U.S. Files Criminal Charges Against Theranos’s Elizabeth Holmes, Ramesh Balwani | Hacker News Reader

U.S. Files Criminal Charges Against Theranos’s Elizabeth Holmes, Ramesh Balwani

wsj.com

701 pointsdcgudeman500 comments

Excellent news for American society.

“The Chickenshit Club” by Eisinger recently explained why the lack of criminal charges had emboldened white collar crime.

Basically, individuals need to have the risk of criminal charges if they do something very egregious - they need to have skin in the game.

The US Justice Dept has in the past two decades largely only been fining corporations. And so companies estimate risk and budget for these numbers. So fines are not a completely effective deterrent. The book explains this and how the DOJ policy grew out of backlash to the Enron verdict.

Ps we talked about this in May, and @danso predicted criminal charges would come - and he was right. This is good news for the US DOJ. Too bad the US can’t retrospectively prosecute bankers for 2008 and claw back their size-subsidized, low risk premium profits.

https://news.ycombinator.com/item?id=17123315

Edit: book review here. It’s a really good book. https://mobile.nytimes.com/2017/07/05/books/review/the-chick...

Amen. The risk reward is crazily skewed towards breaking law. Most relying on ethics and social pressure.

I was hoping the bankers can still be charged under the Patriot act, there is a provision for something to the effet threat to cause financial risk or damage if I remember. Paulson made a direct threat of financial doom if there was no bailout to President Bush. I think there is a way we can declare them enemy combatants and send them to gitmo for their trial. Sorry for typos, typing with a bad finger the last few days.

That is pretty far fetched.

Using your sketchy rationale, one could claim that you are threatening Paulson and have you charged with a threat to kidnap Paulson to put him in Guantanamo Bay.

And in any legal dispute between you and Paulson, you would be incidental roadkill, in view of his deep pockets.

That is why the legal system has semi-reasonable heuristics that govern the range of interpretations that are acceptable.

Well I don't have the legal authority to do this. The DOJ would have to look into this. I guess people don't remember how it went down. There was an emergency meeting at the whitehouse, I remember Bush and Nancy Peloski, and a few senators. After the meeting, one of them (perhaps a congressman) was interviewed on the whitehouse lawn and basically said that Paulson told them, if they didn't do this, the entire economy and country would collapse. So he said it in a way that would give him plausible deniability, but if there was evidence that he knew otherwise or coordinate to create a crisis situation, (that is probably the stretch you are missing to connect), which I allege -- because later on we found out that the banks were both buying and shorting securities knowing they would default (and this is a fact), I think this would be evidence to charge him. This is a specific area in the Patriot act for dealing with terrorism threatening financial crisis. Since there is no statue of limitations on this, it would be an avenue to charge him. There is no provision in the Patriot Act for normal citizens to kidnap people and have access to Guantanamo Bay, that's a bizarre and bewildering statement/counter argument to what I am saying. Perhaps people are to young or don't remember how the financial crisis went down. There are plenty of people at Zerohedge that remember.

Edit: https://www.youtube.com/watch?v=oYrDtpAkppM

Zerohedge is mildly entertaining, but is prone to anarcho-syndicalist conspiracy theories.

It is slightly more credible than the Onion.

And Congress-persons are slightly less credible than the Onion.

BTW. It may sound flippant but if you used more paragraph breaks your arguments would be more persuasive.

"Wall of Text" ~= "Probably an incoherent rant"

> the US can’t retrospectively prosecute bankers

AFAIK there were poor decisions and bad investments but not straight up fraud.

Nobody needed to be jailed; there were a few that needed to be allowed to fail.

poor decisions and bad investments but not straight up fraud

LIBOR rigging?

And FX rigging ...

Speaking morally, rather than legally, the packaging of loans into CDOs was clearly fraudulent, basically the equivalent of tampering with the mile meter in your car before selling it. The fact that there is apparently no law to prosecute people under is a failure of our various legislatures and judicial systems.

But for both Libor and FX people went to jail. I think the original poster was refering to banker going to jail for causing the 2008 crisis.

You're forgetting robo-signing foreclosure affidavits in the wake of the financial crisis. That's potentially hundreds of thousands of counts of fraud. The banks were only forced to settle, and were not prosecuted. [0]

[0] https://en.wikipedia.org/wiki/2010_United_States_foreclosure...

I thought the robo-signing meant fraud for mortgage companies not banks. But perhaps I was wrong.

Today isn't a statement about white collar crime in general, only white collar crime that impacts wealthy people.

Compare with white collar crime that involves defrauding minority home buyers, for example. Not only did the perpetrators there not get prosecuted, one of them is now our Treasury Secretary [1].

1. https://theintercept.com/2017/01/03/treasury-nominee-steve-m...

Many people on HN and outside "predicted" that criminal charges will follow FTC case, that was no-brainer. But not many know that what truly made it unable for DOJ to "turn the blind eye on", is that many medical decision on real-life patients has been made mostly based on results from Theranos devices that had been wrong so many times.

At least 4 times I wrote about Holmes being charged by DOJ on HN -- now I predict within 3 months they will find victim(s) that are dead today because of improper results of Holmes' devices.

Yeah, it was crazy to me that Lazlo Bock not only came out with a book about Google’s “hiring culture,” but even started his own HR company AFTER being involved with Google’s wage fixing scandal. Absolutely shameless.

Even speeding tickets or anything most normal people would find a burden are nothing to super rich. But making few days in jail mandatory is a major deterrent.

Then again even people texting and driving are not swayed by fines. In my region of the world a $3,000 fine is not a deterrent to many people. I say jail time would change that attitude.

Losing your license is a major deterrent as well: as someone who finds driving a waste of time I cannot understand why rich people do it, but they do and they get extremely upset if that privilege is taken away. So 3 times and you lose your license for life? That would solve the reckless behavior and cannot be fixed with money. Ofcourse for less well off people this would be very bad (maybe not being able to go to work etc) but then again; they had 2 opportunities to better themselves.

> That would solve the reckless behavior and cannot be fixed with money.

I knew a rich person once with a drinking problem: he kept losing his license but his solution would be to just hire a private driver the next day.

But from the perspective of wanting drunk drivers off the road, it worked, yes?

IDK if that's true. Consider that a real alcoholic drinks all day long and truly can not control this. Typically they tolerate alcohol better than the rest of us, but still, there also comes a time when they are simply bombed and then they are (really) a huge danger.

A casual partier though or even someone heading out and thinking they will take the chance of driving home and getting there ok, then yes I agree.

Why is that an issue, it solved the problem. And kept losing means he gets it back: just do not give it back. Then we have one less drunken driver on the streets.

>Losing your license is a major deterrent as well:

People still drive when they lose their license. They have to.

> I cannot understand why rich people do it

This one's mine: Because it's more fun than sex.

I.. must be using my car incorrectly.

This comment made my day. Thanks :)

Yeah, I know quite a lot of people who have that opinion, but they are talking about the edge cases; they speed, handle phone calls (dropped concentration), text, chat, etc and then say they have so much freedom. But they use illegal ways to not make things boring. If it’s not commuting then I can see how it would be ‘interesting’; I drove sportscars and terrain wagons, but most driving is a->b and without doing something illegal I cannot even stay awake generally. At least that is why in my friend group everyone speeds; they would pass out otherwise. And that’s basically one of the things we are discussing here.

But if you are a model driver AND find it more fun than sex, damn you are lucky.

And you would almost certainly be wrong.

Try fining in N% of annual salary, Finland style, and see how long it takes for that tune to change.

What about Mark Zuckerberg who has an annual salary of $1.00?

They misspoke, Finland fines a percentage of income, which would include money from selling Facebook stock to pay for rent, food, yachts, etc.

IANATaxLawyer, but I imagine gaming the system would require you to take out non-taxable loans using that company stock as collateral, and hope that your lawlessness is caught during the living-on-a-loan years rather than the liquidate-and-repay years.

Or liquidate a portion of your holdings and realize your gains in a non-penalty year. Either works.

That's harder to predict especially if fines are based on last years income.

Really though a ~0.1% speeding ticket fine is not going to be an issue even if the press is impressed by a very large number fine.

I’m not Finnish or a lawyer but I think their courts would see right through that sort of bullsbit

Make it a percentage of taxable income or something like that. Lots of people have non-salary income.

Or a percent of wealth. Although that isn't really effective punishment for people who blow all their income and don't save anyway.

So should jail sentences be done the same way? If I am in jail 10 days, I lose a hell of a lot more money than some bum spending the same 10 days. So the cost of jail is much greater to me on a per day basis. This “based on wealth” concept is fine, assuming that also applies to jail sentences. We can’t expect an egalitarian scheme for fines if we neglect the same consideration for jail. Assuming our goal is inflicting pain proportionally. But people wouldn’t like a rich CEO spending a day in jail and a cab driver spending 25 years in jail for the same crime — even though the relative financial costs would be similar in terms of opportunity cost. Should a CEO pay $100,000 for a drivers license?

This leads down a very slippery slope.

Is there really an epidemic of rich people committing crimes at a higher rate than the non-rich? It doesn’t seem like criminality rates are higher among the rich, thus the premise that rich people should have a larger deterrent doesn’t seem to have much support in terms of evidence.

No. Scaling jail sentences based on income would mean that the monetary size of the punishment was (roughly) constant between a rich and poor offender; just like if they were charged the same number of dollars as a fine. However, just as with fines, it would mean that the subjective effect of the punishment is much greater for the poorer person.

If the goal is deterrence, then we need care about how subjectively costly the punishment will be to each person. Having a high income doesn't make your time subjectively more valuable, but it does mean that you can trade it for more money. A rich and a poor person would likely value a day of their own time quite similarly, but they would each value $100 quite differently.

The idea of jail is that your personal freedom is taken away as punishment for a number of days.

How much opportunity cost those days have, or how much money you lose as a result of your jail time, is irrelevant. The punishment is taking away your personal freedom.

Jail time is a fair punishment: Nobody likes having their freedom taken from them. There is no need to scale it.

But its different for fines. If you drive a 100k€ car, you're not going to give a shit about a 50€ fine for speeding. And my personal experience seems to suggest this is true: Drivers of expensive cars often ignore speed limits and "no parking" signs.

So one thing we could do is add a mandatory jail sentence for speeding. You drive to fast, you go to jail for a day. But that seems a bit harsh, so maybe we stick with the fine, but make it so that it also hurts people who make a lot of money.

> The idea of jail is that your personal freedom is taken away as punishment for a number of days.

In fact, the finnish fining above is a system of day-fine: the sentence is expressed in day-fine, each "day" of the fine is multiplied by the offender's day-fine factor (baseline is about half the daily disposable income — daily income after taxes & basic living allowance) and that yields the fine's actual amount.

For court-ordered fines of sufficient size they can also be converted to a prison sentence at a ratio of 3 day-fine to 1 day in prison (rounded down).

The goal is deterrence, not inflicting pain. If speeding fines where set at $3 people would probably just treat them as a cost of traveling. To someone very wealthy current fines may essential be that.

Jail has both the purpose of deterrence and rehabilitation. Since the method is essentially depriving criminals of their time and freedom then wealth has nothing to do with it. Either way it's probably equally painful for a CEO as a factory worker.

As for driving licenses, they are administrative expenses not fines. I assume you already know this so I'm not sure what your point is.

Zuckerberg gets his cash from loans against his unsold stock. He could keep doing that his entire life and never pay a dime of income-based tax.

In Australia we have 'demerit points', so if you rack up enough of them, you can lose your license, which takes away your right to drive a car. If you drive without a license and get caught, you have no insurance and you can go to jail as it's considered contempt of court.

So the fines are no big deal to the rich here, but the right to drive is incentive enough to stop being an asshat.

there is the same system in the US and Canada... not sure if it is in all states and provinces though...

Actually, rich people in Sydney just paid their employees to say "oh, I was driving that car at the time". Pretty scandalous.

That's another good reason to forbid photo-only fines. Force police to actually stop the car. Also if you lie authorities to protect another person, it's a stronger offense than speeding. Give jail to those and few people would take the risk.

Surely that is a criminal conspiracy; most places would rate that as far more serious than a license confiscation. There was a case in the UK where a politician did this with his wife and it resulted in prison for both! https://en.wikipedia.org/wiki/Chris_Huhne I think that if money had changed hands and if guilty pleas hadn't been entered it would have been a longer sensor.

Wow. That's a divorce that went rather poorly.

He has an affair. They get a divorce. To get revenge, his ex-wife tells a journalist that he once cheated a speeding ticket. Investigation reveals she knows that because she helped him do it. They both go to prison.

This revenge idea was planned with a lawyer/judge friend of the ex-wife. When the plan backfired, the judge falsified documents to mislead investigators. The judge got the longest sentence of the three of them and was disbarred.

What a trainwreck.

Not even rich people do this, but I wouldn't want to be party to either side of such an arrangement. Between the cameras and tracking of phones, if someone's out to get you they can get you on fraud.

It was in the news a while back, so I'm not sure why the skepticism. It's not super-widespread - I don't think you can just do it with any car. Maybe the rort was set up to involve a company car.

In Australia, one reasonably well known business identity kept getting infringement notices from speed cameras. The car was owned by the company, and the company would never identify the driver and just paid the fine. So the driver never received the demerit points.

I believe that because of this, the fines were made significantly higher for companies that did not identify the driver.

An interesting, though inhumane twist, would be to seek a shorter but more severe punishment, like 1 year in a maximum security prison.

Jails are already overcrowded understaffed in most places though.

> Even speeding tickets or anything most normal people would find a burden are nothing to super rich.

I'm not sure how it works in your country but in the UK too many speeding tickets and you will loose your license. The exact number depends on the severity of each offence, but we get max of 12 points over 3 years [1] so they stick with you - repeat offenders are given even stricter rules after getting their license back.

I get a sinister smile when observing rich people in those big shiny 4x4s on some stretches of motorway I know are littered with speed traps... It's a funny equaliser - I do the limit, but those types of people always gota be in front of someone with a shitter car - but the regret is apparent in their latent brake lights after the flash.

[1] https://www.gov.uk/driving-disqualifications

It's a shame this type of law that equalises wealth isn't more common, for instance in a related matter - I've heard plenty of stories about rich people basically using parking fines as parking tickets, there doesn't seem to be a limit or anything beyond a monetary disincentive. It's also more common to see expensive cars parked in places they shouldn't be, and i'm convinced this is the reason.

In the US it depends on the state. Most states have a point system like you describe, except some states don’t (Hawaii, Kansas, Louisiana, Minnesota, Mississippi, Oregon, Rhode Island, Washington, and Wyoming don’t).

