It Pays To Have Good PR: Compared to Jeff Skilling, Elizabeth Holmes Gets Slap On the Wrist for Outright Fraud

Jeff Skilling was convicted of fraud and fined $50 million dollars and given 20+ years in jail.  Elizabeth Holmes -- for fraud that is way more obvious and for which she is clearly directly accountable -- will get no jail time, a fine of a half million dollars, loss of some voting shares in the company, and a ten year moratorium on being a director or officer of a public company.  From the SEC press release:

The complaints allege that Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood testing industry.  In truth, according to the SEC’s complaint, Theranos’ proprietary analyzer could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analyzers manufactured by others.

The complaints further charge that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014.  In truth, Theranos’ technology was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014.

These are only the highlights of the many, many repeated knowingly grossly fraudulent statements made by Holmes over a span of several years, and this does not even include her harassment of whistle blowers who tried to go public with the fraud.  This isn't a case of creating an offshore JV that shifted some debt off the balance sheet -- its the case of lying blatantly about the company's technology and financials for years and years.

Update:  6/15/2018 Holmes criminally indicted for fraud.  I should have listened to Ken White at Popehat -- he always says that the wheels of justice in the US Attorney's office grind slowly, but they do eventually make progress.


  1. sean2829:

    The biggest absurdity in SEC history was how tenaciously Martha Stewart was pursued for a trade might have netted here $50K and was done reluctantly due to pressure from her broker to sell stock from a company owned and run by a personal friend of hers. Meanwhile, Bernie Madoff was racking up $50 billion in a fraudulent Ponzi scheme and was never pursued by the Feds (even though they had been tipped off) until a family member turned him in. The Madoff case gave new meaning to the term "Justice is blind".

  2. Peabody:

    I don't know the details of her finances, but I would guess that she comes out ahead in this whole ordeal and that it was worth committing massive fraud (tough to gauge the opportunity costs). My takeaway is that if you are going to commit fraud, do it in the tech space as a female who is described as the "female Steve Jobs". No one wants the female Steve Jobs in prison! Well maybe the guys she swindled money from, but they are white males so it doesn't really count.

  3. randian:

    Hard to separate the sex of the offenders from their actual acts. If you want to get a slap on the wrist for your crimes, statistically speaking, being female is the best way to do it. It's much more highly correlated with leniency (in whether you get charged, what you are charged with, what plea deals you are offered, and what sentence you receive upon conviction) than race or socioeconomic status.

  4. Maximum Liberty:

    She's still subject to a criminal prosecution by the US Attorney's office. This was just the SEC's civil case. I'd expect that the SEC would have to settle the civil case before a plea deal could be reached.
    I will be appalled if she gets zero prison time off the criminal case, however.

  5. Bistro:

    Just look at the Board of Directors of Theranos. Actually, I'm kind of surprised nobody has brought that up yet anywhere.

  6. Bram:

    I work in the lab industry. I was obvious from the start that Theranos was a con. You know what they say about something too good to be true.

  7. cc:

    Theranos totally took in the major media.

  8. Dan Wendlick:

    Add young, blonde, and pretty to the mix, and you're gold.

  9. John_Schilling:

    I assume that a big part of the difference is that Holmes agreed to settle whereas Skilling plead "not guilty" and then came off as an arrogant SOB in open court. Skilling also left behind a large pool of obviously-sympathetic and telegenic victims, ordinary blokes who lost their jobs; it might be possible to generate sympathy for the people hurt by Theranos, but the media coverage is so far presenting this fraud in mostly abstract terms without identifiable victims.

  10. Dan Wendlick:

    I think Theranos was a con, but at least at the beginning, Holmes was a True Believer. Just a little more time, just a little more money, and everything will work fie, we'll all make money and the world will be a better place. then after she was down the rabbit hole, it became impossible to admit defeat.

  11. morganovich:

    i was thinking about that the other day. the board was a bunch of politico retreads. it's was deep in political connections and utterly missing any industry or science talent. i used to mock that. now it seems like genius. apparently, if kissenger is on your board, you get a pass on fraud...

