
Theranos, CEO Holmes, and Former President Balwani Charged with Fraud - kgwgk
https://www.sec.gov/news/press-release/2018-41
======
ChuckMcM
Ok, this is the money line in that press release for me:

 _“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.

~~~
SilasX
>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.

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):

[https://news.ycombinator.com/item?id=12071172](https://news.ycombinator.com/item?id=12071172)

~~~
noodle
> that HN mentality

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

~~~
simias
Maybe "that YC/startup news mentality" would be a better qualifier. The whole
"better to beg for forgiveness than ask for permission" mentality. You can
find some of that on HN but I hope we're a little more diverse than that.

------
Balgair
His name is Tyler Shultz.

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...](https://www.vanityfair.com/news/2016/11/explosive-new-details-
emerge-in-lawsuit-against-theranos)

Edit: Pic: [http://www.dailymail.co.uk/news/article-3944392/Theranos-
whi...](http://www.dailymail.co.uk/news/article-3944392/Theranos-
whistleblower-revealed-George-Shultz-s-grandson-Tyler-exposed-flaws-Elizabeth-
Holmes-technology.html)

~~~
ravitation
Wait... How did he have his life destroyed? It just says that he hasn't talked
to his grandfather in awhile...

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...

~~~
danso
It's probably more accurate to say that, at the time he became a
whistleblower, he had reasonable idea to believe that it could wreck his life.
From the WSJ article:

[http://archive.is/wO4B0#selection-955.0-958.0](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.

~~~
mseebach
If you're involved in a complicated legal case, and you're not 100% sure what
you're doing, no speaking to the press at all is your first preference, by a
wide margin, and only speaking to the press in carefully considered, short,
written statements in your second. Actually speaking to the press is for those
with nothing to lose, and plenty to win -- or specialised training.

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.

------
nathanaldensr
_Theranos and Holmes have agreed to settle the fraud charges levied against
them. Holmes agreed to pay a $500,000 penalty, be barred from serving as an
officer or director of a public company for 10 years, return the remaining
18.9 million shares that she obtained during the fraud, and relinquish her
voting control of Theranos by converting her super-majority Theranos Class B
Common shares to Class A Common shares. Due to the company’s liquidation
preference, if Theranos is acquired or is otherwise liquidated, Holmes would
not profit from her ownership until – assuming redemption of certain warrants
– over $750 million is returned to defrauded investors and other preferred
shareholders. The settlements with Theranos and Holmes are subject to court
approval._

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?

~~~
daxorid
> shouldn't these two simply be in prison right now?

Compare and contrast with Shkreli sentencing. Some animals are more equal than
others.

~~~
leggomylibro
Well, Holmes and Balwani didn't actively and loudly antagonize most of the
country.

Most rich criminals know that when you scoff at the law, you should do it
_quietly_.

~~~
jessaustin
It also helps to have lots of family and friends who have given lots of money
to lots of politicians. For nonviolent crime like this, the law really is
different for different people.

------
DannyBee
People keep complaining about lack of jail time. As has been repeated in a
number of subcomments: The SEC cannot send people to jail. Full stop.

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.

~~~
tabeth
Why can't the SEC send people to jail? I don't understand the point you're
making. If people believe something is an injustice should they just shut up?
Even if they can't send people to jail people should complain if they feel
that shouldn't be the case -- it's a signal that perhaps the current process
is wrong. After all, all restrictions and rules were created by us to begin
with. Complaining can be useful feedback.

~~~
Bud
Because it does not have the authority to do so.

[https://www.sec.gov/oiea/investor-alerts-
bulletins/ib_invest...](https://www.sec.gov/oiea/investor-alerts-
bulletins/ib_investigations.html)

~~~
tabeth
I've already read that -- it does not explain _why_. It simply states that it
cannot. What law restricted it? Why was that law put into place? How often are
recommendations for prosecution followed up on successfully?

