Holmes verdict an indictment of Silicon Valley’s ‘fake it till you make it’ ethos
Elizabeth Holmes, founder of the blood testing company Theranos, has been found guilty on four charges of fraud – a verdict that will probably land her in prison and have major implications for Silicon Valley.
Holmes was acquitted on three charges relating to patients who received inaccurate test results but found guilty on four charges, including one count of conspiracy to defraud investors and three counts of wire fraud against investors. The jury remained deadlocked on three of the charges.
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.
It also marks a milestone for Silicon Valley – an industry that has for years evaded accountability in its pervasive culture of “fake it ‘til you make it” that encourages founders to make big promises, often with little proof.
“Silicon Valley has thus far been famously been resistant to much prosecutorial activity because its business model assumes you are going to take an aggressive, optimistic view of your product or service to attract investors,” said Jack Sharman, a white-collar defense lawyer at Lightfoot, a law firm in
Alabama.
“And if that product or service succeeds, you’re not a fraudster, you’re a visionary,” he added.
Theranos sold a promise to improve health with tests on one drop of blood – a claim that despite having little scientific proof raised hundreds of millions of dollars and attracted big-name investors such as the media mogul Rupert Murdoch and the former secretary of state Henry Kissinger.
The Theranos verdict could cause startups to tread more carefully in the future, said Neama Rahmani, a former former federal prosecutor and president of West Coast Trial Lawyers.
“In Silicon Valley, this conviction will resonate with the big law firms that advise startup companies,” he said. “Attorneys are going to be advising their clients to be more careful, especially in what they say to investors.”
The Silicon Valley investor Jason Calacanis, who was an early backer of major firms like Uber and Robinhood, said the verdict was a “reminder to founders”.
“Never lie, never bend the truth, always be honest about where you are at with your traction, especially when raising money,” he tweeted.
Greater whistleblower power The verdict could also mark a new era for workers in technology, who are increasingly speaking out against their powerful employers. Throughout the trial, former employees of the company testified they long suspected Theranos could not deliver on its promises, but felt they could not raise questions.
Tyler Shultz, a witness in the trial and early Theranos whistleblower, said on Monday he hoped the verdict encouraged others to speak out against corporate wrongdoing.
“This has been a long chapter of my life,” he said. “I am happy that justice has been served and that this saga is finally in my rearview mirror.”
He also highlighted Erika Cheung, another whistleblower and former employee at Theranos who spoke out against the company’s deceptive business practices.
“Proud of the impact that Erika and I had,” he added. “Hope to inspire other young professionals to hold their leaders accountable.”
Experts said the verdict showed that the decision to put Holmes on the stand – a major gamble made by the defense – did not play in the founder’s favor.
This could set a precedent for fraud cases in the future, said the Los Angeles criminal appeals attorney Matthew Barhoma.
“This jury did not fall for it and ultimately that points to why it’s generally best for defendants to avoid testifying in their own defense,” he said. “If a master manipulator like Holmes can fail to convince a jury, what chance does the average defendant have?”
What happens next for Holmes?
A hearing has been set for next week during which the prosecutors will reveal whether they plan to retry Holmes on the three charges the jury could not decide.
Such a retrial is “not very likely”, Sharman said, as the convictions already carry considerable sentencing time.
“I would expect them to declare victory,” he said of prosecutors, noting that Holmes was already decisively convicted on hundreds of millions of dollars of fraud charges.
Holmes walked out of the courthouse on Monday after parties agreed she would not be taken into custody until her sentencing hearing. That date will be set at the hearing regarding the retrial next week.
With no prior convictions, Holmes is unlikely to face the maximum prison time her charges carry, which is 20 years, said Rahmani, and she will likely face just several years in prison and more on probation.
Still, Holmes is almost certain to appeal. “She’s not someone who is going to want to do even five months in prison, much less five years,” he said.