Is that really equalized? Poor people are much more severely impacted by a loss of their license than rich people. Outside cities, for example, your driver's license is pretty intimately connected to your livelihood. I imagine this is why so many people get busted for driving with a suspended or no license. They have to get to work reliably and at a specific time, or they don't get paid. They have to pick up and drop off their kids.

A rich man can just get a driver, take an Uber, etc., and is not likely to be fired for being late, assuming he works.

If they don't care about driving and they were being a shit driver then didn't the law also work? either they are forced to drive like less of an idiot or they don't drive... I don't really care if they get a professional driver - good, less dead people on the road.

Right, but then you're worried about getting bad drivers off the road, not proportionate impact. For a poor person, losing their license (and not continuing to drive anyway) is devastating and can mean the impossibility of keeping a job or even raising their kids.

For a rich person, it just means they can't enjoy the pleasure of driving themselves around. You were talking about equalized impact to start with, I really don't see how this is a good example.

> If they don't care about driving and they were being a shit driver

These are also pretty big assumptions. I assume because of my demographic category, the times I was driving, and my car, several years ago, I received nearly two dozen tickets in a five-year period. None of the offenses were for speeding, but for various infractions like not coming to a complete stop (I was absolutely positive in every case that I did, especially after #3 or so I got paranoid about it), failure to yield, etc.

The only reason I have a license today is because I had a professional job, which allowed me the free time to go to court every single time without losing money and fight the ticket. I won every single time. Most people don't even know you can do that, they think you have to pay the fine.

If I had lost my license, I ultimately would have lost even that job. I would have to work remotely.

> You were talking about equalized impact to start with, I really don't see how this is a good example.

I am _not_ talking about equalised impact i'm talking about equalised results... the OP was suggesting that speed tickets don't stop rich people from speeding, but if you loose your license it does - that is the purpose of these laws, not to try to figure out how much punishment to deal out in relation to your personal wealth, punishment is a means to an end, not an end in itself - the end being to stop you from doing something damaging to society, in this case endangering other people's lives.

Taking away licences is an equaliser in this respect, because being rich doesn't give you more points to spend.

Licenses are for individuals, if some rich person wants to pay some _other_ individual who can actually keep their license that is fine, the law won because a safer person is driving.

Do you have a 1 or more recommendations for how to fairly treat poor who are also crappy drivers? Poverty sucks, and I don't have any bright ideas that would keep poor+bad drivers behind the wheel.

So?

What is stopping someone who loses their license from just driving anyway? They've already shown not to give a shit, so they'll continue driving without a license.

My dad lost his license many years ago and never stopped driving. He gets arrested once in a while, doesn't stop him.

Then your father is a selfish individual. If he isn't licensed then he isn't insured. If he caused an accident, even without causing injury or death, he could still make someone else's life incredibly difficult.

Yes, my dad is a horrible person,I thought I was extremely clear about that.

Other family members I know who have lost their license, it's stopped extractly zero people from driving. If you don't care about the other laws enough to get caught breaking them enough to lose your license you don't care about breaking "no driving without a license" law.

Not sure in which country you live. Since the GP talks about the UK, It is good to remid that in the EU/EFTA victims of traffic accident are always entitled to compensation from a state fund, even if the driver or the vehicle is uninsured.

In the US many people purchase uninsured/underinsured motorist policies to protect themselves.

Yes but you know who pays that for fund? Everyone who pays for insurance.

Yes. It makes sense to share the burden among all drivers, instead of letting a few unfortunate people go bankrupt because of irresponsibility of others.

That’s odd. Here driving without a licence is a crime and will land you in prison for sure if caught. Why would you have a licence if there are no consequences for not having it?

There are certainly consequences, but my point was some people have established they don't care about consequences.

My dad has gone to jail for driving without a license before, but he'll go out driving when he gets out of jail. But usually his lawyer finds some sort of technically that gets him out of major trouble. I don't know the exact details, I try to ignore him as much as possible.

> My dad lost his license many years ago and never stopped driving. He gets arrested once in a while, doesn't stop him.

You live in a very strange country, in the UK your dad would have had his car taken away from him and crushed... and if he repeatedly found other cars to drive without a license he would probably end up in prison.

Really? They take your car and then crush it?

There's probably some youtube video of it. Here's an article from 2011 about uninsured vehicles: https://www.telegraph.co.uk/motoring/news/8247837/Cars-to-be...

I don't know how many they actually crushed, but it was some.

My dad has been to jail before for driving without a license, but driving without a license is not a life sentence so he's back out on the road driving next month.

There is no repeat offenders law?

Around here in this part of Scotland it is mostly average speed cameras - I am amazed at the number of people who don't seem to have grasped what this means and slow down at the cameras (which are very visible) only to speed up afterwards.

We have some of those down here too but not many, they do make more sense - I see the same thing though, people slowing down and speeding up after the cameras, i think they just don't read - their loss.

Compliance is not the goal of speeding tickets (at least in the US). You think local governments would be happy if everyone woke up one day and decided to begin fastidiously obeying all traffic laws?

Putting people in jail costs money and is hence undesirable, so unless you're drag racing through a school zone or driving drunk/stoned, you're not going to jail.

The view of governments in the US toward traffic enforcement as revenue-source was made clear during the Great Recession. When a lot of folks were struggling with unemployemnt, pay cuts/freezes, etc., and morale was generally in the toilet, local governments began jacking up speeding fines in order to make up for lost tax revenue. And people wonder why the relationship between citizens and LEOs in this country has become so antagonistic.

> Compliance is not the goal of speeding tickets

It's the goal of the state policy authorizing them, even if it isn't the goal of the local government issuing them.

A $3000 fine doesn't matter if no one ever fines you, and while I have no statistics, I'm pretty sure its very rare for a cop to pull you over for texting while driving. Like the seatbelt laws, it only ever comes into play as additional item to a stop, and afaik, only really when the cop is being a dick, or you are.

I'm sure it'd come up if you get in an accident as well, but probably the bigger fine in that case is the insurance company will use it for fault.

The primary detterant of it is likely that, because its a fineable offense, its less accepted by the general public, and you'll do it less flagrantly.

It's not just a problem in the US, either. I recently learned of a New Zealand concrete company who deliberately don't bother with environmental compliance and instead just cop a fine and pay it. They budget for the fine every year, rather than spending the money to get into compliance.

Edit: change of wording

don't co2 certificates work this way? You can reduce your co2 output or buy certificates instead. If government wants to reduce co2 output they just increase the price of co2 certificates.

While not entirely related, this reminds me of some of my friends who park illegally and just pay off the tickets rather than paying for an expensive legal parking pass.

For the record I have been predicting criminal charges in these threads for over a year now. You can’t make blatant misrepresentations that result in hundreds of millions of dollars being transferred to you without criminal charges eventually coming.

I don’t think she did it out personal greed (except perhaps greed for publicity) - I think she believed she would probably make the tech work and just never got there. But regardless of the reason, investors are out a ton of money as a direct result of material misrepresentations. You cannot “fake it ‘til you make it” at least where investors are concerned.

Because of the amount of money involved, these two defendants are looking at a stiff sentence. The federal sentencing guidelines would easily put them at the maximum (20 years), though they may get something like 10-12 years if they take a plea early in the process and don’t make prosecutors work too hard to prepare for trial. This will not be a Martha Stewart type of sentence.

It’s a sad day for everyone involved.

Thanks for the overview I always enjoy reading your informative comments, and bookmarked you in the times of GDPR conversations.

It doesn't seem that Holmes boyfriend is ready to plea, but even with 10-12 years, with all their fame and connections and financials behind, what do you think is final reality? Some 3-6 years for good behavior??

In the federal system, the most that an inmate can earn for good behavior is 15% off of their sentence - so the best behaved inmates serve 85% of their sentence. If the feds can get one of them to testify against the other (probably the boyfriend against Elizabeth), they may offer that witness a deal for perhaps 3-5 years. But at least one of them is going to do over a decade. Anything less would cause a huge PR problem for the US Attorney's office for the Northern District of California, precisely because she is well connected. They'd be accused of doing favors for a formerly wealthy, well connected person.

I agree with all but one of your points, the projection of her mindset. I've known many good technologists driving for the next big thing, hell I've done it more than once. Usually we're a bundle of quivering insecurities with an unhealthy focus on all the things that are failing in the approach and a level of fear approaching utter terror that the entire thing is going to end ignominiously. My take is that she may have had a vision, but no real understanding of the process to get there, hence 'she' never would have made the tech work and would have known that she could not anchor any of her claims to reality. That's pretty much deliberate fraud. The other alternative I see is she was pretty much brainwashed by her partner, which might be some defense.

Interesting take. It's certainly possible that you are right. I based my thoughts on my impression from listening to her in a couple of interviews. I like to think I have a good BS meter, and it seemed to me (and apparently to her investors) that she believed in what she was saying, and was deeply passionate about the issues her company was trying to solve. I think she probably had a healthy dose of naïveté, and thought that with enough money, anything was possible.

Regardless of what was going on in her head, she seems to have made provably false statements in order to induce massive investments in her company. That's fraud, and she'll pay a heavy price for it.

I think medical-related crimes are very different. Especially when they directly affect patients. Few people have gotten away with fraud on the cash side in this industry though. Valeant Phamaceuticals. Shkreli

> Few people have gotten away with fraud on the cash side in this industry though. Valeant Phamaceuticals. Shkreli

I don't think Shkreli was defrauding regarding his pharmaceutical practices. (though he has security charges). He was using shady practices that were totally legal. Completely different game.

Also iirc the shkreli case is strange since no one actually suffered any damages.

According to him (in an interview) he only jacked the prices up for insurance companies.

Which makes every single person with insurance a (diffuse) victim. Let's not pretend that exorbitant pricing doesn't have any relation to the high cost of medical insurance/care, which in turn of course indirectly kills people.

Drop the tone. All I said is his pharmaceutical practices were 1. legal 2. didn't have direct effect on the consumers of the medicines.

Skherli said he gave the medicine free to those who have no insurance. I don't think by good heart but rather to avoid a major bad publicity from the inability of non-insured to pay.

I won't. The notion that Shkreli did next to nothing wrong because he only gouged insurance companies is one I have seen echoed too much. It bears refuting when it comes up lest people see such assertions go unchallenged and don't consider the implications.

Shkreli is not in jail for that. The "shkreli case" specifically refers to a securities case, unrelated to retrophin. And it is that, specifically, where there were no damages.

specifically referring to the securities case. He's not in jail for manipulating the price of pharmaceuticals.

> Too bad the US can’t retrospectively prosecute bankers for 2008 and claw back their size-subsidized, low risk premium profits.

The Theranos case clearly illustrates why. Fraud by the top executives of a company, who lied about what their technology can do to raise a bunch of money, and endangered patients in the process--that is a story you can explain to a jury. Even if you think there are "bankers" (curiously, you do not identify specific bankers) who broke the law, good luck explaining to a jury exactly what anyone did that was illegal.

I'd also posit that this is a very good thing. You shouldn't be able to put people in jail for a crime you can't explain to a group of a dozen ordinary people.

If “the big short” can explain it then the DOJ can.

As far as I remember the big short doesn't though.

Part of the premise behind writing the book was to explain to the public what happened and why.

There are several good analogies in both the book and the movie (ie. the chef and the fish) that greatly helped me understand the mechanics of it.

The book and movie do a pretty solid job about explaining what CDOs, derivatives, etc. are.

What the book and movie don't do (unless I'm forgetting something) is explain how anything involved with the 2008 crisis was illegal - the sole exception being that CDSs are very arguably insurance contracts and should be regulated by insurance laws.

The Big Short made it sound like credit rating agencies engaged in intentional negligence, which doesn't strike me as something "too abstract to prosecute" (or whatever the excuse is supposed to be here).

Negligence in general isn't a crime - it does become a crime if gross negligence directly causes death or major injury, but as far as I know, you can't prosecute someone if their negligence merely costs someone some amount of money, no matter how much. It may cause liability for that amount of money, but that's not a crime that the government can prosecute and threaten with jail time, that's a civil case between them and whoever suffered and may sue them for some money.

I misused the term. How about "fraud," then?

>Even if you think there are "bankers" (curiously, you do not identify specific bankers) who broke the law, good luck explaining to a jury exactly what anyone did that was illegal.

Prosecutors who investigated 2008 came away saying that there was no evidence of criminal intent, based on the fact that they didn't break or intend to break any laws in the process of making their really stupid bets. Preet Bharara, former US attorney in New York after the crisis, discussed this in his podcast fairly recently.

I worked in the industry. Literally, there were employees of 7-11 who stated their income as $100,000 or more in order to qualify for a home loan. This type of fraud was rampant and known by everyone.

Are you implying that the bankers should go to jail for the misrepresentations made by the applicant because they didn’t exercise an “appropriate” level of diligence?

No, IIRC from reports years back, there is considerable evidence that this kind of fraud was not often not initiated by applicants but encouraged by lender agents, who were in turn encouraged by lender policies and incentive structure, which was set by lender executives. This isn't lack of diligence, this is setting a policy with reasonably foreseeable consequences.

You lost the jury at “lender policies and incentive structures.”

"Bank employees were instructed to tell prospective clients to lie about their income, drastically, and sometimes helped them do it. Bank employees did this because when people lied about their income, the bank made more money, even though doing so put people at financial risk."

I'm not sure this is a hard case to make.

>Bank employees were instructed to tell prospective clients to lie about their income

But is there explicit proof of this? I didn't think there was, but maybe I'm wrong. I thought at best the argument would be more like:

"Bank executives set up incentives for their employees that they knew would encourage fraudulent behaviour."

Fortunately or unfortunately, "encouraged shady behavior" does not directly equate to "illegal". For example, if you encourage someone to steal a car tomorrow you're not doing anything illegal until they actually do it, they tell you they did it, and you fail to report it (accessory at that point). The actual crime part is on them.

It's massively unethical and it feels like people should be in jail, but proving actual crime took place during the lead-up to the recession would be a massive undertaking with little satisfaction as payout, and just as many run-of-the-mill home buyers going to jail as lender associates or executives.

> Fortunately or unfortunately, "encouraged shady behavior" does not directly equate to "illegal".

If an expert tells you to break the law and insists it's fine, and you don't really know how all of this works, I don't think we can still call that merely "encouraging shady behavior".

I'm pretty sure we can and do exactly that all the time. Case law established a very long time ago that ignorance of the law is not an excuse for illegal activity. The burden of crime is always on the person committing the crime, not the person inciting it, expert or not (there's a small exception here for entrapment, but that's completely separate from this situation).

I could be wrong here, so if you or anyone else with more legal background than I have can point to specific prosecutions related to this kind of situation I'd love to read more.

“Inciting” is exactly the name given to the crime of inducing someone else to commit a crime.