EDIT: Thanks everyone for the information -- very interesting.

~~~
DannyBee
Federal agencies are explicitly affirmative authority grants. Their powers are
laid out in those acts. They can only do those things.

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](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](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.

~~~
tabeth
Thanks DannyBee. I appreciate your reply.

------
supernova87a
Again, I will just state that the reason we (maybe secretly) take so much
satisfaction / schadenfreude at this story is that someone who was so hyped
and the darling of Silicon Valley got so much funding and attention. While
others who toil away on good ideas, without nearly so many connections and
silver spoons, struggle to even get 1 minute of air time with the kind of
funders and backers that she got.

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.

~~~
DoreenMichele
_Schadenfreude_ is a word commonly used in discussion of the Theranos debacle
and it really aggravates me because it presumes that anyone not throwing a
pity party for these pathological liars defrauding people of money and
potentially putting lives at stake with their bullshit tests that don't work
are somehow bad people with negative personality traits.

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._

~~~
googlryas
Why do you think schadenfreude is a negative personality trait or a
personality disorder? It is just a name for a specific emotional state. It
seems perfectly apt here.

~~~
DoreenMichele
It means taking joy in someone else's suffering, which is basically sadism. I
don't see that as being the same thing as being happy to see the truth come
out and justice finally happen.

~~~
mnemonicsloth
I don't think justice and schadenfreude are terribly different.

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.

~~~
DoreenMichele
Well, in my mind, retribution and justice aren't closely related. Taking
revenge on wrongdoers and making things right are not inherently the same
thing. I can think of lots of situations where taking revenge on the wrongdoer
in no way makes anything right.

"Two wrongs don't make a right" and all that.

------
jbduler
First, Kuddos to John Carreyrou from the WSJ for great investigative
journalism. I’m too tired of all these “fake it till you make it” lines of
thought, and it is not only a YC issue, it is pervasive across the valley.
Cloning flappy birds, "uber" for pet grooming, etc I don't care. But when
things get serious and your life and money is at stake, there is no room for
BS "disruptors" with 20 hours of training on subjects such as insurance,
medical care, banking, or your lifetime investments. The list of "pseudo
disruptors" is pretty long: Remember Zenefits' Parker Conrad fraud:
[https://www.nytimes.com/2016/02/18/technology/zenefits-
scand...](https://www.nytimes.com/2016/02/18/technology/zenefits-scandal-
highlights-perils-of-hypergrowth-at-start-ups.html) or that 3D printer for
makeup: [https://techcrunch.com/2014/05/05/mink-is-a-3d-printer-
for-m...](https://techcrunch.com/2014/05/05/mink-is-a-3d-printer-for-makeup/)
There are a lot of very comments here, at least that is reassuring. Folks get
it.

------
Ice_cream_suit
From the Financial Times:

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.

~~~
shaki-dora
Be a man: “what a scammer”

Be a woman: “this woman used her gender to scam”

~~~
exolymph
I mean, in this case, she literally did use her gender as part of the cynical
narrative.

------
artur_makly
"Holmes subsequently raised $6 million in funding, the first of almost $700
million that would follow. Money often comes with strings attached in Silicon
Valley, but even by its byzantine terms, Holmes’s were unusual. She took the
money on the condition that she would not divulge to investors how her
technology actually worked, and that she had final say and control over every
aspect of her company. This surreptitiousness scared off some investors. When
Google Ventures, which focuses more than 40 percent of its investments on
medical technology, tried to perform due diligence on Theranos to weigh an
investment, Theranos never responded. Eventually, Google Ventures sent a
venture capitalist to a Theranos Walgreens Wellness Center to take the
revolutionary pinprick blood test. As the V.C. sat in a chair and had several
large vials of blood drawn from his arm, far more than a pinprick, it became
apparent that something was amiss with Theranos’s promise."

------
danso
I hadn't seen this before, or if I had, I've forgotten, but Theranos created
an account on HN to post to the "Who is hiring?" threads

[https://news.ycombinator.com/user?id=Theranos](https://news.ycombinator.com/user?id=Theranos)

First message was May 5, 2014

[https://news.ycombinator.com/item?id=7701095](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](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._

------
hkmurakami
>Theranos and Holmes have agreed to settle the fraud charges levied against
them. Holmes agreed to pay a $500,000 penalty, be barred from serving as an
officer or director of a public company for 10 years, return the remaining
18.9 million shares that she obtained during the fraud, and relinquish her
voting control of Theranos by converting her super-majority Theranos Class B
Common shares to Class A Common shares. Due to the company’s liquidation
preference, if Theranos is acquired or is otherwise liquidated, Holmes would
not profit from her ownership until – assuming redemption of certain warrants
– over $750 million is returned to defrauded investors and other preferred
shareholders.

3 years ago, I never would have thought that such an outcome would actually
happen.

