back to article US piles yet more charges on Theranos CEO, COO. We could do with good blood testing now... and this wasn't it

Federal prosecutors have filed a superseding indictment against the CEO and COO of now-defunct blood-testing company Theranos, piling on charges of conspiracy, wire fraud, and forfeiture. Former chief exec Elizabeth Holmes and chief operating officer Ramesh "Sunny" Balwani were already facing a long list of wire fraud and …

  1. martinusher Silver badge

    I know they were a bit fraudulent but.....

    .....if every overhyped claim by a company resulted in criminal charges most of our stock of executives would be in jail by now.

    Piling on the charges like this is typical of the US justice system, especially the Federal system. Its designed to intimidate so that the defendant folds without the US attorney having to go through that tedious business of actually proving a case in court. Its a practice I disagree with because it makes a mockery of the justice system -- yes, those two did pile it on, yes, they took a bunch of investors' money and blew through it without producing a product. There should be a reckoning but, seriously, I've worked for at least two companies that have blown through investor dollars without producing anything tangible. (In my defense I was just one of the poor sods around the back trying to get the thing to work -- there's analagous people in the Theranos story. The money went down a different rat hole, typically 'marketing' and other front office expenses, essentials like nice vehicles and the like.)

    BTW -- 'Stock of executives'? In my experience the same names and faces keep cropping up in the executive suite. Its a bit like a self-help society for the well off.

    1. HildyJ Silver badge
      Mushroom

      Re: I know they were a bit fraudulent but.....

      While I would agree that startups thrive on hype and most of them use up their funding and fail, that's not the same as fraud. And Theranos was way more than "a bit fraudulent."

      Theranos sold, for multi-millions, to two pharmacy chains, technology that did not exist (and attempted to sell it to others as well). It wasn't that they claimed they could develop it. It was that they claimed that they had developed and put into production a proven, working, and approved device. All of these claims were lies.

      This is not hype. This is fraud.

    2. Anonymous Coward
      Anonymous Coward

      Re: I know they were a bit fraudulent but.....

      I've worked for at least two companies that have blown through investor dollars without producing anything tangible.

      There is a reason why it's called "risk (or venture) capital". If you were offering guarantees about the result it would be sale, not a venture.

      As another poster has explained, trying and failing to achieve the intended goal is not the same as fraud. In the case at hand, it was pure, simple and rather unsophisticated fraud.

    3. doublelayer Silver badge

      Re: I know they were a bit fraudulent but.....

      This is not an overhyped claim. It is a false claim. Consider the following two strategies for getting investments in a company that does a certain type of test. The example will be a brainwave scanner. In both cases, the company doesn't currently have the ability to do what they want to do, but they think it will be possible.

      Claim 1: We have been investigating FMRI scanning and have plans to produce a portable model, approximately the size and weight of a helmet. We're confident that this is possible. We also have several interesting research programs that can take FMRI data, currently from the big lab-type machines, and produce interesting insights into neurological health and user focus. We think this will be a successful product when it's available at a similar price to a smartphone. Imagine all the people who could benefit from it. Our potential customer base could be massive.

      Claim 2: We have created an FMRI machine the size of a helmet. We can show it to you but you can't buy one because we need to do some certifications first. Also, we have a program that can determine whether someone's at risk for Alzheimer's or Parkinson's, as well as more consumer-oriented information like focus patterns. We've tested that program on lots of people, but we're also developing new programs as we speak. The device can be sold at the price of a smartphone with a 12% profit margin, but that can be increased with cheaper manufacturing. We already have preorders from a couple retail outlets for a hundred thousand units pending that test.

      The first claim is an expression of hope. It may be overhyped. The execs may think that it is a lot more likely than the techs think, but they didn't lie about having something they don't have. An investor who hears that sales pitch understands what is intended, but also that the development isn't finished. They know enough to be aware that there is risk and to ask for more details before they invest. The second claim is a lie. An investor who hears it will think the company can do things that it can't do. It's not hype, because hype is a method of saying true things in a way to make them more exciting than the raw facts. An investor wouldn't know that, and might make decisions based on that lie. There's a really big difference.

      1. Mage Silver badge
        Pirate

        Re: Claim 3

        "Language will be obsolete in five years"

        Musk, how does interfacing a computer to someone's brain make language obsolete?

    4. ST Silver badge
      Devil

      Re: I know they were a bit fraudulent but.....

      > Piling on the charges like this is typical of the US justice system [ ... ]

      Hi, Elizabeth!

      OMG!!! Is that you?

      I didn't know you posted here? Under a guy's name? Is that why you fake your voice to be so low?

    5. Doug_S

      Re: I know they were a bit fraudulent but.....

      Are you an investor or something? I can't believe anyone would defend a company that made fraudulent medical tests! People can die if they get a fraudulent test that fails to detect a life threatening condition, or have a lot of unnecessary stress and disruption to their life if the test detects a life threatening condition they do not have, at least until a working test clears them.

    6. Youngone

      Re: I know they were a bit fraudulent but.....

      I agree with martinusher.

      The piling on of charges has nothing to do with whether Theranos was a con (because it clearly was) but is an awful tactic US prosecutors use to intimidate defendants, and should not be allowed.