No, that's only for inciting physical violence (against a person or property) in conjunction with a felony. It would not apply to anything from the mortgage bubble. Unless you've got a specific law to reference?

> For example, if you encourage someone to steal a car tomorrow you're not doing anything illegal until they actually do it.

No, you've committed the crime of solicitation at the moment you encouraged a particular person to commit a particular crime. And, if they agree and either of you takes any concrete step to implement the agreement (even short of completing the theft), you've both committed the crime of conspiracy.

The fraud itself is the crime, but the system set up to profit from it and the inducement to commit the crime are not part and parcel of the act itself?

Perhaps we need better prosecutors who can credibly charge crimes that have broad networks of profiteers eagerly pushing dupes into committing crimes that are precisely arranged so that the profiting entity has no liability for the narrowly construed criminal act other than having engineered a situation where it was incredibly possible and only indirectly soliciting the act itself...

We could have such prosecutors were the system not already hopelessly captive to the interests of the criminals.

But what can you do when law is lawless.

I think these people mostly weren't bankers, they were fly by night mortgage pushers who had no incentive not to write bad loans. They wrote crappy loans and then sold the loans on to the banks.

Which is part of the problem with bringing anyone to justice. The actual banks could pretend that they believed they were buying quality debt, which they diced up into CDO and whatnot.

Iceland successfully identified, prosecuted, and jailed specific bankers for their roles during the 2008 financial crisis https://www.bloomberg.com/news/features/2016-03-31/welcome-t... and this article mentions "market manipulation and fraud".

A second article mentions, "He argues the crimes themselves are simple matters such as embezzlement, merely with a complicated “wrapping” of financial jargon around them." https://www.ft.com/content/dcdb43d4-bd52-11e6-8b45-b8b81dd5d.... This shows that prosecutions and imprisonment are possible for bank actions related to the 2008 financial crisis. Iceland's special prosecutor also believes that similar crimes were carried out in many other countries so the opportunity for prosecution was therefore possible.

> You shouldn't be able to put people in jail for a crime you can't explain to a group of a dozen ordinary people.

This sounds so wrong. Why shouldn't people whose only virtue (related to the case) is being smart enough to come up with complex crimes go to jail? Are we forgetting just how, well, average the average person is?

I don't know that this is a very persuasive argument. We have all sorts of complex, technical "laws" (both in statutes and agency rules extending those statutes). A lot of them are important and sensible.

In a field like finance, once you make something illegal, doesn't the prosecution's argument pretty much come down to:

1. Under the US code, foo is illegal. That's the rule that everybody working in this field has to play by.

2. The defendant fooed, flagrantly and with relish, and in the process made umpteen zillion dollars.

3. At all times, the defendant made it clear that they knew fooing was wrong. For instance, when discussing fooing, they logged into each other's email accounts and wrote drafts rather than sending emails, and shredded their birth certificates after discussing foo.

4. As a result of all this reckless fooing, which we remind you is illegal in the US, 3,392 people lost their houses.

A jury can't follow this argument?

An argument I've read more frequently is that the laws around this stuff aren't clear enough, so that a defense attorney can hopelessly muddle up a case by arguing "we weren't fooing, we were clearly barring". We could make the laws a lot more clear! But in doing so, we'd potentially disrupt the economy, and so it's a tricky balancing act.

I'm curious about the "backlash" against the Enron verdict. I don't think there was any public sympathy for that company when it happened. Was the feeling of unfair justice largely concentrated in elite circles outside of the view of the public?

No, the result of the Enron verdict put Arthur Anderson (their consulting firm) out of business also. Only a small number of AA knew and participated in the fraud, but the thought is in retrospect, the government should not have punished all of the employees and the shareholders

This is profoundly interesting and so disgusting that companies are eager to do the wrong thing and even plan for it by having contingency budgets to pay the fines. Think what we as a collective could do with all of that money; feed the poor, water for everyone, clean the oceans, stopping child sex trafficking...Ok, I'm becoming angry thinking of all this gotta run!

Does anybody know if Theranos got started with at least an idea how to accomplish what they wanted to do? From what I have heard in interviews they started with the thought "Doing xxx would be super useful" but didn't have an approach for accomplishing this but instead took in money and tried to figure it out. It's like me saying "An antimatter drive would revolutionize space exploration" and starting to collect money but without even the faintest idea how to produce one.

Does anyone know? Did Holmes have any insight that caused her and the investors to believe she could do the blood tests?

After the company launched professionals in the medical testing said it was impossible. I believe it was even posted to HN. They stated it was impossible to get the results they would get from the amount of blood given.

That can be OK if the company was started knowing that they had invented something new.

Sure. And while certainly "possible", how likely is it that a 19yo college dropout (who wasn't studying medical sciences) was able to discover a technique that did so, after forty years of multiple multi-billion dollar companies researching the same (after all, the brave new world offered by her dream was hardly new or unpalatable to other players in her field).

And her actions demonstrated she had done no such thing. Buying, hiding, deceiving around traditional venipuncture machines, etc.

This is someone who "had a dream", had connections, and was determined and stubborn, in a bad way. Even now she, and one or two of investors, still believe she has been robbed and wronged, and that the world is worse off without Theranos.

The bar for inventing something new in medicine is not "Eh, if you squint, it sorta looks like it works, ship that shit."

For reference, here's the very first HN submission about Theranos in 2013: https://news.ycombinator.com/item?id=6349349

Fascinating to read, thank you.

“There are more soldiers in that board there than doctors” is one of the original comments!

Interesting. Skinming through the comments, very little criticism, everyone in awe. Only way down there is someone stating how hard it is to get regulatory approval.

I guess that‘s HN still in full fanboy mode, before all those startups started to display their dark sides.

I don't see any fanboyism; I see interest, and surprise at the composition of the board. A bit down, I see strong criticism by medman77, who hasn't been downvoted.

medman77 created his/her account that day and only ever posted that one comment.

I wonder if he/she was from Nanomix (nano.com, another company working on similar technology since 2000)

An interesting observation is that medman77 would seem to be particular about FDA clearance vs approval, which is one sign of someone who does know what they’re talking about.

medman77, who hasn't been downvoted.

We don't know that. You can only downvote comments for a day(?).. but you can upvote forever. Considering it's been 5 years, and people keep linking to his comment... it's hard to say if he gained those points that day or years later after theranos was found to be a fraud.

It’s probably also a reflection of the fact that the flaw in Theranos’ goal was a medical issue, namely uniformity of sampled blood, and this isn’t a site of mostly MD’s. Part of it may well have been fanboyism, but it may just have been that most here lacked the requisite background to see the flaw.

I find the self-driving, or near-future Mars colony fanboyism here a little harder to take, because a much larger segment of the user base should know better.

I suspect you're right, but that also highlights a broad problem that we have in tech. In the face of missing expertise, most people assumed, or at least were willing to believe, that it was more likely that a tech company would be able to completely disrupt the way blood tests have been done, rather than question why something as simple as "use less blood" hadn't been done already if it were feasible.

If you read the book, it’s very apparent it was a case of fanboyism from a very specific demographic: older males in positions of power (WalGreens CEO, Safeway CEO, mulplitude of investors like Murdoch, Larry Ellison, politicians like Schultz and Mathis.) Many of these individuals had very educated voices on their team that constantly sounded the alarm bells only to be ignored and chastised because those in power were completely smitten and couldn’t fathom re-evaluating their positions. In one instance, Safeway staffers even half-joked that Safeway CEO saw in Holmes the daughter he never had.

You don't see criticism because critical posts get deleted.

Theranos was tight lipped on the tech. An alternative interpretation is that there was insufficient information on the tech at that moment for knowledgeable people to weigh in on, other than to observe that this is a difficult problem and a “red ocean” in a regulated industry, and it is hardly worth stating something so obvious.

Check out the top comment to April 2015: Scientists skeptical about Theranos blood test (businessinsider.com): [1]

> What stops the skeptics from doing their own tests by walking into a service center and having their blood analyzed for all tests possible and doing the same with their blood for conventional tests? Or an even large scale test?

> If their concern is genuine (rather than a way to get a look under the hood of a competitor for the current sellers of such services) there are multiple ways in which they could get their verification without inside information on how Theranos does its thing.

[1] https://news.ycombinator.com/item?id=9440595

And for everyone one of those I can find about a thousand HN comments telling you to push on even if you're unsure about whether you can deliver.

Edit: For that reason, most of this "I told you so" sounds like hindsight bias if it comes from someone who would normally take the attitude of "fake it till you make it", "don't wait until you're sure you have a working product".

Generally that advice is not directed towards people starting medical device companies.

If you can find even one such comment that also offers a heuristic for when your self-doubt is justified and you should therefore quit, I will be surprised.

Look at my comments on the April thread.

I was incredibly sceptical about a 19 year old with no experience starting a biotech company. All of my comments had a large number of upvotes (for 2015), while many of the people disagreeing with me were downvoted into the negatives.

Yes, being skeptical about a 19 year old is easy.

The hard part is to do it in a way consistent with the rhetoric about “fake it till you make it”/“it’ll all work out”/“all self doubt is impostor syndrome”.

It's not hard if you just don't tell people to fake it till they make it in the first place.

There's a sizeable contingent on HN that is sceptical of that mindset in general, which was my point.

No. There's a sizeable contingent of people who will call out specific ideas as being "obviously BS", but who lack the insight to realize the dissonance with their mentality of "fake it till you make it". People who actually have a general answer for "when not to fake it, and give up instead" are the extreme exception.

"It's odd how little information is provided about the actual new technologies behind this." - @aheilbut

Any citations on that? In all the hullabaloo about Theranos I haven't heard that there were serious theoretical difficulties with what they were trying to do.

It would make me feel somewhat better about the whole mess to know this was the case. A successful Theranos would have been the best thing to come out of SV since the Apple II. It was sad to see it fail because of executives' delusions.

I am no expert, but it's my understanding that blood in the capillaries (fingertip) is not exactly the same as blood in the veins.

> In addition, the small volumes involved and the variability in sample quality based on puncture site and technique make capillary sampling particularly susceptible to errors during the pre-preanalytical phase, which are beyond the control of clinical laboratory personnel

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4622200/

It's not the same as the veins, and varies a lot between fingers and location.

It is well known to any diabetic, or to anyone who played for a few minutes with a blood glucose monitor.

The major medical diagnostic companies had been working on microfluidic assays for a couple of decades before Holmes came along. It's a very difficult subject especially when it comes to immunoassays. This wasn't a blue sky field by any means.

There were numerous research papers on the topic, and some time spent with experts in the field would have also pointed her in the direction of the current research.

Almost too late she hired an expert from Abbott Diagnostics (who headed up a number of successful system projects for them), and he walked away after 6 months.

Well, to be fair, experts in the field called the original iPhone impossible.

Turns out in this case they were right.

I'm not sure if there were "experts" of the same caliber calling the iPhone impossible. In fact, I don't recall anybody saying it was impossible, but would like to find out more.

I remember a ton of doubt, after launch, that it would be successful, but those people weren't really experts.

Here’s one example. Apparently RIM’s employees collectively thought it was impossible (to achieve the stated battery life); I think they count as experts:

> RIM had a complete internal panic when Apple unveiled the iPhone in 2007, a former employee revealed this weekend. The BlackBerry maker is now known to have held multiple all-hands meetings on January 10 that year, a day after the iPhone was on stage, and to have made outlandish claims about its features. Apple was effectively accused of lying as it was supposedly impossible that a device could have such a large touchscreen but still get a usable lifespan away from a power outlet.

http://www.macnn.com/articles/10/12/27/rim.thought.apple.was...

I had the first iPhone. Let me just say that the official battery life was somewhat aspirational.

The comments summarized in that article seem to no longer be available, but I have a hard time believing the summary is accurate. When the iPhone was released, there were already PDAs on the market with screens the same size or bigger.

The devices at the time with larger screens were larger, heavier devices that had shorter battery life. Nobody made a pocketable device with a screen that size.

PDAs that could run a processor powerful enough for actual desktop-quality Webkit, a cellular radio, etc.?

I had an iPaq at the time, had maybe 4 hours battery life, and that was with wifi used sparingly. No 2g or 3g was possible. Slow processor. Crappy screen.

That was exactly the anecdote I was thinking of.

It's all in the power saving software.

I definitely remember one supposed LCD expert who said Apple was lying about the iPad battery life. Said there was no way it would last more than 3 hours.

They had a good idea of what they wanted to do (blood tests using very thin needles) but never successfully figured out how to accomplish that with the level of accuracy required.

Most Medical professionals believe that what they wanted to do was simply impossible from a biological perspective due to the natural variations of blood content. It would have been like trying to determine traffic on a freeway by taking a brief glance through a tiny slit in a piece of paper.(This is why they draw so much blood for testing, to try and get a fairly representative sample.)

>determine traffic on a freeway by taking a brief glance through a tiny slit in a piece of paper.

taking 10 such brief glances may allow for some good enough probabilistic estimate though. Upon hearing first time about Theranos in 2013 i thought that they would do something like it, i.e. statistical approach based on some data mining as they would collect large number of samples, etc. - a typical SV tech based approach. One look at Holmes' black turtleneck photo and Glassdoors reviews mostly talking about Ballwani, and i remember immediately thinking - any even minimally advanced R&D is just not possible there.

What's so bad about the black turtleneck?

In the tech industry, if it's worn as a uniform, it's probably a dead give-away that the person should be avoided (especially if there's any other supporting evidence related to negative behavior). It's a Jobsian mimic. There was one Steve Jobs, he was extraordinary in some ways, and he wasn't very nice. There isn't going to be another, he was the product of a unique circumstance. The next great person/s will be their own composition made up of the time and place.

Her fake voice is a lot more indicative than the black turtleneck though.

Ah. I read that she picked the black turtleneck as a compromise between being professional and not drawing too much attention to herself or dressing "too feminine" -- though who knows how true that is.

Because invariably whoever is mimicking Jobs' outerwear didn't go through the same process that Jobs did, nor develop the same philosophy that led to making that process even possible or an opportunity to spot, to arrive at that turtleneck. The turtleneck is a representation of Jobs' ideals and thinking around focus, quality, grace, craftsmanship, teamwork and many other attributes he admired. Even those people who go to the trouble to get the same kind of turtleneck from the same Japanese maker that Jobs did, I can practically guarantee they have only the vaguest clue why Jobs arrived at that turtleneck.

It is far more enlightening and satisfying for those people to develop their own sensibilities, find personal ways to express them, and through their force of will and drive, imbue their own meaning into their own habits.