~~~
ithinkinstereo
Pretty good outcome, especially if she avoids criminal charges.

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.

~~~
i_am_nomad
If I recall, she hasn’t gained any liquid wealth from Theranos - her net worth
was recently reported to be zero.

[https://www.forbes.com/sites/matthewherper/2016/06/01/from-4...](https://www.forbes.com/sites/matthewherper/2016/06/01/from-4-5-billion-
to-nothing-forbes-revises-estimated-net-worth-of-theranos-founder-elizabeth-
holmes/)

------
ossdev
[http://www.paulgraham.com/founders.html](http://www.paulgraham.com/founders.html)

> 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).

------
non_sequitur
I still find it crazy that her response to a question on how the tech worked
was:

"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."

~~~
samgranieri
Exactly. "A Chemistry is performed"... yeah, that's a phrase I'd expect out of
a second grader, not a Stanford dropout...

------
nodesocket
I'll be very curious to see how and if her charges compare to Martin Shkreli
who got the book thrown at him (7 years and $7.4m). Shkreli was a scapegoat
mostly because of his public/social media persona, cockiness, and arrogance.

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."

~~~
williamscales
I don't think he was a scapegoat per se, he did actually do illegal things.
But I imagine that things would have gone a lot better for him if he had not
jacked up the price of Daraprim to the extent he did. It seems that drew
attention to his previous activities.

~~~
nodesocket
> jacked up the price of Daraprim

Which by the way is completely legal and common in the pharmaceutical market,
but the media outrage and SJW backlash made it seem illegal.

~~~
danso
Didn't realize President Trump is/was a SJW

[http://www.businessinsider.com/donald-trump-martin-
shkreli-d...](http://www.businessinsider.com/donald-trump-martin-shkreli-
daraprim-drug-cost-2015-9)

~~~
DoreenMichele
You learn something new everyday.;)

------
chrisper
The SEC title says _Massive Fraud._ I think the title here should reflect
that.

~~~
nraynaud
is the "Massive" part just grand standing, or does it correspond to a legal
qualification of the alleged offense? Interestingly I can't google that
because I get drowned under Theranos results.

------
Kliment
Unfortunately pricks.com, by Blake Ross, is no longer online. However, the CDN
that hosted it is still up so here is the direct link - it's a script for a
comedy show based on theranos, and painfully close to reality
[https://web.archive.org/web/20160604083644/http://static1.sq...](https://web.archive.org/web/20160604083644/http://static1.squarespace.com/static/56345cc7e4b017e2546ad875/t/563aaac5e4b025f66b293ec8/1446685381777/pricks.pdf)

~~~
blakeross
Hah good memory! I guess I'll resurrect it for the trial :)

~~~
Kliment
I passed it on to everyone I knew that was in any way related to the
comedy/entertainment industry. And a lot of other people besides. It's
excellent writing, even though it's for a medium I generally don't enjoy.
Thank you for putting it out there! And that was an excellent use of that
domain name.

------
yters
Why is there such a culture of fake it till you make it in SV? If the tech is
good, no need for faking. If the tech is bad, figure it out, don't fake it.
Otherwise, if it doesn't work and it is faked, things will get really bad and
at worst lives could be lost.

It seems like there is a lot of stupid money around and a lot of scam artists
trying to suck the supply dry.

