptcy...

It's been reported that Theranos still has $400M in cash. And the founder has
majority control.

So this is a very rare condition, where there is still assets in the company
(so a judgement can be paid) but the company has no business plan. So you have
a founder who's best play now is sit around for the next 10 years spending
down that $400M on new business plans to see if something hits.

~~~
Naritai
400M isn't that much. Per Glassdoor Theranos has 790 employees; assuming that
was before layoffs and the numbers in the news (~340 layoffs) are accurate,
that's 450. Since it's an R&D company in Palo Alto, average total comp is
likely north of $250k per person, but even at that it's $110M a year in
payroll alone. And medical research isn't exactly cheap, I bet it easily
spends over $100M in research costs. So at that burn rate Theranos has 2 years
to keep the lights on. It takes more than 2 years for a medical company to
bring a new product to market.

Go ahead, halve all my numbers and argue that Theranos actually has a burn
rate of 4 years: It still doesn't matter, there is no way they'll get
something through the FDA (especially given recent history) in 4 years.

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ghaff
Honest question. Why isn't the board just shutting everything down rather than
let it continue to burn through cash? Are there sufficient insiders tin whose
interest it is to continue their payday?

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kooshball
Board can't make that decision if the CEO has majority voting rights.

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nerfhammer
Honest question: what's the point of having a board then?

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exhilaration
It's valuable to have prestigious board members when fundraising, even if
they're essentially powerless and have no experience in your industry, like a
retired United States Marine Corps general [1]. It give you legitimacy and
credibility.

[1] [https://www.theranos.com/leadership/board-of-
directors](https://www.theranos.com/leadership/board-of-directors)

~~~
aswanson
Why should an old military figure lend credibility to a biotechnology firm?

~~~
Trundle
Because you're being pitched on the biotech firm being able to land fat
military contracts.

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brilliantcode
I think this exposes a great deal of how money and wealth concentrated at the
top is flowing to people not based on merits but by their socioeconomic
lineage.

Imagine that $15 million dollar invested in $50k USD increments into 300
startup ideas, the jobs that will be created, increased human capital and
impact on their respective local economies, that are not there because of risk
adversity (it still amazes me VCs would shun risk but still throw around
"venture") towards people of lower class then them. For example, somebody
coming straight out of university vs. the daughter of a CEO at a large company
who also attends the same country_club/religious functions, suddenly looks
like a safer bet.

It looks like a pretty hopeless situation for Theranos but it also exposes the
crony capitalism that you'd find in other parts of the world with ease, with
heavy hitters like Henry Kissinger (wtf) sitting on the board.

He will most likely never see that money again because he thought he was
mitigating risk by piggybacking behind a powerful individual with powerful
connections that's accessible by blood.

It's hard to feel any sympathy.

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jlarocco
> Imagine that $15 million dollar invested in $50k USD increments into 300
> startup ideas, the jobs that will be created...

That sounds pretty naive. $15 million isn't a huge amount of money in
business, and in most parts of the country $50k isn't a livable salary. I'm
sure people can scrape by on that, but don't pretend it'd be doing them a huge
favor.

The more I think about it, the more exploitive it seems. Great for tricking
recent college grads into wasting a few years to build a website, but not so
great for actually developing new technology.

~~~
CPLX
> That sounds pretty naive. $15 million isn't a huge amount of money in
> business, and in most parts of the country $50k isn't a livable salary.

Who's being naive?

The median net compensation last year in the U.S. was $29,930.13, meaning half
of all wage earners earned less.

Median income for an entire household (ie more than one person) in the US is
about $51k. Meaning about half of all households make less than that.

Assuming half the population of the country doesn't die suddenly in the next
three weeks it's fair to say that $50k is "livable"

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chillacy
It also depends where you live: [http://www.seattletimes.com/seattle-
news/data/80000-median-w...](http://www.seattletimes.com/seattle-
news/data/80000-median-wage-income-gain-in-seattle-far-outpaces-other-cities/)

Consider that YC will throw you 200k but you're going to be moving to an area
where the median income is $90k

This of course wouldn't be an issue if people didn't insist on living in the
bay area, but nobody takes you as seriously if you're remote.

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paulddraper
> It also depends where you live

Sure, but that doesn't change the actual...you know... _averages_ the parent
cited. For every household with over $51k, there was a household with under
$51k.

Pointing out that some corner of the US is expensive hardly changes the point.

~~~
chillacy
I'm not debating the definition of the median... I assume everyone knows how
percentiles work. I'm debating the idea that its meaningful to use the median
income of the entire united states as a comparison.

Prices in San Jose aren't brought down by prices being lower elsewhere because
location is basically the most important dimension in real estate.

The median house being 188k in america means nothing when all the houses you
can choose from cost over 1mil. And you're stuck there because the bay area
has a near monopoly on startups, especially if you receive funding from a bay
area accelerator.

Let me take the parent's comment to the next level:

"The median net compensation last year in the world was around $1,200, meaning
half of all wage earners earned less. Assuming half the population of the
planet doesn't die suddenly in the next three weeks it's fair to say that $50k
is "livable""

Equally inapplicable to someone who lives in the bay area.

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paulddraper
Okay, have fun being an edge case I guess.

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chillacy
I don't live in San Jose but my city's on its way there so thanks ;)

We're all edge cases in the world as a whole.

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thinkcomp
Theranos Litigation Profile: [http://www.plainsite.org/profiles/theranos-
inc/](http://www.plainsite.org/profiles/theranos-inc/)

Colman et al v. Theranos, Inc. Docket:
[http://www.plainsite.org/dockets/3350guyw8/california-
northe...](http://www.plainsite.org/dockets/3350guyw8/california-northern-
district-court/colman-et-al-v-theranos-inc-et-al/)

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JustSomeNobody
It's going to be mighty interesting to see what all comes of Theranos and
these suits.

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neom
Indeed, early 2015 year a couple VC friends warned me that Theranos was a
bunch of crock and everyone knew it, and that it was going to be the company
that would send rippled through the venture market in 2016. Well 2016 was sure
a cold year for venture. When I think about Elizabeth as an entrepreneur, on
one hand I respect her for trying something so audacious, and sticking with it
for so long. However, the one thing that the valley doesn't teach you (in fact
quite the opposite) is that there are actually almost no short cuts in
startup, get capital and deploy it building a strong and resilient product and
business around it, then take it to market. Elizabeth got really caught up in
taking absolutely nothing feasible to market, and that's a damn shame.

~~~
throwawaymsft
It's not just about "trying something audacious" or "sticking with it". Do
that with your social photo sharing site.

People's medical diagnoses and health is on the line here. The cavalier
attitude of "getting caught up in taking nothing feasible to market" makes me
sick.

~~~
neom
I agree, I think I sounded softer than I actually feel about it. She should
probably go to jail, I just do think she tried something hard, and tried
something hard for a long time (she started in 2003), and failed. She should
have realized _when_ she failed though.

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return0
Theranos keeps providing its steady output of schadenfreundian porn ; not that
i complain. Is this series of events unprecedented or is it standard practices
after a typical fraudster collapses?

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rezashirazian
Is there a reason as to why this company is not dead yet?

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Waterluvian
I get a sense that Holmes has surrounded herself by the kind of people who
will stand by her crazy side to pretty much the end.

I'm not going to armchair psychologist and suggest a diagnosis... but she's
gotta be something...

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arcaster
The Theranos story seems to get darker by the week...

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nafizh
I hate these links to articles that are behind a pay wall. If people cannot
read it, what's the point?

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grzm
The "web" link beneath the submission title will bring you to a search page
with a link to the actual article, which should get you around the paywall.