Well stated. I'm a retired neurosurgical anesthesiologist who relied on accurate blood test results to manage major intracranial procedures. No way would I accept a finger-stick hemoglobin/hematocrit as the basis on which to decide on the need for blood transfusion. Why? Because as a medical intern I did them routinely, because I had to get a number to present at morning rounds and even our excellent STAT Lab (LAC-USC Medical Center in Los Angeles) sometimes couldn't turn around a properly drawn venous sample in time. Because it was often difficult to get sufficient blood volume from a finger-stick to fill even the tiny glass capillary tubes we used to "spin a 'crit" in a centrifuge, I would occasionally squeeze a patient's fingertip to enhance blood flow. Those results were sometimes wildly at variance with later venous samples from the same patient. Why? Because they were diluted with interstitial fluid along with capillary blood, the result of my manual pressure on the fingertip.

This is the first explanation I've ever heard in 30 years over dozens of physicians/nurses for why a blood draw needs so much sample. And I wonder if young med students/nurses are taught that little fact about squeezing a fingerstick...

My residents were ;-)

As an engineer, I'd translate this as "the signal-to-noise ratio for a finger stick test is much too low for accurate results."

> It's like me saying "An antimatter drive would revolutionize space exploration" and starting to collect money but without even the faintest idea how to produce one

In America, it's perfectly legal to say "I'm going to make an antimatter drive; give me a million dollars." It's illegal to say "I have a working antimatter drive prototype; give me a million dollars." Holmes and Balwani did the latter.

That is a good way to describe it.

They also made the technology very secretive. Not even their investors could have access to implementation details.

Very similar to my secret perpetual motion machine.

Based upon what you said, there is just one flaw in your pmm. I know how to fix it. Unfortunately, I can't tell you. The secret is proprietary, and I need to make sure that it doesn't get corrupted, so everyone can use it for free.

My question is: Did they have a prototype or at least a concept?

> Did they have a prototype or at least a concept?

Not one that could do what they promised.

"The indictment alleges that the defendants used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors. Specifically, the defendants claimed that Theranos developed a revolutionary and proprietary analyzer that the defendants referred to by various names, including as the TSPU, Edison, or minilab. The defendants claimed the analyzer was able to perform a full range of clinical tests using small blood samples drawn from a finger stick. The defendants also represented that the analyzer could produce results that were more accurate and reliable than those yielded by conventional methods—all at a faster speed than previously possible.

The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false. For example, allegedly, Holmes and Balwani knew that the analyzer, in truth, had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines."

https://www.justice.gov/usao-ndca/pr/theranos-founder-and-fo...

Yes, they did. Which involved humans walking over the blood sample to a regular lab setup where they would dilute it and use regular machines to output wrong results. Now all they had to do was find a solution to replace the humans, not having to dilute the sample and output correct results. But pesky investigations got in the way.

From "Bad Blood": they had a prototype called Gluebot which used a robot arm to do standard tests involving a pipette autonomously. However, their tests (using blood collected at Walgreens) were done on "hacked" (altered to cope with much smaller amounts of blood -- by increasing dilution) Siemens blood-testing machines.

IIRC from the book, Gluebot was actually the prototype that eventually became the Theranos Edison.

They did. They had two devices, the "Edison" and the "MiniLab".

The Edison was intended to run a full panel of blood tests, both chemical and immunological assays, off a finger stick of blood. It was also intended to allow Theranos to function as its own lab.

The Minilab was intended to run a full panel of blood tests I believe off a larger venous sample, and was expected to be marketed to existing labs (at this point, Theranos had been forbidden from operating its own labs).

In its own labs, Theranos made minimal use of the Edison, which was unreliable and supported only a few tests. Rather, they're accused of taking finger-stick draws, diluting them, and then feeding them into hacked-up adapters for COTS lab machines.

Do you believe Theranos could have beee successful company with less delusional management? (Honest question for a HN colleague for whom I have tremendous respect.)

I’ve never seen any evidence the underlying tech ever actually worked.

I don't know anything about this space; all I know comes from Carreyrou's book. Somewhere towards the middle, one of his sources observes that it's particularly hard to get a good sample from a finger stick --- something about damaged blood cells --- and you can find recent journal articles online suggesting that finger stick samples are inherently a lot less reliable than venous draws.

So, I sort of doubt it.

Not a domain expert, but as I recall most of the things they want to test for aren't present at a sufficient level in the blood stream to get a statistically significant sample from a few drops.

Blood sugar is a relatively high percentage of your blood stream, which is why strip-based glucose monitors work.

Could they have successfully run tests on smaller sample sizes? Possibly, but the target market size is small (needing less blood isn't particularly advantageous unless you're dealing with children or babies without much blood in the first place).

The finger-prick-testing was always very likely to fail; the biology just doesn't work out in your favor. However, getting finger-pricks working was the entire basis of their strategy, not the "test using less blood" idea.

Not an expert in this field, but it seems like they could have pivoted to do a smaller sub-set of blood tests, like the immunoassays. Part of the failure was their insistence that they were going to do ALL blood tests through a finger stick. Once they had raised tens of millions of dollars based on taking the entire market, it was probably too late to de-scope the vision without losing their investors.

The answer is no. The answer isn't yes their working devices didn't work.

>It's illegal to say "I have a working antimatter drive prototype; give me a million dollars." Holmes and Balwani did the latter.

It's only illegal if you don't actually have one.

You also have to be aware that you don't have one, for what it's worth.

In that sentence, "antimatter drive prototype" is defined to mean "a thing you couldn't possibly have," so don't be a pedant.

They said that about heavier than air flight too...

aka a kickstarter

Their malfeasance was worse than that. Their "invention" gave people wrong information about their health, which in some cases put their lives in jeopardy. And they operated in a highly-regulated marketplace and tried to evade government oversight. These two aspects of Theranos put their fraud into a much more serious category than that of a typical narcissist-led SV vaporware company.

>From what I have heard in interviews they started with the thought "Doing xxx would be super useful" but didn't have an approach for accomplishing this but instead took in money and tried to figure it out.

So, just like most VC favorite startups?

I've been involved with many vc funded startups and have never encountered a situation where nobody knows how to achieve the core product vision. Nobody knows how to achieve profitability...sure.

The only one that comes to mind is Magic Leap. They could blow up like Theranos.

As a data point, GV decided twice not to invest in Theranos, due to lack of transparency, a peculiar board mix and a sketchy experience in the field. They actually sent someone to a Walgreens.

Later they happily poured lots of millions into Magic Leap.

See, even GV can be duped into idiotic investments. Theranos couldn't trick them but Magic Leap sure did!

UBeam springs to mind.

Yes, that’s some bullshit there. Though they are small compared to Theranos, so uBeam will just fizzle out quietly.

Keep in mind the actual fraud is NOT saying “we will try to do impossible task X” and failing. The fraud is going to extreme lengths to cook up results to drum up sales and investments.

UBeam might very well flameout but I think if you are evaluating a company for fraud potential, there’s no evidence of UBeam making up complete BS to raise investments. In that case, even if their tech doesn’t pan out, as long as they weren’t massively deceiving investors, it would be a failed startup, not a fraudulent one. They are not the same thing.

>Nobody knows how to achieve profitability...sure.

Yeah, I was referring to profitability, which, for a for profit company (and one that wants to attract investments), should be part of the core vision, and without which there's no product (just something akin to "selling" $10 bills for $5).

That said, wouldn't all the "pivoting" companies prove that nobody there knew how to achieve their core product vision?

Sure. That part wasn't even illegal. The early investors were honestly told that Theranos was trying to invent a microfluidics solution.

It crossed over into serious fraud when they stopped taking money to develop an approach, and started taking money on the pretence that they had developed an approach, when in fact they were just lying and performing the tests on commercial equipment they'd quietly bought elsewhere and hacked to use smaller samples (with resulting extremely poor accuracy).

And then they really fucked up when they doubled-down on this fraud by showing FDA inspectors a sham microfluidics lab instead of the actual working lab that just used standard equipment they'd quietly bought through various shells.

Vast majority of VC flameouts don’t put tens of thousands of lives at risk. Theranos had to void blood tests of 76,000 people just in Arizona. If Holmes had her way, that number would be millions.

I'm guessing they struggled over those questions but were reassured by the chorus of "fake it till you make it".

My suspicion: Holmes heard about microfluidics at school, misjudged its position in the hype cycle (it's a red ocean, not a blue ocean), sold herself as an expert, raised money from people who didn't know better, and let the success get to her head because at some point she would have hired actual experts and they would probably have tried to steer her away from the known-hard problem she was trying to tackle and towards prospects that weren't as high-tech-disruptive but at least had a fighting chance of actually working.

It seems like a typical SV case of "fake it til you make it", except instead of risking a down website or burned investor, they risked harm and death of patients.

She clearly had some knowledge and strategy about the technology and likely fully intended for it to be successful, but responded to delays and difficulties with deception rather than just admitting it was harder than they expected.

"If we just get over this hurdle, we'll revolutionize medical testing and become legends." Not unlike Ponzi schemes which start out as legitimate investment ventures, do very poorly, and then just make up the return numbers. Martin Shkreli arguably pulled that fraud off "successfully" and actually got over the hurdle, but of course it came back to bite him.

They did start with legitimate attempts at implementing th technology needed to microfluidics (though apparently Holmes knew nothing about the field and didn't even know anything about existing players such as Abaxis, who actually had working machines).

However, they could not get the technology to work and abandoned several development paths in favour of a less ambitious approach that, among other things, involved doing blood analysis the old-fashioned way (manually in the lab), and only pretending to be using new tech they'd invented. They knew it didn't work, but kept selling it anyway, which is where it went from just faking it to outright fraud.

Most of their money was raised after they failed to develop their blood analysis technology, but to the investors, to the press and to their clients (such as Walgreens), they were still claiming to be using their proprietary technology [1].

[1] http://m.nautil.us/issue/60/searches/does-theranos-mark-the-...

>They knew it didn't work, but kept selling it anyway, which is where it went from just faking it to outright fraud.

I'm playing Devil's advocate and not justifying or defending their fraud and the physical harm they caused, but if we were to look at Holmes' intentions, I'm suspecting it was something like "we just need to do this for a few months/years until our technology works", rather than "let's just run this scam forever and get rich". As for how close they actually were to developing that technology (and assuming most of their talent didn't leave) or if it was even possible for them, who knows. And of course, regardless, they still intended to commit fraud and should pay the price.

No, it's just that annoying mentality of "fake it till you make it".

I guess we might find out during the trial.

Fake it until you make it is just a nice way of saying fraud. People that do that are being deceitful and should be publicly shamed and face criminal prosecution in some cases. They are scam artists, not honest entrepreneurs.

Are you going to say that to the founders of reddit & airbnb?

I would absolutely say that to them. It's doubtful they actually committed a crime but it shows a lack of character and constituition to say the least and potentially fraud to their investors. Fake it until you make it makes you a scam artist, con man, flim flan man etc... People that embrace that philosophy are frauds and cheats that should not be trusted.

Seeding a community where pseudo-anonymous users submit image/link content with images and links might be fraud by some semantic and technical definition (certainly not a legal one), but 1) it's pretty much necessary to get something like that off the ground, 2) no one is really being deceived or misled in a significant way. I'd say it's pretty harmless.

My understanding is reddit did this at the very start of the site's existence and stopped pretty early. They probably would've died quickly if they didn't seed some content.

If the way you are going to talk to someone depends on how successful you think they are, you may be doing it wrong.

I do, and the "fake it until you make it" doesn't fly very well in Europe; its generally frowned upon. Which also explains why there isn't much of a "startup culture" in Europe.

Which also explains why there isn't much of a "startup culture" in Europe.

Europe doesn't reward winners. So Europeans move to the US for their startups.

Do you know Europe is the largest buyer of the US securities? They surely feel compelled enough to benefit from the business scene in the US.

What did airbnb fake?

Reddit is an interesting case, but I'd say there's a categorical difference between faking that you are able to do something you can't (Theranos) and pre-filling a functioning site with content (I assume that's what you are referring to?).

It's especially relevant if the difference actually matters for whom you are tricking: If the results had been accurate (which from what I understand they weren't) and absent any other specific claims of superiority Theranos end-users wouldn't care about what tech they use, but for investors relying on claims that they can do something others can't to establish their value it obviously does matter.

Which in the case of reddit I guess makes the question: does it make a material difference for users if the site they enjoy is entirely fed by an organic community, or is the most important thing that the site is enjoyable regardless of origin? I guess you could argue that faking a community is also "faking that you are able to do something you can't".

Also known as "Fake it while awaiting unknown outcome." It's not like faking it guarantees making it. And since "unknown outcome" is kind of the default always, the most concise statement of this approach is really just "Fake it." Which is the problem. "Fake it" is so bad, that even if you later "make it" (like Shkreli for example), you still don't get forgiven.

Edit: And I mean 'just' to be understood with quotation marks.

It's easy to fall prey for psychopaths trying to second guess their intentions. "This can't be staged, that would be an unnecessary risk. Had they wanted to get rich quick they would have lied about this other thing instead". True intentions are illogical to other people, because they are the result of a limited, narcissistic and self centered world view.

(Not making any real life connections here, I am absolutely not qualified to call anyone medical terms, but in the subthead about clinical psychopathy it seemed important to point out.)

You're right. I can't make assumptions about her true intentions. But I don't think you or anyone else can either. It'll be interesting to see if anything new regarding that comes to light at trial. Maybe she's a pure sociopath, maybe she's a college dropout who was in way over her head and dug the company into a hole it couldn't escape, maybe neither, maybe both.

You might be able to "fake it til you make it" with some kinds of products, or business plans, or interactions with customers and partners.

You can't really fake science.

This may have been faking too hard in a place where experimentation, or R&D, yielded nothing usable.

This sound like she started with good intentions but when it was clear she was failing she didn't quit but started lying until the lies got bigger and bigger. Sounds a little like Madoff.

In point of fact, that's not what happened in Madoff. There never were any investments made by Madoff's fund - his wealth management business was a fraud from the 1980s onwards.

>(it's a red ocean, not a blue ocean)

What does this mean? Thanks :)

I understand this to mean that the blue ocean opportunity is one where competition is scarce while a red ocean opportunity is one where competition is fierce and margins are tight [1].

https://www.amazon.com/Blue-Ocean-Strategy-Uncontested-Compe...

Holmes and Balwani had some experience with microfluidics (IIRC), which is certainly sufficient chemical background to give them a credible belief that they could do what they wanted to do (run blood tests on smaller sample sizes). The ultimate problem with their goal is that when you do a finger prick, a large fraction of the sample is not blood but interstitial fluid and skin layers, which makes the results noisy at best and irrelevant at worst.

So the original genesis of Theranos probably wasn't fraudulent, but when things didn't work out and they started faking it instead, that was outright fraud.