~~~
tomtimtall
> Why is there such a culture of fake it till you make it in SV? If the tech
> is good, no need for faking.

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.

~~~
yters
Believing your own hype does not make it any less a scam.

------
spodek
For those interested in learning about the United States government moving
from prosecuting white-collar criminals to settling, the difference between
the SEC and Justice Department misses the point.

The book The Chickenshit Club [https://www.amazon.com/Chickenshit-Club-
Department-Prosecute...](https://www.amazon.com/Chickenshit-Club-Department-
Prosecute-Executives/dp/1501121367) by a Pulitzer Prize winning journalist
tells a more thorough and comprehensive, though infuriating and tragic, story.

------
mbesto
Aside from everything else rightfully pointed out in this thread - the other
interesting bit is that it's likely that their investment in commercial real
estate will net a pretty massive return. I can't think of many places in the
Bay that are better for a large office that can hold 100's of employees.

For reference, the HQ they built in PA:
[https://www.google.com/maps/place/1701+Page+Mill+Rd,+Palo+Al...](https://www.google.com/maps/place/1701+Page+Mill+Rd,+Palo+Alto,+CA+94304/@37.4088252,-122.1537814,3a,75y,145.99h,83.72t/data=!3m7!1e1!3m5!1sSa9Do8oPZ7jhSbrBHYOkEw!2e0!6s%2F%2Fgeo3.ggpht.com%2Fcbk%3Fpanoid%3DSa9Do8oPZ7jhSbrBHYOkEw%26output%3Dthumbnail%26cb_client%3Dsearch.TACTILE.gps%26thumb%3D2%26w%3D392%26h%3D106%26yaw%3D126.308975%26pitch%3D0%26thumbfov%3D100!7i16384!8i8192!4m5!3m4!1s0x808fbabdef9cac33:0xf011ccf019f54d02!8m2!3d37.408248!4d-122.152764)

~~~
2YwaZHXV
They didn't actually build it. Stanford owned the land and building (and built
most of it) while Theranos paid for internal improvements. Stanford also
recently sold the property (maybe a year or so ago) and 1701 is available for
lease now.

~~~
mbesto
Oh wow, TIL. I thought they had bought it from HP.

~~~
2YwaZHXV
It was actually a Wall Street Journal building before it was torn down to
build the building Theranos moved into.

Theranos was previously in 1601 California Ave (the old Facebook building),
which was previously HP/Agilent.

------
unquietcode
You can commit most crimes in this world with relative impunity, but the
number one rule is never steal from the rich.

~~~
driven20
I have seen this idea from time to time. I don't think it's right. The problem
is they are stealing from people with abilities, smarts, and resources. Of
course, there are going to be backlashes.

------
starpilot
Times like this when I appreciate big government and bureaucracy. This is
exactly what they should be doing. This is in the interest of the public.

------
cat199
call me back when the ex board members get hit for this..

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](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 Amgen

~~~
ilamont
Board members may have been incompetent, guilty of a dereliction of duty, or
were tricked themselves. Meeting minutes would shed light on this.

~~~
i_am_nomad
It’s noteworthy that none of the board members had experience in the medical
device industry. They were most likely just in over their heads.

~~~
cat199
if you look at the timeline of events, I highly doubt this..

[https://taskandpurpose.com/mattis-theranos-
questions/](https://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..

------
Waterluvian
Is Holmes still rich after this? I can't tell just how much of her wealth
she's being forced to return in form of shares.

~~~
vl
>Is Holmes still rich after this?

But why it matters at all? Penalty should be proportional to the deed, not to
the person's finances.

~~~
beambot
As a curious aside: In some scandanavian countries, the penalties are directly
tied to wealth (e.g. the $103,000 speeding ticket [1]). The idea is to make
the punishment proportional to each individual so that wealth cannot simply
grant you a free pass to violate "minor" laws.