  12. morganovich:

    steward made the classic mistake of fighting it loudly. once you get up on a soapbox and proclaim your innocence, they come and bury you. if she had just quietly asked "to whom do i make out the check?" it would have just gone away.

    i learned this watching microsoft get crucified in the 90's while intel, who was doing things 20 times as egregious, got pass after pass by just saying "oops, sorry. who do i make this check out to?"

  13. sean2829:

    There's nothing the government hates more than someone who'll stand on principle. The arrogance of the justice department has no bounds (or penalties for wrongdoing for that matter).

  14. Bruce Zeuli:

    Martha earned my respect in her handling of the entire situation. As you say she was likely harmed as a result of her not playing along but that's often the price.

  15. Matthew Slyfield:

    The best con artists are the ones who can convince themselves to believe their own lies.

  16. Eric Smith:

    Wow...what a coincidence to land on article titled as such. As a Houston i literally was thinking about Enron when i saw the headline...or lack there of on CNN. Ken Lay is literally rolling in his in grave in handcuffs.."Like wtf??."

    And believe it or not, Enron actually did deliver services to their customers....when they felt like it of course.

  17. Eric Smith:

    Warning to Holmes Feminist Supporters: Do not use the thousands of examples of male startup CEOs who's businesses floundered losing their investors billions. Neither of those losers made any claims involving vaccines or anyone's health for that matter. Big difference from claiming "you can revolutionize the Juicing Industry" from "your test results can spot out cancer!!!"

  18. Eric Smith:

    Skilling's plea bargain(if you want to call it that) still included jail time. 10 years and a fine that was more than what he even was worth. So it was a dambed if you do dambed if you don't situation. With his money and access to the best lawyers it was probably Worth taking a chance on. Recall, he was the "whale" or "jon gotti" target in the entire case. Even more so than Ken Lay. So going back to Holmes... no...not even close.

  19. joe:

    The feds go hard on the ones that dont capitulate - two cases I dealt with -
    One was a secretary that got 2 years jail time plus fine (currently equal to 1/3 of after tax earnings) for mailing the "illegal packages" where as the kingpin[s] got off scot free. As a felon, her earnings are barely $30k a year.
    The second was the accountant who got convicted of filing a false tax return. He got 3 years. The position taken on the return was supported (supportable) by a CA5 decision. The feds were after the accountants client who was involved in the 80's S&L fraud. The guilty party (the client ) plead guilty and got 6 month house arrest.

  20. morganovich:

    an enormous amount of the system is set up to be vague, contradictory, unknowable, and all encompassing. it's basically impossible to tell if you are breaking the law, and in many cases, you break one by following another. the securities industry is rife with this. the end goal is to criminalize everyone so that "if they want you, they can have you".

    then, they use this fact to drive nasty plea deals for things that really ought not be crimes in the first place.

    martha basically did nothing or at worst, made a minor error. to jail her over it was absurd. it was just media politics. but once they train the gunsights on you in public, they will never back down. it's why these special prosecutors are so dangerous. meuller is using laws that literally no one has followed or ever been charged under for 100 years. it's the legal equivalent of trying to jail someone for working on the sabbath because there is still some obscure law on the books in rhode island.

    the "justice" system is nothing of the sort. it's a politically captured system of empty legalism. justice is rarely much of a factor.

  21. ErikTheRed:

    Stewart made the classic mistake of opening her mouth. It she would have let your lawyers do the talking the feds would have walked away with nothing but egg on their faces. Any and every attorney worth a damn will give you exactly the same basic advice in this situation:
    1) Shut up.
    2) Shut up.
    3) Shut up.
    4) Shut up.
    5) Seriously, shut the fuck up.

  22. ErikTheRed:

    I would go so far as to say that if justice is carried out it's merely a coincidence.

  23. ErikTheRed:

    Does anyone else think that ... just perhaps... the media hype that led the run-up of Theranos wasn't possibly just a little bit influenced by a political narrative that they so desperately wanted to push? Elizabeth Holmes is 100% guilty AF, but the media were here accomplices.

  24. Dan Wendlick:

    "never let the truth get in the way of a good story"

  25. tex:

    THAT is the whole story.

  26. Sam P:

    Well, it's believed her current net worth is zip. But she did have a decade of being a paper billionaire.

  27. Igor Dano:

    Mr. Musk?