Holmes dropped out after 3 semesters. As far as I can tell she took one intro chemical engineering class.

Not what I would call experience with microfluidics.

My recollection was that there was someone involved early on who had substantial experience with microfluidics, but I'm having trouble pinning down who exactly it was.

Potentially Ian Gibbons? He was the original Chief Scientist who died by suicide after legal issues arose within Theranos over a patent dispute. https://en.wikipedia.org/wiki/Ian_Gibbons_(biochemist)

Wow, I hadn't read his story before. I really feel for his position. What an awful way to go. :(

She convinced her chemical engineering professor to be an advisor early on.

But the project she sold him on was based on her idea for some kind of wearable. From reading interviews I got the idea that he was more impressed with the wireless, wearable aspect (technologies he didn't have experience with presumably).

Sounds like she drank too much of the "drop out of college and disrupt the valley" kool aid.

She certainly is not a good person but a lot of blame should be put on the VCs and board members. They could have figured things out if they had bothered to look.

That's true, but Elizabeth owned more than 90% of the voting shares in the company. The board was basically a formality because they had no power to make decisions whatsoever.

But that's also a big part of the board's fault here! They aided and abetted that. I'm reading through _Bad Blood_ (coincidentally, before the indictment was announced), and one of Carreyou's running themes is how Holmes acquired all those shares: she wasn't the Theranos founder, she was a co-founder, in essence. The other guy (Shaunak Roy) left early on. The board approved selling his stake to her at a heavily discounted price which made one of the directors unhappy and he tried to buy a fraction as he was contractually allowed to do, so they told to resign and threatened to sue him. She also tried to get a block of stock alloted to a nonprofit foundation (controlled by her, of course). Then, as employees turned over, they would regularly seek pretext to clawback all their options or shares in any way they could, like when they fired the financial officer for getting upset about faked demos, and discovered after firing him that he happened to have browsed some porn on his work laptop, which provided the necessary excuse. At one point in March 2008, the board actually decided to fire her, but she spent two hours talking them out of it. Some point after that, they passed the even horizon... That Holmes ended up with so much voting control was no accident.

> which made one of the directors unhappy and he tried to buy a fraction as he was contractually allowed to do

Point of interest: That director was Avie Tevanian, who designed Mach, NextStep, and OSX. Holmes wanted him on the board because of his connection to Jobs. He resigned from the Theranos board over this incident. (Carreyrou's book discusses this.)

Then they should have resigned. Either you do your job or you should go. We shouldn't make excuses for highly paid people.

Balwani knew nothing about microfluidics or blood work. He was a software guy who had gotten rich in B2B ecommerce during the first dotcom boom. And as Carreyrou points out, he had a reputation in the company for trying to sound smart by mimicing buzzwords.

This interview with John Carreyrou [1], the Wall Street Journal journalist who is largely responsible for exposing Theranos, goes into a lot of detail. It's long, so if you want a shorter answer, jump to the question "What technology did Theranos actually develop?":

Basically there were three iterations of the technology. The first one used microfluidics, which are basically the repurposing of the micro-fabrication techniques that the computer chip industry pioneered to move tiny volumes of liquid. Theranos tried to work on that for several years before Holmes lost patience in late fall 2007 and abandoned it. At that point she pivoted to what was essentially a converted glue-dispensing robot. One of the engineers ordered a glue-dispensing robot from a company called Fisnar in New Jersey, studied its components and rebuilt a smaller version of it. It was a robotic arm on a gantry with three degrees of motion and a pipette stuck to its end, and it replicated what the scientist does at the bench. That ended up being called the Edison and it could do only one class of test, known as immunoassays. It was also error-prone. The third iteration of the technology was the miniLab, which Holmes wanted to be able to do more than just immunoassays. The miniLab didn’t invent any new techniques to test blood with. It miniaturized existing laboratory instruments and packed them into one box. By the time Theranos went live with its tests, the miniLab was a malfunctioning prototype.

The interview also explains how Holmes was able to attract so many influential people on her board. The short answer is her Jobs-like "reality distortion field" -- she was exceedingly good at convincing non-scientists that their science worked.

[1] http://m.nautil.us/issue/60/searches/does-theranos-mark-the-...

> The short answer is her Jobs-like "reality distortion field" -- she was exceedingly good at convincing ...

Considering this and the lack of substance behind her claims, I would personally bet money that she is a clinical psychopath.

The most disturbing thing I have ever observed about human beings is our tendency to follow psychopaths. Psychopaths seem to have this gravity around them and people just fall into line. I've observed some spectacular examples. A psychopath can say the most questionable or even absurd things and people will just believe, whereas people will be skeptical of even very sane things that come out of the mouths of non-psychopaths. It's as if clinical psychopaths have some special instinctive ability to generate body language, vocal cues, and linguistic patterns that manipulate others very effectively.

I am not claiming that everyone with a "reality distortion field" must be a psychopath, but I've definitely observed a positive correlation.

I remember reading that a lot of CEOs and generally people in leadership positions have psychopathic traits. This probably is an asset if it's balanced by other traits.

I'd take those articles with a huge grain of salt. How could you distinguish a CEO with the courage to make an unpopular choice (e.g. layoff 1/3 of the workforce to save the company) -vs- a psychopath who does it to inflict suffering on others or to just establish dominance? How do you even measure psychopathic traits without defining exactly what "psychopathy" means and a rational ethic by which to judge the non-psychopaths (i.e. the "control group" or standard of normal)? Moreover, motive is not irrelevant to the question and not only is it not measurable by researchers, most people don't even know their own subconscious motives.

I'd bet if you dug into the research what you'd find is the research really shows that psychologists who study such things do not have the character/psychology of those who become CEOs, not that they are psychopaths.

Huh? You just give the ceos a psychopath exam.

No. I reject the methodology of the psychologists who do these types of studies.

Why?

Because you can't define pathology (deviation from a norm) without defining the norm. Modern psychologists dodge this question and implicitly assume various generally accepted moral standards and tenents (a form of circular reasoning) by which they condemn those who don't follow it. It is not science and to make it a science the psychologists should be seeking a rational basis to define ethics. Nobody has done this and until they do psychology will remain a pre-science like alchemy.

In addition, it would also be supremely discriminating if the "Psychopath exam" would, for example, consistently score Asians lower.

That is, a psychological or culturally acquired trait should not be used against an individual without a proof that it actually affects his behavior. You are in essence denying that the person has any agency and it's utterly incapable of learning and acting on society's moral code, which I bet is false for the vast majority of people with sociopathic tendencies.

A lot of communication is non-verbal. A person evaluating a statement in context and expecting to find some physical and culturally-instilled signs of self-doubt in their interlocutor may unconsciously be strongly pushed to conclude that the person is telling the truth when not finding those signs, even if the reason that those aspects of communication are absent is because the person is incapable of producing them.

I don't know about Holmes (other than having read Carreyrou's book) but I've been around pathological, charismatic narcissists enough to be as fascinated as you at their ability to lie to the face of very accomplished people and be completely believed. It's almost like executives need a training course in spotting and dealing with them.

The old quote “The hardest thing to fake is sincerity”.

Or - the easiest person to fool is yourself.

But not the actual specialists.

https://www.nytimes.com/2016/04/27/opinion/dont-blame-silico...

my outsiders view of management training is that they work so hard at cultivating confidence that they start thinking that confidence, not competence, is what they need to select for in roles outside of leadership.

As far as I can tell, "leader types" are far more vulnerable to confident people than the rest of us because of this.

I also think falling for this is implicit in the notion of the MBA. Previously, management was mainly company founders, founder families, and people who had come up through the ranks. That is, all people who spent years learning the specifics of the business. But the theory of the MBA is there's some universal set of "business skills" that makes actually understanding the business domain irrelevant.

In practice, I think this means falling back on a limited sort of finance understanding and some generic notions of top-down business process. There's not much there, so they make up for it by leaning hard into their human instincts and skills.

Unfortunately, that leads to many problems, including over-trusting people who present well and seem confident.

The MBA is the Western version of the Soviet "apparatchik." This term denoted a party functionary educated in party ideology who was promoted and transferred around to different posts where they would lead things they did not actually understand.

I personally think the MBA system is a big step up from just choosing leaders based on how closely related to a powerful person they are. (I mean, I understand there is a lot of overlap between the two... I'm just saying that the MBA system is a step forward, not that it's good)

Unfortunately I think the MBA enables a power-and-politics system. If people have to work their way up and learn an industry, competence and a long-term focus are more rewarded than if a credential makes you a supposedly universal expert.

Psychopaths are parasites - one could make the argument that most of human culture, including our marriage traditions, religions, moral codes of conduct, sense of humor, and even fashion, are evolutionary attempts to thwart them.

How would that argument go? Is it just that setting up social rules makes it easy to spot when people don’t follow them?

Yes. And using a community to contain them or alert you.

Yeah, exactly. Psychopaths don't empathize, so they don't understand why social conventions exist, so they sometimes get it wrong and something seems "off". When someone seems "off" you don't trust them.

People with autism also sometimes seem "off" though.

Yeah, and that's a big part of why (high functioning)autism is such a serious disability in the first place. I'm really glad that society is starting to recognize and be aware of it so that autistic individuals can get a pass in this area.

Unfortunately, what you described applies to people on the spectrum too.

But I think the key is the difference between sociopaths and psychopaths. Sociopaths are usually really good at using their charisma to move up:

>Psychopaths are dangerous. They’re violent and cruel, and oftentimes downright sinister. They show no remorse for their actions, usually because of a lesion on a part of their brain responsible for fear and judgment, known as the amygdala. Psychopaths commit crimes in cold blood. They crave control and impulsivity, possess a predatory instinct, and attack proactively rather than as a reaction to confrontation: A 2002 study found that 93.3 percent of the psychopathic homicides were instrumental in nature (meaning they were more or less planned), compared with 48.4 percent of the homicides by people who weren’t psychopaths.

>Sociopaths are a different breed. They, too, may suffer from their mental illness as a result of lesioned brain regions. Upbringing may also play a larger role in a child becoming a sociopath versus those that are diagnosed as psychopaths, or the slide into dementia on the other end of the spectrum. Sociopathic behavior is manifested as conniving and deceitful, despite an outward appearance of trustworthiness or sincerity. Sociopaths are often pathological liars. They are manipulative and lack the ability to judge the morality of a situation, but not because they lack a moral compass; rather, their existing moral compass is greatly (yet not always dangerously) skewed. Pemment, for one, says this could point to both a social and neurological component.

source:reddit

AFIAK sociopathy is now more or less regarded as just non violent psychopathy. Most psychopaths are not violent.

Problem is that also ensnares sincere people on the autistic spectrum, recent immigrants, and anyone else different for any reason.

Yeah, and it's very much a moving target. It's a tough thing.

One of the patterns that interests me a lot is supernormal stimulus. An organism is evolved to deal with a stimulus in a certain range, and something comes along that is so far outside it that things break.

The classic example is Niko Tinbergen, who created models of fish that were rounder and redder than the real fish, who would ignore other real fish and focus on the models. The human ability to refine things produces a lot of good examples. Like how refined sugar influences us so much that it ends up in most processed foods. Or how refining the coca leaf produces addicts.

My theory with sociopaths is that giving no fucks what others think allows them to be unnaturally confident. Since we often evaluate others by how confident they are, we are easily taken in by people with supernormal confidence. That gives us the reality distortion field (as social primates, our main reality is social) and "drinking the kool-aid". Which is a metaphor Jobs used for how he wanted people to react to the Mac, but the metaphor is about a cult whose charismatic leaders led them to mass suicide. [1]

[1] https://en.wikipedia.org/wiki/Jonestown#Deaths_in_Jonestown

Wow. That is by far the most realistic and rational hypothesis for this phenomenon I've heard. It's simple, elegant, and seems testable. Thanks!

I think this may also offer some explanation for the appeal of the utterly absurd, like flat Earth or galactic emperor Xenu. Its supernormally ridiculous, which invokes a sense of fascination.

In any case if this is true I think this effect is being weaponized today to an unprecedented degree.

High profile sociopaths are extreme outliers, as most sociopaths burn through their social connections well before becoming competent enough at social manipulation and finding enough people that are well-off enough to maintain a parasitic life.

Also as a side note, within Scientology you don't actually learn about the Xenu shit until you're way too deep, financially and/or time commitment-wise, to pull out.

> Also as a side note, within Scientology you don't actually learn about the Xenu shit until you're way too deep, financially and/or time commitment-wise, to pull out.

It seems they’ve taken a page out of Masonry or mystery religions. Only higher level “initiates” receive the real wisdom.

The question is, are the high level initiates plain psychopaths?

Or are they just addicted to the free pussy (or dick), drugs, and money that comes with forcing others to join the cult?

Esoteric religion as an intellectual Ponzi scheme...

Nice. Although I am beginning to suspect that everything is to a greater or lesser degree a Ponzi Scheme in the long run due to thermodynamics. ;-)

Sometimes I wonder if it's better for a religion to have strange beliefs:

1a) It's a better show of commitment to the group if you are willing to stand up and say the absurd on behalf of the group. It's saying that membership in the group matters more to you than the potential loss of face. You could expect to be able to rely on such a person to be loyal to the group.

1b) It's also a better show of group commitment if someone is motivated enough to try to convince themselves of something very difficult to believe.

2) Groups espousing weird beliefs will face ostracism, and that will bind them more to each other. They will spend more time with each other away from outsiders, developing their belief system further with even less sanity checking from the outside.

Yeah. If I were to cast it into this framework, you could look at fundamentalist systems of thought as delivering a supernormal sense of understanding. Which causes supernormal confidence, making their views easier to spread.

An actual universe doesn't pack well into the 3 pounds of meat we use for thinking. A system of thought that lets us discard most natural ambiguity and nuance would be unnaturally comfortable. I think this is true both for obvious fundamentalism (e.g., Bible thumpers) and for single-explanation frameworks of thought. Freudianism, Marxism, and capitalism all have groups that are effectively fundamentalist adherents. And I think there's a species of Bitcoin fanatic that is also effectively fundamentalist.

I guess I shouldn't be surprised that this appears to be on the rise at the same time the Internet has brought us into contact with all the information and all the people.

> […] "drinking the kool-aid". Which is a metaphor Jobs used for how he wanted people to react to the Mac […]

Google is showing me nothing for this. Do you have a citation?

Quoted here: http://articles.latimes.com/2013/sep/01/business/la-fi-tn-ho...

Original source is listed as this book from Baylor University Press: http://www.baylorpress.com/Book/382/Appletopia.html

You make an interesting observation. I wonder if there are any doomsday stories of an AI that conquers humanity via psychopathic persuasion rather than conventional weapons.