[1]
[https://www.theatlantic.com/business/archive/2015/03/finland...](https://www.theatlantic.com/business/archive/2015/03/finland-
home-of-the-103000-speeding-ticket/387484/)

~~~
choxi
I like that, instead of "the punishment should fit the crime" it should be
"the punishment should disincentivize the person from doing it again"

------
GoRudy
Why don't they have to serve jail time for this?

~~~
jljljl
Two major differences:

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

------
dhbanes
Are Meredith Perry and uBeam next?

~~~
bhouston
Didn't she sort of demonstrate that it worked? Or least that is the headline I
read.

~~~
raesene9
My (limited) understanding is that they've demonstrated a level of wireless
power transmission, but nothing approaching some of the early hype that had
things like mobile phones recharging in people's pockets whilst they were in a
coffee shop.

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/](http://www.eevblog.com/forum/projects/the-ubeam-faq/1175/)

~~~
chime
> mobile phones recharging in people's pockets whilst they were in a coffee
> shop.

While not using the same Qi-like charging mechanism, the physics has been
proven: [https://www.disneyresearch.com/publication/quasistatic-
cavit...](https://www.disneyresearch.com/publication/quasistatic-cavity-
resonance-for-ubiquitous-wireless-power-transfer/)

~~~
harryh
Without commenting on the viability of the method in that link one way or
another, I will point out that the physics is described are completely
different than what uBeam has said they are working on.

uBeam has said they are wirelessly transmitting power via high frequency
sound. This link describes a method that uses magnetic fields.

------
bane
Ugh Finally.

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...](https://www.wsj.com/articles/blood-testing-firm-theranos-
gets-100-million-lifeline-from-fortress-1514057523)

June 21, 2017 - Walgreens settlement [https://www.wsj.com/articles/theranos-
walgreens-reach-deal-t...](https://www.wsj.com/articles/theranos-walgreens-
reach-deal-to-settle-lawsuit-1498037580)

May 30, 2017 - Crisis on the Board [https://www.wsj.com/articles/court-
documents-shed-light-on-t...](https://www.wsj.com/articles/court-documents-
shed-light-on-theranos-boards-response-to-crisis-1496136600)

April 21, 2017 - Caught using outside lab gear to fake tests
[https://www.wsj.com/articles/theranos-secretly-bought-
outsid...](https://www.wsj.com/articles/theranos-secretly-bought-outside-lab-
gear-ran-fake-tests-court-filings-1492794470)

April 5, 2017 - Holmes found to owe $25m to her own startup
[https://news.ycombinator.com/item?id=14047457](https://news.ycombinator.com/item?id=14047457)

Jan 19, 2017 - Closes last lab after failing inspection
[https://news.ycombinator.com/item?id=13433840](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-...](https://www.wsj.com/articles/second-theranos-lab-failed-u-s-
inspection-1484708428)

Jan 6, 2017 - Lays off 41% of workforce
[https://news.ycombinator.com/item?id=13338996](https://news.ycombinator.com/item?id=13338996)

Nov 17, 2016 - Whistleblower comes out
[https://www.kqed.org/futureofyou/283681/theranos-
whistleblow...](https://www.kqed.org/futureofyou/283681/theranos-
whistleblower-was-george-shultz-grandson-wsj)

July 8, 2016 - Banned from operating a lab for 2 years
[https://news.ycombinator.com/item?id=12053721](https://news.ycombinator.com/item?id=12053721)

Jan 27, 2016 - Letter from the feds
[https://news.ycombinator.com/item?id=10983747](https://news.ycombinator.com/item?id=10983747)

Dec 20, 2015 - Some skepticism
[https://news.ycombinator.com/item?id=10765562](https://news.ycombinator.com/item?id=10765562)

Oct 16, 2015 - Struggles with tech [https://www.wsj.com/articles/theranos-has-
struggled-with-blo...](https://www.wsj.com/articles/theranos-has-struggled-
with-blood-tests-1444881901)

~~~
asah
pls reorder in time-sequence typo: $25 ==> $25mm

~~~
bane
great catch. Appreciate the note. Fixed.