      Should Ms. Holmes and Mr. Balwani go to jail? Yes, I think so, but as the Wikipedia article on Theranos notes:

      In July 2011, Holmes was introduced to former U.S. Secretary of State George P. Shultz, who joined the Theranos board of directors that month. Over the next three years, Shultz helped to introduce almost all the outside directors on the "all-star board", which included William Perry (former U.S. Secretary of Defense), Henry Kissinger (former U.S. 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).

      None of whom are in the dock. I wonder why?

      1. doublelayer Silver badge

        Re: I know they were a bit fraudulent but.....

        Let me see. Why might they not be there? Well, a few ideas come to mind:

        1. They are very well-connected and used their power to stay away from justice.

        2. They didn't know the company was fraudulent.

        3. The company lied to them, so they believed the story the investors believed, so they didn't know the company was fraudulent.

        4. The company got lucky in scoring so many well-known names to be on the board. They knew they would face major consequences if anyone on the board left it out of concerns, so they put in a lot of effort to lie about the progress so the directors wouldn't find out the truth and expose them, so the directors believed the story the investors believed, so they didn't know the company was fraudulent.

        5. The company needed famous names behind them to dupe investors into trusting that they were so innovative, so they went after some people who had a lot of famous and well-regarded friends, so the company got lucky in scoring so many well-known names to be on the board. They knew they would face major consequences if anyone on the board left it out of concerns, so they put in a lot of effort to lie about the progress so the directors wouldn't find out the truth and expose them, so the directors believed the story the investors believed, so they didn't know the company was fraudulent.

        One of these doesn't look as likely as the other ones.

        The so-called piling on of charges is simple to deal with. Are the people being charged guilty or likely guilty of the things they're charged with? Then they can be charged with those things. If you find out that extra charges without any evidence are coming in, we can argue again. Until then, you're wrong.

    7. Kanhef

      Re: I know they were a bit fraudulent but.....

      "...if every overhyped claim by a company resulted in criminal charges most of our stock of executives would be in jail by now."

      You say that like it's a bad thing!

      1. Richocet Bronze badge

        Re: I know they were a bit fraudulent but.....

        Yes you get it. But why do these companies get away with it, with the exception of one where they are throwing the book at them?

        This raises some legitimate questions about inconsistent application of justice.

        1. aj69

          Re: I know they were a bit fraudulent but.....

          In the US, it's called Just-us.

  2. Anonymous Coward
    Anonymous Coward

    The rule more than the exception

    > over $100m in revenue in 2014. They also said, according to the indictment, they expected revenue for 2015 to be $1bn. In reality, however, the company was only making revenue of “a few hundred thousand dollars or so” – less than half a percent of what was claimed.

    This sort of exaggerated claims seems to be incredibly common amongst Silicon Valley start-ups. What I suggest: pick a start-up of your choice and look at their tax returns and other public records. Chances are that very quickly you will see difficult to explain discrepancies between their marketing claims and what they declare officially.

    1. EveryTime

      Re: The rule more than the exception

      What you claim in a press release and the finances that you state to potential investors are legally very different.

      Many start-ups make statements in conflict with reality in their press releases. The laws aren't written to infringe upon your right to write fiction.

      The laws are written to protect investors from basing decisions on cooked books.

      There are issues when you write a bogus press release and then show the investors the stories written because of those press releases as if the stories are independent confirmation. There

      1. trolleybus

        Re: The rule more than the exception

        Are you claiming that an official press release containing information that may affect the value of a company isn't covered by investor protection laws? I'm not in the US (and IANAL) but if that's the case then how come Elon Musk's tweets have caused so much ire?

  3. Sanctimonious Prick
    Gimp

    ColdFusion

    The ColdFusion YT channel did a really good video about this saga. Worth a watch.

    https://www.youtube.com/watch?v=3CccfnRpPtM

  4. Anonymous Coward
    Anonymous Coward

    "[they] argue that the case needs to be moved back to 2021"

    Is it wrong to wonder why they're not falling over themselves to be vindicated?

    1. doublelayer Silver badge

      Re: "[they] argue that the case needs to be moved back to 2021"

      They've basically admitted that they lied. They're not pretending all that much anymore, and those minor things they still lie about aren't convincing anyone. I really don't know what their current mindset is, but they're smart enough to realize that crowing about their impending vindication won't help them with anything, and it's time for them to stay in the shadows and protect anything they still have.

  5. Anonymous Coward
    Anonymous Coward

    Stuff that doesn't work

    So when is the UK going to go after those Cummings associates who were paid £250m for that UK virus tracking app?

  6. Aristotles slow and dimwitted horse Silver badge

    It's a good book.

    Bad Blood is a good read if you are into that sort of non-fiction.

  7. Paris Commissioner

    Theranos

    Elizabeth Holmes should be locked up. This was the scam of the century, a private company who didn't disclose anything to anyone about their proprietary information. They lied to investors and the media, and Theranos made little profit, if any.

  8. bigmacbear

    Unfortunate connotations

    It's just too easy to get Theranos and Thanos mixed up...

  9. Bibbit

    There was a great documentary on HBO (I think) about this. Worth a watch. “The Inventor: Out for Blood in Silicon Valley.”

POST COMMENT House rules

Not a member of The Register? Create a new account here.

  • Enter your comment

  • Add an icon

Anonymous cowards cannot choose their icon

Biting the hand that feeds IT © 1998–2020