This is by far the most likely scenario.

I am assuming they had some of the best people in the field working on these. Makes me wonder how much the employees were aware of the company's situation, and the infeasibility of some of these goals.

Very aware, but information was strictly compartmentalized inside the company so individual employees had to figure out that things were badly wrong in different ways, depending on what their roles were and when in the lifecycle of the company they were there. Overall, though, the employee turnover was insane.

As someone who has spent a lot of time around startups, the amount of employee turnover was one of the craziest -- indicative in hindsight -- things in John Carreyrou's extremely well-reported book, "Bad Blood." Most startup boards would have looked at that level of employee turnover and realized that there was something much worse going on than a young founder without much management experience doing a poor job at hiring and retention. But the board apparently didn't get very much information about the actual operation of company, didn't push for more, and didn't question or dig into what they did get.

What I found most appalling about the behavior described in the book, and maybe among the most probative in the criminal case, is the heavy handed use of legal threats to stop employees from talking and negative reporting.

I'm willing to forgive quite a bit of "fake it till you make it" flim-flam, but anybody who uses such strong-arm tactics deserves having the book thrown at them.

I completely agree.

I wonder if medman77 was talking abut the glue dispenser here:

https://news.ycombinator.com/item?id=6349808

>> The short answer is her Jobs-like "reality distortion field" -- she was exceedingly good at convincing non-scientists that their science worked.

This confuses a lot of people (not saying you are one of them), but this is really common in intelligent non-experts. People vastly overestimate how intelligent they are when they place value on their intelligence; in other words, they like thinking they are smart.

When they prize their own intelligence, they have false confidence about areas they have zero expertise in, purely because they feel they can figure it out.

So all it takes is someone with sociopathic tendencies and who has extreme confidence with a good CV, and bam, they're willing to go to the mat for that person. Holmes is one example but certainly not the only one.

That's why, when you read the memoirs of conmen, they always say educated, intelligent people are the easiest to rip off.

Funny, the PhD taught me to keep what I say fairly limited. On the other hand, I find generalists will say all kinds of crap that "sounds true" but they have at best a weak theory and a couple of anecdotes.

You seem to be making an argument for a weak theory with a couple of anecdotes.

Op is replying to anecdotes with anecdotes.

There is something kind of meta there, isn't there? ;)

I don't doubt that that's true, but it's also educated, intelligent people who are more likely to have the kind of money that makes them targets for con men.

They always say that because it sounds a lot better, and they have no problem with lying.

Can't find the cite at the moment, but I recall that cult members were also likely to be college grads and of above-average intelligence

> ...they have false confidence about areas they have zero expertise in, purely because they feel they can figure it out.

The antidote to this effect: pick any object around you, and set out to make it yourself from scratch. Or just set out to make the precursors. An object as prosaic as say, a window. A lot of people who suffer from this effect dismissively wave away such a challenge, saying in more words that it's beneath them to attempt because it is so pedestrian, or of course they could do it, but they don't have the time to.

Those I know who are scary smart, are the ones who will more frequently pick up the challenge, and boy, are they fast at picking up what they need to know to meet the challenge.

Me, I just feel dumb every day, but have a heck of a lot of fun along the way. I also stick to far less lofty aims. A few months ago I had never owned a chainsaw before, and a few weeks ago I processed half a cord of firewood with a chainsaw, maul, wedge and sledgehammer into smaller chunks for my smoker. I respect the hell out of the woodsmen who walk into the mountain forest for a full day of work with nary but a milk crate of supplies and those machines, and the experience makes me appreciate just how vast an efficieny improvement they represent over hand sawing.

Dirty jobs man.

An object as prosaic as say, a window

I think about this alot, starting from absolutely nothing I doubt I could even make a nail, let alone a screw, let alone a nut and bolt. I have no idea what iron ore looks like in the wild or where to find it. I could probably make charcoal and a furnace... if I had the tools, which I wouldn’t. It’s quite humbling.

> It’s quite humbling.

I didn't want to get all management-consultant-preachy earlier, but you touched upon why I persistently perform that exercise. I believe there is a very valuable leadership lesson imparted by continuously performing that exercise first-hand. Too often leadership devolves into management, especially when people lose sight of just how fractally difficult many human endeavors are. The humility helps teach me perspective on problems and people.

That Australian aboriginal might live a dramatically different life than "developed world" citizens, but there is no way I can be convinced that on average, they aren't as smart.

You might find this interesting: https://www.ted.com/talks/thomas_thwaites_how_i_built_a_toas...

What if I say making a window is a giant pain in the ass and I'm not set up for handling molten glass in that scale. I might could pull off a bottle or glass with the right equipment and a few hundred hours of training and practice. Is that reasonable? And yes I'd be buying tools and raw glass, not sourcing sand and blowing my own fire brick or making my own kanthal wire from scratch.

> People vastly overestimate how intelligent they are when they place value on their intelligence;

Even if they don't, intelligence does not replace domain knowledge.

>>When they prize their own intelligence, they have false confidence about areas they have zero expertise in, purely because they feel they can figure it out.

I wonder how this squares with the Dunning-Kruger effect. Are domain-stupid generally intelligent people more susceptible than domain-stupid generally stupid people if they are equally cocky?

Is there a name for this cognitive bias?

Subclass of Illusory superiority.

> Jobs-like "reality distortion field"

There's salesmanship and then there's lying. It might feel like a thin line but I think it's important not to conflate the two. Criminal behavior is not just "reality distortion".

I take the view that Ms Holmes deliberately used her "reality distortion field" to hide her deliberate criminal behaviour.

It probably helped that her mother was a congressional staffer and her father was a USAID exec.

According to the John Carreyrou book, not so much her parents, but an early and enthusiastic sponsorship from an influential Stanford professor, combined with a truly outlier ability to network with and impress powerful people. She accumulated an amazing amount of social proof, which she used to stockpile more social proof, ad infinitum.

Didn’t Carryrou’s WSJ stories say that her parents’ govt connections pulled in Schultz and got her connected to the military? I remember his reporting implying that a lot of the money Theranos raised seemed like it came in expecting military applications and thus military contracts. Which the military board (that her parents connected her with initially) would have helped with.

I believe that Carreyrou's book says Holmes built a relationship with George Shultz, then Henry Kissinger, William Perry, and Sam Nunn, through Stanford's Hoover Institution. They were all fellows at Hoover. I'm looking at page 181 in the hardcover edition. The book doesn't mention any family connections to Shultz. The military interest originally came from James Mattis, then head of US Central Command. The book says that Holmes met him "at the Marines' Memorial Club in San Francisco," but doesn't say more about that first meeting.

There’s one other REALLY important reason why Holmes was able to raise money. Remember venture firms with blood test knowledge like Google V were turning her down.

Holmes was close family friends with George Schultz, and that allowed her to do two things. First, get a bunch of military and government guys on the board. And second, sell to the military.

That was Theranos’ real ace in the hole. Holmes knew top military brass and they were going to give her military contracts to test soldiers’ blood. We don’t know what she was telling investors, exactly, but that seems like a real source of revenue investors would care about.

Carreyrou describes how it was a mid level DoD employee that screwed up the plan - he looked at the data and scuttled the contract even though the generals wanted to award it to Theranos. Hat tip to hard working, honest govt employees.

Board and Schultz details: https://www.google.com/amp/s/www.forbes.com/sites/hershshefr...

That mid level DoD employee should get a bonus, a promotion, and a medal.

How about Tyler Shultz? The main whistleblower and grandson of George Shultz. He was working at Theranos and realized they were a giant fraud. He lost his job, was harassed by lawyers, he and his parents almost had to sell their house to pay legal fees, his grandfather wouldn't speak to him anymore, etc.

Basically the gov't employee, son, and likely others we don't know about lost their jobs and even blacklisted.

I say 90% of VC back companies are blowing smoke to the endpoint investor, public and consumer. 100% of those companies have miracle products that scale forever and work... In 1 specific ise case: the demo booth. They oversell. I see 2 out of 10 startups bring a viable product to the global 2000 table.

Spacex: we can go to Mars, but haven't even launched a Mars rocket. Google: AI is here, and the product? Waymo, logs millions of miles, is just sunny conditions?

The common strategy: lie(aka promise), sell the future, hopefully you get the solution and hit time to market. Holmes was following the same playbook, BUT just gave up, and that's got her investors and comsumers furious. If she apologized, AND stuck with it, investors would still back her, and the public flac would have subsided....VCs were sold on her future.

On the opposite end, aside from real mistakes is a company like Apple: they sell the future and deliver.

> Spacex: we can go to Mars, but haven't even launched a Mars rocket. Google: AI is here, and the product? Waymo, logs millions of miles, is just sunny conditions?

I don't think that is their literal message and goal. SpaceX's real mission is to innovate space travel which they've been capable of doing and have demonstrated with clear achievements.

SpaceX's revenue is in the billions and is very close to profitable. It most likely would be profitable if it wasn't constantly spending money to expand like Amazon in its early years.

I don't think those examples match very well. Theranos really didn't have anything that worked. Spacex has rockets that work and satisfied customers. They aren't going to Mars yet, but most of their current satellite launch customers probably really don't care.

And of the various self-driving car efforts, Waymo seems one of the most careful, both in their engineering and PR. I don't recall them making any claims they can't back up, but I may have missed some.

The difference is that SpaceX realizes the goal is aspirational, and isn’t signing people up for doomed rides to Mars right now.

Exactly. If SpaceX started taking deposits for a Mars ride within the next two years there would be a problem.

Holmes was not following the same playbook, there's a big difference. What you say holds true for the early investors who may have been sold the future expectations, however, long after that Holmes recruited investors by stating that they have a "working Mars rocket" that's being used right now, when in fact it was smoke&mirrors using altered Siemens machines instead of the claimed Theranos technology.

The difference between saying "we expect to have X working within a year" and "we have had X for a year" is that if X doesn't work out, the second sentence is a crime of fraud. And Holmes was on the wrong end of this difference.

They're not prosecuting for the broken hopes of 2004-2006 investors (who were sold a future that didn't materialize, oh well), they're prosecuting for misleading the investors of, say, 2014 by lying about the achievements of their first 10 years.

Agree on Tyler Schultz.

Extremely brave what he did, especially when it means combatting his own (extremely wealthy and powerful) grandfather. The court of public opinion and the history books will see him as the hero in the end, at least. And he's since started his own medtech company.

In the short-term, his life was a nightmare and Holmes and Balwani held all the cards, but in the long-term he'll probably be successful and considered honorable while Holmes and Balwani will be disgraced at best and convicted felons at worst.

Instead, he was forced into retirement or reassignment, as 4-star Dickwad Mattis was head over heels for Theranos: https://www.washingtonpost.com/news/wonk/wp/2016/12/01/trump...

(Note that doesn't mention his retirement, I can't find a link for that, I read it in Carreyrou's book)

Except, unlike Jobs, she couldn’t actually execute. The Jobs distortion field wasn’t a parlor trick, he was able to actually create the reality. Holmes was unlike Jobs in every way other than in her own mind. Look at all of the products that came from Jobs’s distortion field. Look at the wasteland of false promises resulting from Theranos. She was selling lemonade and calling it vodka.

Her original idea was for a wearable diagnostic device that transmitted information directly to doctors.

My understanding is that they could measure ~95% of what they wanted, but the remaining 5% needed for full accuracy certification was out of reach with the limited tests they were performing. And that this was the difference between their tests and more expensive tests.

Read the book. ALL of their tests were flawed.

For anyone wanting to dig deeper into this the recently released Bad Blood book is pretty awesome. The author, the WSJ jornalist above who early on raised serious doubts about Theranos, reconstructs the startup history in a thriller-ish style, but fully based on actual facts/research. Highly recommended.

The upcoming movie starring Jennifer Lawrence as Holmes should be a blockbuster.

It was all ideas and plans. They built machines that performed significantly worse than standard tests. Their idea was one machine to run virtually all blood tests with a few drops of blood, their final machine only ran a handful of tests and was so inaccurate that only reason the FDA did not shut them down instantly is they used a loophole to claim it was not a testing machine but just in house lab equipment to assist with testing or some nonsense that meant they did not need FDA to sign off on the machine. Holmes was just a smooth talker and convinced everyone, it also helped that she had major players on her board and even Bill Clinton was supporting her.

The one really weird thing i noticed about her is she never blinks. Watch her give talks and it is like a robot never blinking

I’ve heard about her not blinking. Also, she forces her voice to be at a lower octave than what her speaking voice normally is.

She had some strange mannerisms, right? And she had very wide eyes.

I have a book called "The Creator's Code" [2015] that praises Elizabeth Holmes right along side other successful SV entrepreneurs like Musk, Hoffman, Thiel and others, diving deep into their story of how they became successful.

Back in 2015, it was the same story they told investors: We can do an expensive blood test for a fraction of the cost in a fraction of the time with better accuracy.

Unfortunately, it sounds like they defrauded investors with false claims, which is why they were able to get so much funding without a real, viable product.

Those kinds of business plans were typical of that era and venture capitalists were accustomed to investing in lofty dreams. Naturally, it didn't pan out most of the time and they've gotten smarter. Theranos managed to outlive most of their peers, it seems by turning to deception instead. From my reading, it seems that the failures are old but the crimes are recent.

Abbott sells microfluidic hand-held blood test machines right now.[1] "Just two drops of blood". These have been around since 2006. So it's possible to do this.

[1] https://www.pointofcare.abbott/us/en/offerings/istat/istat-h...

I clicked that linked just to see if .abbott was a valid TLD. Apparently it is!

I'm reading the book Bad Blood at the moment. It's a cracker. Assuming it's true, the level of wilful negligence and fraud is astounding. What is unbelievable is how they got away with it for so long.

I can hardly put it down, I highly recommend it.

For anyone interested in the Theranos story, the reporter that wrote this article (John Carreyrou) is the same one whose investigation brought down Theranos. He wrote a book called "Bad Blood: Secrets and Lies in a Silicon Valley Startup" (https://www.amazon.com/Bad-Blood-Secrets-Silicon-Startup/dp/...). He was also recently on the podcast This Week in Startups to discuss Theranos: http://thisweekinstartups.com/john-carreyrou-bad-blood/ or https://www.youtube.com/watch?v=dWQYKVasMoY ).

Basically, Elizabeth Holmes wanted to be a billionaire and restore her family's fortune. She started a medical tech company but didn't include any scientists or doctors on her board. Demos and employment were tightly controlled by NDA, and structured so as few people as possible knew about the scam. Somewhere between 1-8M (10-100%) of blood tests Theranos performed on hacked machines from other companies are suspect or outright wrong. Her company rode the "unicorn" wave at just the right time to get lots of funding and publicity, even though it has been operating since 2006.