------
hahahaha23
VCs seem to care a Stanford/google background more than anything else. They
should be punished by watching “moneyball” non-stop for a week.

------
kevin_thibedeau
It still baffles me how this ever got started. How does a 19 year old
sophomore dropout have sufficient expertise in microfluidics plus clinical
testing to garner hundreds of millions in investment with pure vapor?
Nevermind the learning curve of running the business and developing a real
saleable product.

------
twosheep
Here's the complaint: [https://www.sec.gov/litigation/complaints/2018/comp-
pr2018-4...](https://www.sec.gov/litigation/complaints/2018/comp-
pr2018-41-theranos-holmes.pdf)

------
misiti3780
So this was complete bullshit
too?:[https://www.youtube.com/watch?v=rGfaJZAdfNE](https://www.youtube.com/watch?v=rGfaJZAdfNE)

------
ss2003
Here's the danger of "Fake it till you make it."

------
briandear
So do those of us accused of sexism for not supporting Holmes a few years ago
now get vindicated? Attacking her competence and questioning the Theranos
Kool-Aid was seen as sexist and unfair, but it turns out we were right — she
is a criminal — or at least a civil violator of securities law.

~~~
matt4077
The accusations (at least the ones I made) were never about her guilt or
innocence.

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.

~~~
perl4ever
I think some perspective is needed. The idea that medical services you may get
could be a fraud and nobody who matters really cares is much more threatening
to the average person than some cryptocurrency exchange losing money or other
cases of wealthy speculators being defrauded. Lots of news articles were
written about the LIBOR scandal too, but even if I read them, I don't believe
deep down that it affected me meaningfully.

------
plouffy
700 million dollar fraud, 500.000 dollar penalty. That's an impressive RoI for
the fraudsters.

~~~
swarnie_
No one is lining up to buy Theranos shares, where is the ROI here?

~~~
plouffy
In salaries, perks etc ... I can imagine that a large part of the 700 million
dollars would have been spent on salaries, perks etc ... 500,000 dollar fine
seems paltry when you've essentially been able to con people out of 700
million.

------
Ice_cream_suit
Martin Shkreli = 7 years, $7.5M fine

Investor capital lost = ~$0

Elizabeth Holmes = $500k fine, D&O bar

Company value lost = ~$8 billion

------
TravelTechGuy
People have been talking for a while about the SEC moving towards some sort of
regulation/legislation of ICOs. I believe the following paragraph in their
announcement is telling (emphasis mine):

“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 __.”

------
joshsabol46
Theranos is a case study about the consequences of Wizard of Oz Experiments.

------
ejlangev
It's about time. Blatantly lying to investors is fraud and should be
prosecuted as such. People who defraud others should face consequences for
doing so.

------
jotjotzzz
Why no jail time? We should start sending CEOs to jail.

------
RoyTyrell
Good. While they had a good idea, it's run by unethical and terrible people
who really have no regard for the safety of the public. It seems like every
time they were forced to show any level of proof they lied until they were
caught. If a pharmaceutical company operated like they do, I doubt anyone
would be praising them for any reason.

~~~
EpicEng
What was the good idea exactly? As far as I'm aware the details of their (non-
existent) tech have never been shared, not even with investors. Anyone can
think up some pie in the sky idea.

~~~
RoyTyrell
> What was the good idea exactly?

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.

------
Moorcountry
Most of the wealthy did similar things but were not prosecuted.

Behind Every Great Fortune There Is a Crime.

Very few super wealthy made their money honestly.

------
zitterbewegung
I think there is a fair distinction between "fake it until you make it" and
actually willfully defrauding your investors and customers. Sure this may work
at the beginning but you have to do some kind of magic or goal at the end of
"faking it" and have results.

