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Some Quick Thoughts About the Conviction of Elizabeth Holmes on Four Counts of Fraud

Summary:
While many observers seem not entirely satisfied that blood test scamster Elizabeth Holmes, briefly a paper billionaire, got what is called a mixed verdict yesterday (guilty on four of eleven counts, with three hung and therefore fair game for a second trial), this is a far better result than one of the best informed observers expected. Wall Street Journal reporter Jon Carryou, who brought Theranos down through his relentless reporting, stated he was concerned the jury would acquit Holmes because she was such a charismatic self-justifier. A few comments: so far, there’s not a lot of great commentary, perhaps because the punditocracy needs to ponder a bit more. Or perhaps Holmes’ downfall has been so well covered that it’s taking a bit of work to come up with a new spin. But for some great

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While many observers seem not entirely satisfied that blood test scamster Elizabeth Holmes, briefly a paper billionaire, got what is called a mixed verdict yesterday (guilty on four of eleven counts, with three hung and therefore fair game for a second trial), this is a far better result than one of the best informed observers expected. Wall Street Journal reporter Jon Carryou, who brought Theranos down through his relentless reporting, stated he was concerned the jury would acquit Holmes because she was such a charismatic self-justifier.

A few comments: so far, there’s not a lot of great commentary, perhaps because the punditocracy needs to ponder a bit more. Or perhaps Holmes’ downfall has been so well covered that it’s taking a bit of work to come up with a new spin. But for some great one-stop shopping in the meantime, go straight to the Daily Mail: Inside the world of Elizabeth Holmes: How the disgraced Theranos founder styled herself on Steve Jobs, spoke in a fake baritone, told people her husky was a WOLF and captivated old, powerful men who invested millions before her empire collapsed.

She faces up to twenty years in jail on each count but is expected to have her sentences run concurrently.

It is disappointing that Holmes was found guilty only of financial frauds and not of harming patients (two of the eleven charges).

The reason Holmes got off on damage done by bad test results, despite Theranos delivering markedly inaccurate results to thousands of patients and the Center for Medicare Services shutting down its Newark lab over its inability to test warfarin (a blood thinner) levels accurately, is that apparently not enough suffered real harm to their health, as opposed to their nerves and their wallets. It’s not hard to imagine that patients suddenly getting test results markedly out of line with their histories would have their doctor run a new test. But it’s still disturbing that she was not punished for the risks she took with patients’ health in light of stories like these:

Before and during the trial, there were bleats about why was Holmes singled out, prosecuting a woman was clearly a sign of bias. Of course that argument ignores that the Theranos president and Holmes’ former lover Ramesh “Sunny” Balwani will soon be in the dock.

It’s hard to feel sorry when rich people and businesses that ought to be capable of doing due diligence like Walgrens get fleeced. But the prosecutors did a good job of presenting how Holmes misrepresented Theranos’ capabilities, way beyond the forgiving standards of Silicon Valley. One compelling bit of evidence from the trial, recapped in ars technica in November:

As Theranos burned through cash, founder Elizabeth Holmes was apparently desperate to land a large investment from Walgreens—so desperate that she sent the drugstore’s executives two fake pharma reports, the jury in Holmes’ criminal trial learned yesterday.

A few weeks ago, the court heard how Holmes had sent Walgreens executives a report that featured a prominently placed Pfizer logo. But Pfizer hadn’t authorized its use. Yesterday, the court heard that Holmes did it once more, sending reports that prominently featured the logo of Schering-Plough…

Constance Cullen was director of Schering-Plough’s bioanalytical lab in 2009 when her company tasked her with helping to evaluate medical diagnostic tests being developed by Theranos…Cullen and other Schering-Plough scientists evaluated three different tests…

As part of the evaluation, Cullen and her colleagues met with Holmes and other Theranos employees at the company’s Palo Alto headquarters. The Schering-Plough scientists came prepared with technical questions but did not receive technical answers. “I was dissatisfied, quite honestly,” Cullen said…

“There were what I’d describe as cagey responses or attempts to redirect to other topics of discussion…Almost exclusively Ms. Holmes was the one answering the questions irrespective of to whom the questions were being asked,” she said.

Theranos later sent Cullen a report that said Theranos’ technology “has been shown to give accurate and precise results.” Cullen told the court that she had not discussed that statement with Theranos, nor did she agree with it.

In the spring of 2010, though, Holmes sent that report to Walgreens executives with some small but significant changes. The report now had the Schering-Plough logo at the top, and a key line had been tweaked. Now it said that Theranos’ diagnostic technology “has been shown to give more accurate and precise results”—note the addition of the word “more.” Cullen confirmed for the court that no one at her company approved that statement.

This clip was another bit of evidence that observers believe helped sway the jury:

The key informational part was the $7 billion valuation claim, which at the time was bogus. But I’m struck by the ritual invocation of management buzz words, as if Holmes knows exactly how to meter them out so as to lull listeners into stupefaction.

Even though it was not a focus of the trial, it’s important to understand another reason Holmes got as far as she did, despite every biosciences-competent venture capital firm refusing to fund her over her refusal to turn over data, and the general impossibility of her technology and her making any sort of big biosciences leap with no meaningful history of bench research or even serious training. ‘Innovators” in the life sciences are never self taught.

Theranos, like Madoff, was an affinity scam. Holmes was very close to George Schultz, who joined the Theranos board, and regularly dined with his family. Schultz was instrumental in bringing in other super blue chip names like Henry Kissinger as investors. The company’s backers had a heavy representation of the military-industrial complex figures….who also would conveniently be at sea in trying to assess the technology. But they had plenty of company:

This vignette is priceless:

And I am glad I am not the only person to be thinking along these lines:

I can only surmise that she did got pregnant calculatedly, as she did pretty much everything else (read the Daily Mail story about the extent of her Steve Jobs act), to win sympathy from the jury and make sure her new hubby didn’t dump her if she were sent to prison. Of course, there’s no assurance he won’t be as dishonest in his relationship with her as she was with her investors and employees.

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