While Theranos was flying high, much was made of the company's connections to DC power elite - Kissenger on the board, etc.[1]. And the implication usually seemed to be that the deep bench of Serious And Important And Powerful People allowed the company to get away with things that otherwise would not have been possible.

I think it's worth pausing to consider: when's the last time you heard of a startup CEO/CTO team getting indicted for wire fraud? I'm not saying it doesn't happen, and I have no position on whether Holmes and Balwani are guilty of these or other charges.

But I do have to wonder whether the degree of attention from the DOJ has more to do with avenging the reputational and possibly financial losses of those same board members, than garden-variety "the DOJ prosecutes fraud".

In which case, there'd be a civics lesson as well. Live by .gov, die by .gov.

(Edit to clarify, lest I be accused of insufficient virtue signaling: fraud is bad, don't do it, if they committed fraud they should be punished, etc etc.)

[1] e.g.https://www.bizjournals.com/sanjose/news/2018/03/14/theranos...

> I do have to wonder whether the degree of attention from the DOJ has more to do with avenging the reputational and possibly financial losses of those same board members

The response to evidence against a conspiracy theory is not to flip the conspiracy theory.

If you defraud investors out of billions of dollars and lie to Medicare and Streisand effect the Wall Street Journal when it investigates you, you're going to get busted.

The banking crisis says otherwise.

> when's the last time you heard of a startup CEO/CTO team getting indicted for wire fraud?

One pled guilty a few months ago: https://news.ycombinator.com/item?id=16313612

I recall Carreyrou (the journalist who wrote this article and exposed them originally) saying a few weeks ago that he thought it was a bad idea for them to keep operating the company, that it was probably antagonizing the DOJ. This is just a hunch, but it may be that they (the DOJ) were convinced that if not indicted, they would try to do it all again (find a new bunch of investors to fleece). If so, I think they might have been correct.

> But I do have to wonder whether the degree of attention from the DOJ has more to do with avenging the reputational and possibly financial losses of those same board members, than garden-variety "the DOJ prosecutes fraud".

Or these two are convenient patsies..

Did they really lose money?

Theranos had huge contracts for blood testing at major national pharmacy chains for a year or two, and if you follow the timeline, there's a ton of related activity requiring well connected people which seems to indicate rushing things out the door to make sure they could get these contracts..

Read the book. The timeline is easily explainable without needing conspiracy theories.

What 'book'?

AFAIK not nearly all the information has been discovered or presented, and much of this never will.

How about the 'convenient' intervention of mattis into military trials of the technology? Just because it sounds like tinfoil hat doesn't mean it's not true (see also: snowden)

https://www.amazon.com/Bad-Blood-Secrets-Silicon-Startup/dp/...

One chapter talks about Mattis, including various emails that were sent. He comes across as genuinely wanting to do the best thing for his men and hoping that Theranos could save lives in the field. There never were any field tests, because Mattis listened to his underlings when they said it would need to get FDA approval first. They then offered to let Theranos test random blood samples to validate the results but Theranos never took them up on that offer.

I wonder how Tim Draper will argue this is a conspiracy to take down "another great icon"[0]

[0] http://fortune.com/2018/05/11/tim-draper-theranos-elizabeth-...

He's probably too busy now trying to split up California into pieces.

http://www.latimes.com/politics/la-pol-ca-california-split-t...

That guy is nuts. It scares me that with his money he has a lot of influence.

I realize the ongoing support of this founder looks pretty bad. But in all my interactions and work with Tim Draper, I've found him to be an ethical and good person. He is nuts in an amazing way, and of all the investors I have met in the valley, I can't think of any other one I'd entrust with his influence.

He is good at tech and investing, no doubt. His political ideas are interesting but his money gives him way too much influence in other areas that aren't his main expertise.

And supporting Holmes for that long and even now looks really bad and is very difficult to justify.

That may be true, but if Holmes wasn’t stopped, thousands could have died...people trusted her to get accurate blood test results. What if some major medical ailment went undiscovered due to the poor accuracy of her machines?

Holmes is a ruthless, despicable humnan being. Cheating people out of money is one thing. Cheating people of their health, denying when caught for years and years is on a complete another level. And what she did to the poor whistleblower? Almost ruined his life and went a few rings below murder to her chief scientist. Not to mention the mafia style shakedown of John C, the reporter who broke the story.

If someone knows all that about a person, and still glowingly praises them, in my opinion they are NOT ethical and not a good person.

This is a general issue.

See also: Thiel, the Mercer's, the Koch's, Sheldon Adelson, the Illinois Democratic political machine, the Harry Reid Nevada political machine, etc.

Are there still functional political machines in the US? The Chicago machine survived the 40's but was killed by the Shakman Decrees 20 years ago.

(There's still a formidable political party to be sure and a bit of graft wouldn't surprise me, but it seems almost sarcastic to compare that to eg the New Deal political machine, or the Chicago machine of ol'.)

> Are there still functional political machines in the US?

Rahm Emanuel, Michael Madigan, and Lisa Madigan come to mind.

Those are all Chicago politicians, yes.

While people sometimes use "political machine" to mean "a functioning, robust party" nowadays, a "political machine" refers to a specific system of patronage, where campaigning for a politician or political party is rewarded with government jobs, and anyone supporting the opposing party was rewarded with unemployment.

At the height of the Chicago political machine (and New York, and ...) tens of thousands of city jobs were used to reward campaign workers, not just big donors and campaign managers but the people who knocked on doors or district leaders who ensured good turnout in their districts. At the height of the New Deal political machine, the WPA was used to do the same.

Rahm Emanuel, meanwhile, has "good relations" with Chicago businessmen and receives giant campaign donations; Michael Madigan tried to get jobs for a half dozen people and was shutdown hard.

DOJ indictment: https://www.justice.gov/usao-ndca/pr/theranos-founder-and-fo...

"The defendants are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. According to the indictment returned yesterday and unsealed today, the charges stem from allegations Holmes and Balwani engaged in a multi-million dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients. Both schemes involved efforts to promote Palo Alto, Calif.-based Theranos."

Theranos / Holmes, also demonstrated how superficial, almost down to malpractice current so called journalism is.

Complete lack of analysis, expertise in the fields they are covering, and clear initial non-biased position.

Instead, we get this flood propaganda + sensationalism garbage from these so called 'reputable' news sources.

And, as a consequence, con-artists, career politicians, and 'celebrities' -- leverage this legalized malpractice for their purposes.

While we, the consumers of 'news' -- are being exploited and treated like as dehumanizing 'advertisement revenue points/votes. We are essentially being suffocated by this 'carbon dioxide of information'.

So in my view, it is not just the case of E. Holmes misleading investors, board members and consumers -- it is also the case of journalism malpractice.

> Theranos / Holmes, also demonstrated how superficial, almost down to malpractice current so called journalism is

Theranos was exposed by a Wall Street Journal reporter investigating and exposing the fraud. He was threatened multiple times and never budged. This is a story of journalistic excellence.

Most of all, this is an inditement of several SV VCs. They should know nearly as much as anyone.

They were exposed after they raised almost a billion dollars from sales and investments, often on the basis of glowing media. The book is filled with anecdotes abt how the positive media was leveraged by Holmes and often cited by internal champions at Safeway and Walgreens to counter the skeptical voices in the room (“come on, they’re in Forbes, they can’t be a scam!”)

I think that reporter did good work, but isn't this like pointing to a hackathon bug fix that saves a company as engineering excellence?

The parent is seemingly saying that quality journalism would have better scrutiny to not allow the situation to get this far in the first place.

I totally agree. The information environment we live in is extremely damaging.

Back in 2006-7 I attended a conference where there was a big panel on what the future of news was going to look like. Lots of newspapers were shutting down. They made 3 predictions - news would be replaced with pandering to the lowest common denominator in the arms race for eyeballs, ads and marketing content looking like news(fake news) would exponentially increase, real journalists would be replaced by the talking head/oped class.

They concluded that the only way out, was to hope that revenue generated from the transition from print to digital/mobile would prevent these three things happening.

Its been a decade now and that transition is more or less complete and many have figured out how to stay afloat and yet all three predictions seem to have come true.

Reading the theranos story, what’s going on in the political spectrum today, watching the steps people seem to have taken to get where they are to influence the society and then seemingly failing at it, I am always reminded of the documentary “Enron, the smartest guys in the room”. It’s such a simple idea that likely one thing led to another and they have climbed a ladder to defraud investors and tried to cause public harm. Those first steps were maybe of good intentions or maybe of bad ones. But somewhere along the way, they clearly created a bubble of their own where they assured themselves that it’s ok what they are doing. Never lose the outside reference point. Never.

"The defendants are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud."

WHY DO THIS. Each count of wire fraud is 20 years in prison [1]. If 9 counts are proven you are looking at a 180 years in prison. (life sentence). You are better off doing 2nd degree murder 3 times - at least it is a challenge to prove. Proving wire fraud sounds pretty simple - they just read a bunch of emails and text messages in court. Everyone will turn nasty on each other due to the harsh penalties. Wire fraud = bad times. Just be honest with your investors.

[1] https://www.criminaldefenselawyer.com/resources/wire-fraud.h...

> WHY DO THIS

They don't think they will get caught. For a live example, see HN's cryptocurrency threads. A common theme is talk about faking KYC or laundering money or how their scam is too small to garner federal attention.

Where?

I think that people can succumb to their egoes, similar to why some celebrities commit sexual crimes or are know for doing unthinkably rude actions. Something changes in people who acquire enough power and have the right combination of exceptional drive and sociopathy - which I think can incubate in an environment where they're in control over everyone and never told "no". It's the same mechanism in narcissistic people who hurt others and deny it and even turn it around and play the victim. Somehow they believe in a different version of reality. In Holmes' case I doubt she ever believed she was perpetrating a crime.

This is inaccurate in two ways.

First, 20 years is the maximum guideline sentence available for wire fraud. The Federal Sentencing Guidelines has a points-like system (with points added for various attributes of the crime, like whether the accused took steps to conceal their crime, or crossed some dollar threshold) that heavily counts the prior criminal history of the accused. This is an egregious wire fraud case, but it's still a little unlikely that any one count will see the maximum sentence applied.

More importantly, the norm in federal sentencing is for similar charges to group, and for the longest of those counts to set the sentence. It is not the norm to serve (here) each of the "nine counts" consecutively.

Google [whale sushi sentence] for more details.

+1 Thanks man. Amazing article.

https://www.popehat.com/2013/02/05/crime-whale-sushi-sentenc...

Yahoo agrees, Elisabeth faces 20 years in jail https://finance.yahoo.com/news/theranos-founder-elizabeth-ho...

There’s a lot of research money in microfluidics. It has huge potential to revolutionise an awful lot of the tedious time consuming laboratory work in health care.

Instead of painstakingly pipetting samples into well plates all day, trains of thousands of droplets can be fed into the microfluidic conveyor belt and processed accurately and automatically.

It can work very well. I once worked in a startup that was able to achieve exactly this however it was enormously challenging. The core technology was developed in a university and eventually spun out. Then it grew into something much larger as fully functional systems were developed for customers. The cost was enormous and the reliability not particularly fantastic but the customer was thrilled with the potential. Eventually we were bought out and while I took another path colleagues formed another hugely successful startup.

There are many many similar stories just like this in this space.

Holmes it seems was a highly effective pretender wanting to leapfrog the research she would have glimpsed while at Stanford by promising something that could do it all. So the money rolled in and she no doubt hired good technical people but instead of building something, anything worthwhile she doubled down on the lie.

It's people like Tim Draper that encouraged the fraud. From a totally logical point of view:

1. How do you invest millions in technology you cannot even look at even in year 10?

2. How do you defend a CEO in public by attacking credible journalists and not even once question the actual concerns in the company?

3. A medical company run by a first year drop-out and one without a single licensed doctor on the board?

C'mon. Even Steve Jobs did not get that leeway.

For your Friday drive home here is the recent Jason Calacanis interview of the WSJ reporter who broke the story. Great listen. https://itunes.apple.com/us/podcast/this-week-in-startups-au...

Same episode, but it doesn't require itunes:

https://www.stitcher.com/podcast/this-week-in-startups-audio...

Holmes is a master obfuscator:

https://www.youtube.com/watch?v=eqYHwI87cDQ

The indictment shows "No bail, arrest warrants issued" [0]. She'll be sitting in a prison cell by tomorrow morning.

Wow.

[0] https://www.justice.gov/file/1072521/download

It does not show that.

Being familiar with the process, it looks like they're out on supervised release. Non-custody. No point in putting a warrant out for someone when they're at the courthouse to be arraigned.

I must be confused then. Why does the defendant section say “Warrant, no bail”?.

Probably chalk it up to a very confusing and esoteric form. No bail could just mean they don't have to post bail to get out.

"Warrant" could just mean they came in on a warrant vs. a summons.

More important is the top of the form: "Defendant is NOT in custody".

Biannual reshare of a pilot I wrote for a TV parody of Theranos: http://www.blakeross.com/pricks.pdf

Are you bummed that they didn't go with your screenplay for the big screen adaptation starring Jennifer Lawrence [1]? :)

[1] https://www.imdb.com/title/tt5795144/

No, but I'm bummed they didn't steal the name "Pricks"!

I was thinking Unicorn Blood

Martin Shkreli is in prison now - he deserves it, though he was guilty of _far_ less then Elizabeth Holmes.

Holmes should already be in prison for massive fraud. The fact she is a female and mimicked Jobs seems to have saved her so far though.

That’s an interesting read on what Shkreli did vs Holmes.

At least Holmes “victims” AFAIK were mostly rich folks losing other people’s money they’re gambling with and should have known better.

Shkreli fleeced normal folks just looking to get their day meds.

Holmes fleeced normal folks too by knowingly giving them inaccurate test results, which in some cases could lead to death.

Shkreli's crimes had nothing to do with the drug prices. Unless you think the jury/judge was biased due to it.

> At least Holmes “victims” AFAIK were mostly rich folks

why would that make it any better?

I think the argument is that stealing $1 million from a billionaire could be considered ethically less bad than stealing $10,000 from someone who is $50,000 in debt due to medical bills. The second theft will have much more impact on the victim than the first.

> The second theft will have much more impact on the victim than the first.

That hardly makes it OK though, Are you saying that the first case doesn't deserve the same punishment as the second?

I can’t speak for anyone else but Shkreli was convicted for Securities fraud, Holmes charged wire fraud. The court cases are pretty much moot. They will likely have similar outcomes.

Morally and Ethically however I’d consider Shkreli guilty of far more.

But it's still irrelevant because his crimes were also against rich investors, and not at all related to raising the price of medication (which is 100% legal).