------
sidcool
While we enjoy the fruits of capitalism we should also accept its Dark Side.
There will always be people who abuse a Goodwill system. I'm not completely
satisfied with the outcome, but I hope this serves as a warning to the abusers
of capitalism.

Thank you SEC and the Justice Department.

------
k1lly
Again, what have you expected? [https://medium.com/multiple-personalities-
order/how-to-be-th...](https://medium.com/multiple-personalities-order/how-to-
be-the-best-investor-in-the-world-ed31163fe965)

------
OscarTheGrinch
Fake it 'til you break it...

------
yalogin
So how are they able to still operate? It was revealed to be a scam a couple
of years ago now? How are they still running? Even if no one is jailed right
away, I would expect everyone to leave and them not be able to hire anyone
again.

------
FlyingSideKick
It seems the settlement of a $500k for Holmes was rather weak justice and
sends the wrong message. With the kind of fraud she perpetuated to investors
jail time would be more appropriate.

------
xwvvvvwx
This should terrify pretty much anybody who did an ICO last year.

------
fungiblecog
So if you commit massive fraud you get a slap on the wrists. Meanwhile people
committing minor crimes (in comparison) are incarcerated.

------
mbesto
This is why due diligence is important folks.

------
rdlecler1
I’m guessing she wasn’t renting a small studio in Palo Alto. Wonder if they’ll
claw back any of these ill gotten gains.

------
make3
Wouldn't she be going to prison for this? Did I read incorrectly, or are they
not trying to send her to prison

------
jeffdavis
What does "charged" mean here? Is this criminal or civil?

------
mathattack
Could the SEC litigation be whybthe VCs has to keep quiet?

------
fnord77
the more these stories come out, the more that Holmes is coming off as
sociopathic, to me at least.

------
CrankyBear
It took them long enough!

------
dangle
Fake it till you make it?

------
megadeth
Won’t see a day of jail time while Shkrelli gets 7 years.

~~~
charlesdm
Martin Shkreli was, honest to god, an idiot. He got several chances to "kiss
the ring" and show remorse, and what did he do? He put some extra oil on the
fire and kept acting like an idiot until the very last moment. Sometimes you
need to realise when to fold and suck it up.

~~~
daxorid
Alternative take: it's disgusting and offensive to the foundational concept of
blind justice that punishment is more highly correlated with charisma and
obsequiousness to judges than it is to actual crimes committed.

~~~
edanm
I kind of agree [1], but I don't think that's why there's a difference between
the cases.

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".

~~~
charlesdm
On showing remorse: it's a bit ridiculous to think of this, since showing
remorse does not mean you actually feel remorse. But it might mean you are
intelligent enough to realise you need to show remorse to get off the hook.

~~~
danso
Martin Shkreli was extremely intelligent, and the court recognized that. He
continued to not show remorse (I think it's arguable that he did a bit more
than simply not show remorse), why shouldn't the court believe that he truly
is not remorseful?

~~~
charlesdm
He was not remorseful. He probably should have acted like he was remorseful if
he wanted to get off the hook. He was also disrespectful of the court, I
guess.

------
mieseratte
There's often a thin line between "startup founder" and "confidence man".

~~~
edanm
No, there isn't _often_ a thin line. Most founders are not out there
committing massive fraud. They may be doing a lot of marketing, and are
probably promising things that still have to be built, but they're not out
there lying that they have millions in revenue from contracts that don't
exist, or falsifying demos.

~~~
TheCoelacanth
Right.

"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.

~~~
marcosdumay
Every founder is optimistic to the point of delusion. It's a requisite.

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.

~~~
icebraining
How so? Isn't that what due diligence is? You get a third-party expert (be
that in accounting or biology) with a signed NDA, and have them verify those
results.

What they probably can't handle is outright fabrication.

------
ebbv
Take a TV from a truck that's left open behind a warehouse; get months if not
years in jail.

Deliberately commit fraud for years and steal millions and millions of
dollars; slap on the wrist.

