Silicon Valley’s Theranos CEO Elizabeth Homes duped $4bn
In tourist hotspots, you have hundreds of young entrepreneurs selling a ‘Gucci handbag’ for $10, a ‘Breitling watch’ for $20 and in Silicon Valley, you have the startup’s that promise you fortune by a clever scheme of presentations and the promise of innovation.
A case of deception that has shaken investors to the core highlight the corruption bubbles silicon valley companies create to dupe investors.
This case has exposed Silicon Valley’s culture of hubris and hype, Elizabeth Holmes was convicted Monday of duping investors into believing her startup Theranos had developed a revolutionary medical device that could detect a multitude of diseases and conditions from a few drops of blood.
Holmes Theranos went from an unknown to a Silicon Valley sensation who had amassed a $4.5 billion (€4 billion) fortune on paper to a vilified failure. Her downfall was dissected in documentaries, books, podcasts and will soon be rehashed in a Hulu TV series called “The Dropout” starring Amanda Seyfried in the lead role.
Unfortunately, this is not an isolated case. Thousands of complaints reach the financial regulators annually, which go unpunished mainly because of smart business setup principles.
“ Fake it till you make it “
The concept and presentation behind this scheme enthralled wealthy investors eager to buy an early stake in a game-changing company. It helped Theranos raise more than $900 million (€796.5 million) from savvy billionaires such as media mogul Rupert Murdoch.
The sexy and swaggering strategy used by many Silicon Valley entrepreneurs — conveying a boundless optimism regardless of whether it’s warranted, known as “ fake it till you make it ”. That ethos helped hatch groundbreaking companies such as Google, Netflix, Facebook, and Apple — the latter co-founded by one of Holmes’ heroes, Steve Jobs.
A jury convicted Holmes Theranos who was CEO throughout the company’s turbulent 15-year history, on two counts of wire fraud and two counts of conspiracy to commit fraud after seven days of deliberation.
The 37-year-old was acquitted on four other counts of fraud and conspiracy that alleged she deceived patients who paid for Theranos blood tests, too.
Three months of deliberation
The verdict came after the jury spent three months sitting through a complex trial that featured reams of evidence and 32 witnesses — including Holmes herself. She now faces up to 20 years in prison for each count, although legal experts say she is unlikely to receive the maximum sentence.
The jury deadlocked on three remaining charges, which a federal judge anticipates dismissing as part of a mistrial ruling that could come as early as next week.
The split verdicts are “a mixed bag for the prosecution, but it’s a loss for Elizabeth Holmes because she is going away to prison for at least a few years,” said David Ring, a lawyer who has followed the case closely.
Silicon Valley incubates fraud
Federal prosecutors depicted Holmes as a charlatan obsessed with fame and fortune. She created a sexy persona of herself all with the single goal of ‘living the life.’
In seven days on the witness stand, she cast herself as a visionary trailblazer. She used ‘every trick in the book’ to dupe investors. She was so confident in her ability to sell herself that she would earmark potential investors and put a numerical figure that she should use as a target.
In a male-dominated Silicon Valley was not shy to use her emotional wild card and regularly cited how she had been sexually abused by her former lover and business partner, Sunny Balwani.
The deception came to light in 2015 after a series of explosive articles in The Wall Street Journal and a regulatory audit of Theranos uncovered potentially dangerous flaws in the company’s technology, leading to its eventual collapse.