Our system is so ridiculous.

~~~
jonwachob91
The SEC is a civil agency and can not jail anyone for anything, they can only
levy penalties. Justice has to take over the case for an offender to go to
prison.

~~~
Boxxed
How does that make the above statement any less ridiculous? Isn't that exactly
what he or she is pointing out? That the system is explicitly preventing these
people from serving jailtime?

~~~
mikeyouse
No. The system doesn't do any such thing.

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...](https://www.nytimes.com/2016/04/19/business/theranos-sec-justice-
department-investigation.html)

------
txsh
Good. Now lets put everyone who they paid to hype them in prison as well,
every journalist, blogger, hacker news poster who received money in exchange
for writing a favorable comment.

------
aphextron
So... the punishment for getting caught in massive fraud is that you just have
to give back the stuff you got through fraud? Sign me up.

~~~
FussyZeus
Unless of course you steal Holmes' car. Then you'll probably be killed, or at
best, incarcerated for 10 years.

Remember kids, the rich are not playing the same game the rest of us are.

------
tabeth
What exactly needs to happen for white collar criminals to be punished
commensurate with their crime and consistent with the magnitude of "regular"
criminals' punishment?

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...](http://www.baltimoresun.com/news/maryland/crime/bs-md-ci-twenty-years-
marijuana-case-20150507-story.html)

[2] [https://www.nytimes.com/2017/02/10/us/illegal-voting-gets-
te...](https://www.nytimes.com/2017/02/10/us/illegal-voting-gets-texas-
woman-8-years-in-prison-and-certain-deportation.html)

[3] [http://www.nytimes.com/2013/08/11/opinion/sunday/kristof-
hel...](http://www.nytimes.com/2013/08/11/opinion/sunday/kristof-help-thy-
neighbor-and-go-straight-to-prison.html?hp&_r=1&)

~~~
Nokinside
> There's a word for this. Unacceptable.

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...](https://dealbook.nytimes.com/2010/12/13/the-difficulty-of-proving-
financial-crimes/)

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...](http://www.businessinsider.com/what-proof-for-financial-crime-
prosecution-2017-1?r=US&IR=T&IR=T)

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).

~~~
chmaynard
> Criminals can be put into prison only if they can be convicted.

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.

------
oculusthrift
I wonder if Holmes was male if she would be treated like Martin Shkreli and
attacked in every horrible way possible. Don’t see much rhetoric against her.

~~~
whafro
Theranos was a punch line in my office just this morning, and she'll forever
be associated with that.

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.

------
throwaway84742
Isn’t she a pretty close relative of some congressman? If so, this could be a
good test of how much justice there is left in the justice system. It’s pretty
hard to deny she caused a significant amount of damage.

------
digitalantfarm
Guys, we're talking about some serious meme potential here.

------
kolbe
Headline is misleading. _Securities Fraud_ is not _fraud fraud_.

------
joering2
> Holmes — a Steve Jobs wannabe who dressed exclusively in black turtlenecks —
> settled with the regulators for $500,000 while neither admitting nor denying
> the accusations.

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!!

~~~
UncleEntity
> but what the regulators did in this part above is pure and simple blackmail
> and extortion

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.

~~~
joering2
Neither part admit or deny accusations. What the heck?? So why does DOJ even
exist in the first place when such dipsy doodle can occur?

~~~
danso
"No contest" pleas are a policy of the U.S. judicial branch, and are handled
on a case-by-case basis [0]. The DOJ is an agency within the U.S. executive
branch.

[0]
[https://en.wikipedia.org/wiki/Nolo_contendere#United_States](https://en.wikipedia.org/wiki/Nolo_contendere#United_States)

------
paul7986
Still slightly amused that my uncle thru marriage..his brother was the CEO of
a very well known national store who invested in Holmes. My uncle in 2014
mentioned how excited his brother was to help Holmes out and her mission.
Which seems like there was no mission just a spoiled brat telling lies for her
ego's sake all the while leading all her parents rich friends to be defrauded.

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.