Do some research into the actual facts around Shkreli and you'll find that he didn't fleece 'normal folks'. His profits came directly from large insurance firms.

> "The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false. For example, allegedly, Holmes and Balwani knew that the analyzer, in truth, had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines."

http://www.paulgraham.com/founders.html

4. Naughtiness

Though the most successful founders are usually good people, they tend to have a piratical gleam in their eye. They're not Goody Two-Shoes type good. Morally, they care about getting the big questions right, but not about observing proprieties. That's why I'd use the word naughty rather than evil. They delight in breaking rules, but not rules that matter. This quality may be redundant though; it may be implied by imagination.

Sam Altman of Loopt is one of the most successful alumni, so we asked him what question we could put on the Y Combinator application that would help us discover more people like him. He said to ask about a time when they'd hacked something to their advantage—hacked in the sense of beating the system, not breaking into computers. It has become one of the questions we pay most attention to when judging applications.

> hacked in the sense of beating the system, not breaking into computers.

PG is absolutely correct in my experience. The best founders are Chaotic Good on the alignment chart.

> Morally, they care about getting the big questions right, but not about observing proprieties.

Holmes does not match that description at all.

Lying to investors, lying to the FDA, secretly using your competitors' tech to mask the fact that your core product does not work.

She did not care about getting the big questions right.

>Theranos’s investors, most of whom poured money into the company after its commercial rollout in Walgreens stores in late 2013, have collectively lost nearly $1 billion. They include the Waltons, heirs to Walmart Inc. founder Sam Walton, media mogul Rupert Murdoch, Atlanta’s Cox family and the family of Betsy DeVos, the Secretary of Education. Each invested more than $100 million in Theranos—investments that are now worthless.

edit: sometimes you are brought to justice b/c you conned the wrong people...

You're saying there is no hope for my Kickstarter campaign investment

It's great news for justice. These guys should do time. I read back in March (I can't find the link but I think it was the Economist) that the case had been dismissed.

Serious question were they both in sexual relationship... Because I feel the old Indian guy took over her... And influenced her to continue lies

yes they were.. found it

https://www.wsj.com/articles/theranos-inc-s-partners-in-bloo...

if WSJ is behind a paywall:

https://outline.com/dUwMC4

Non-Paywall Link: https://archive.fo/Sd8AC

Anyone can weigh in how much can they possibly get?

Behind a paywall. Would anyone kindly help me with a link that's free?

Paywall bypass:

https://outline.com/dUwMC4

It's about time, what these two did is disgusting and shameful.

Here's Tim Draper's interview on CNBC telling people in 2018 that Elizabeth Holmes is an icon and hero. He was an early investor in Theranos and likely responsible for bringing in a lot of the major investors. As far as I'm concerned he should also be investigated for his part in this massive fraud.

https://www.cnbc.com/video/2018/05/10/vc-draper-theranos-fou...

"Wire fraud" - it's amazing the litany of things one can do, and ultimately get caught up in this specific basket. Al Capone went down for tax evasion ...

Was thinking the same thing

Someone asked how she hadn't been indicted a few weeks ago, and I said that the investigation was ongoing but she would surely been indicted. Everyone following this case closely saw this coming.

Wait, what?! Ramesh Balwani was Ms. Holmes's boyfriend? I don't recall seeing that covered anywhere else before.

It was in Carreyou's book

It's been reported, although I don't think it was reported as a headline story or anything.

urghh

Really? Wow, that's a weird couple...

Sort of reminds one of James Wolfe and Ali Watkins...

I don’t want to excuse Holmes of her many crimes nor rob her of agency, but the circumstances in which they met do not reflect well on Balwani’s character.

Widely reported.

Has ANYONE been able to successfully dig up anything online related to Ramesh Balwani? Trying to read more on him...

https://www.wsj.com/articles/theranos-executive-sunny-balwan...

Oh good. Glad the investigation finally got some charges.

So I mean like, fraud is definitely not a good thing, but COUNTLESS government contractors committed outright fraud and embezzlement during the Iraq War, and none of them were ever held accountable.

One of them even made 8 billion USD completely disappear from the "Iraq Reconstruction Fund".

How is this whataboutism relevant?

Because many people smoke weed, but only some are jailed for it.

THAT'S why whataboutism is important. Enforcement bias.

Because not everyone who smokes is caught, and some plead guilty to get an easy sentence, laws differ based on location, and case circumstance is not always the same? This is how the system works.

"The system" is logical and ethical, in your opinion? I'm trying to call into question here if "a crime" on paper is a crime worth enforcing.

When the black man in New Orleans is thrown in jail for smoking weed, but the black/white/asian male in Iowa goes unprosecuted, how much of a crime is the crime really?

You either need 100% prosecution or 0%. Murder is murder, fraud is fraud, isn't it?

Holmes is a charismatic delusional sociopath. Potent mix.

Between this and Manafort being sent to jail, what a wonderful day for the DOJ. God I love this country so much.

The American Criminal Justice system rightly faces many criticisms, especially serious charges for being used against minorities. But yes, knowing that even the most powerful person in the country is not above the law and can and is prosecuted seriously, and that scammers like Holmes and Balwani are made to pay for their crimes.... this kind of thing is certainly what makes the US unique among nations.

Let's not get carried away. Canada and many if not all of the nations of the EU have a similar capability.

The US justice system sucks, let's not endow it with special "uniqueness". However, I am happy that corporate criminals are facing some penalties for their activities that could harm the public.

EDIT: Also, just because after waiting years and years, we see one or two criminal executives go through the Justice system we shouldn't get too excited. Companies lie and cheat the public all day, that's how they get so rich. The system has to produce one or two examples of something approximating justice every now and again basically to forestall revolution. The poor go to jail, the rich play games. A handful of prosecutions at the top doesn't change that dynamic.

> the US justice system sucks, let's not endow it with special "uniqueness"

The rule of law, where elites fear the law and not a ruler, is in the minority today and across human history. I certainly think it’s something to celebrate.

> this kind of thing is certainly what makes the US unique among nations.

Here are a few other countries where powerful people have been arrested in recent history:

- Saudi Arabia (https://www.cnn.com/2017/11/05/middleeast/saudi-arabia-anti-...)

- Philippines (http://www.abc.net.au/news/2014-06-20/philippines-corruption...)

- Argentina (https://www.nytimes.com/2018/01/08/world/americas/argentina-...)

- China (http://www.scmp.com/week-asia/opinion/article/2144627/secret...)

- Brazil (https://www.nytimes.com/2017/07/12/world/americas/brazil-lul...)

- Italy (https://www.nytimes.com/2017/07/12/world/americas/brazil-lul...)

- Australia (https://en.wikipedia.org/wiki/List_of_Australian_politicians...)

- Japan (https://www.japantimes.co.jp/news/2016/05/21/national/media-...)

it is also what makes this country great. not that someone like Trump understand that. For a society to function harmoniously, it must believe that their society is just, and that those who commit crimes will face justice, whether its pusher on the street, or the President of the United States, and that, not only will justice be served, but clemency granted in equitable fashion when so deserved.

For those interested, here is an interesting essay that touches on some of those issues https://www.lawfareblog.com/donald-trumps-pardon-power-and-s...

> that those who commit crimes will face justice, whether its pusher on the street, or the President of the United States

You mean, the kind of justice that Richard Nixon faced?

I feel that any criminal president that falls short of being a baby-eating monster will get a pardon, instead of a jumpsuit.

The moderation on HN is so capricious that I think I'll no longer participate. My stupidest and even insulting comments get upvoted and my thoughtful ones downvoted. Whatever. Good bye.

I’ve heard our justice system best described as a slow moving giant boulder that rightfully positioned will crush those who hurt society.

The problems manifest when the innocent get trapped in its path.

Good to see today that a few folks who deserved justice got some. It feels like it has been a long time since rich and powerful people were in its sights.

Hopefully, Musk is next on their list.

Why?

If you like corruption sure:

FBI Employee: “How did the (witness) go?”

Agent 1: “Awesome. Lied his ass off… Ridic(ulous).”

FBI Employee: “Would be funny if he was the only guy charged in this deal.”

Agent 1: “I know…. Even if he said the truth and didn’t have a clearance when handling the secure fax – ain’t no one gonna do (bleep).”

Truly a beacon of truth for all American's to follow

http://www.bostonherald.com/news/columnists/howie_carr/2018/...

What about all the MIC heavies on the board.

People were defending Theranos on HN... surely must have been an investor or an insider. Surely no one else would be so daft.

I have been in this exact place before. For the two of them, this day will be just about the worst of their lives.

This is ordinarily when hard-core criminals are taken into custody. If their experience was like mine, they had to show up in front of a magistrate with their lawyers, plead not guilty, then go to a dungeon for about 30 minutes while they get handcuffed, fingerprinted, mugshotted, and DNA-swabbed. Then, off they go until trial. It's basically like being free, but you have to stay out of trouble and report all contacts with law enforcement.

Being rich (or from money), they won't have to worry about federal defenders or CJA representation, which wouldn't be near as bad as dealing with a state-funded public defender. There's a small chance they'll have to go this route anyway, since the government can snatch the money in dispute and block you from spending your ill-gotten gains on high-priced legal representation.

Don't let the "sticker price" fool you. They're not going to have to serve consecutive 20-year terms for what they're accused of, even if they take it to trial and get found guilty.

They will probably get their first plea offers in about a year. Most people take the plea. In the event they refuse to plead guilty, trial will probably take about 2-3 years from today.

Holmes will be offered, I'm guessing, about 6-9 months and a joint-and-several "money judgment" (restitution + forfeiture). Balwani, about 5 years and a joint-and-several "money judgment". This may be a package deal too, so Holmes may not be able to take it if Balwani won't. Why the discrepancy? The 28th amendment hasn't been ratified yet.

Before my experience with this world, I would have been eager to join in the collective bloodlust, with the pitchfork-and-torch crowd clamoring for these overprivileged defendants to sit through a trial and rot in prison. Take it from me: I wouldn't put my worst enemy through even just the trial.

Given the forfeiture terms at the end of the indictment, it looks like they'll both be zeroed out if found guilty (which seems like a near certainty), regardless of how long they're kept in custody.

Re: "putting my worst enemy through", I don't know, this doesn't sound as bad as growing up in a war zone or even the ghetto, or getting waterboarded. Sounds like bureaucratic hell, but that's not even close to how bad things can get.

Well, hopefully you wouldn't want to put your worst enemy through those things, either.

Doesn't have to be the worst thing in the world for you to not wish it on someone.

I believe in proportionate and fair punishment for crimes committed by anyone, let alone my worst enemy. Bureaucratic hell seems more than reasonable for the crimes committed by Theranos leadership. And I'm sure the trial won't be as bad as prison.

The craziest part of the justice system is how dependent on money it is.

I am in a weekly support group for people with the same offense category as me, sometimes crimes not as bad as mine. Most of the members in this group are working class - hourly jobs, no savings, no emergency funds, government lawyers. They mostly had to serve time, had to register as offenders, have strict stipulations.

Meanwhile I was able to borrow money from my parents, got a good lawyer, and all I have to do is check in with probation once a month for a few years.

What was the crime? I understand if you don't want to reveal that on here.

This applies to everything in life ever. People with resources have better outcomes. I don't know how you solve for that no matter what systems you put into place.

Can you expand on your experience with indictments like this?

It rings true to me that, in general, the average person would have much more compassion for 'bad' people in 'bad' situations if they could live a day in their shoes.

[site redacted]

Eerily similar experience, down to the charges and the 11 counts.

I don't disagree, but the average person on a jury just does what the lady in the skirtsuit tells them to do so they can get out of there. Most people you want on a jury throw away their summons with zero risk to the practice.

The dollar figures involved are three to four orders of magnitude greater in their case.

I looked into your case a bit and I agree your sentence is unduly harsh. You fraudently redeemed rewards for a bunch of fake people and make $100k, I don’t feel like this warranted everything that happened to you and your family. Sucks to be made an example of :/

I know you're trying to be nice, but I think you missed something.

"Mr. Dufresne, you killed your wife and her lover, I don't feel like you should have gone to Shawshank."

I would have more compassion for bad people if they didn't do bad things.

Not GP but it looks like this might be his case: https://www.justice.gov/usao-nm/pr/albuquerque-couple-senten...

NB: Mods, not sure if this is allowed, feel free to remove if not. Information was gathered using information freely offered by HN profile and LinkedIn.

If only there were a way to avoid such an uncomfortable experience.

This is ordinarily when hard-core criminals are taken into custody.

It's basically like being free, but you have to stay out of trouble and report all contacts with law enforcement.

There's a small chance they'll have to go this route anyway, since the government can snatch the money

They're not going to have to serve consecutive 20-year terms for what they're accused of

Holmes will be offered, I'm guessing, about 6-9 months and a joint-and-several "money judgment" (restitution + forfeiture). Balwani, about 5 years and a joint-and-several "money judgment".

Take it from me: I wouldn't put my worst enemy through even just the trial.

Quite an interesting contrast between what privileged rich people have to worry about vs poor. Nearly every one of those points are solely because you have money, not merit-based. I guess this is when the world proves what really matters.

> Quite an interesting contrast between what privileged rich people have to worry about vs poor

This is speculation. Let’s wait to see what is handed down. It was common thought on these forums just weeks ago that money and connections would buy Holmes out of an indictment.

It wasn’t entirely speculation, since he had firsthand experience.

The most recent true crime documentary series on Netflix, 'The Staircase,' talks about this. The defendant, a wealthy individual, ends up paying around $750,000 out of pocket for his defense. He asks the question what this would have looked like if he was poor.

I also bet that they didn't sent the SWAT team to arrest him with a no-knock warrant.

you do the crime, you pay the time.

look, this society will fall apart if its only the poor who will pay the price for flouting the law.

Often times the paying the time part causes far more destruction than intended. The cost to jail someone is huge and the criminal record that people get often forces them into a cycle of crime because they cant even get a legitimate job.

"Will"? "If"?

If Homes and Balwani had confined their predations to the general public, they'd still be free and wealthy. It's only because they also swindled some plutocrats that they're going to have to return most of their plunder.

I feel like you are playing the victim in this situation. Tone is hard to read through text so please forgive me if I misread your factual statements based on your own experience.

Both of these people fully deserve what’s coming to them. They lied to investors, they lied again to investors to keep the company afoalt, and above all they seriously jepordized medical results. It’s one thing to challenge status quo or even current regulations, a la Uber.

To mess with people’s health or their perception of it is completely wrong. We should not minimize the situation. Again, I cannot tell your tone. I’ve been following this for a while and it was obvious what would happen from the moment the whistle was blown.

I am a victim, offering highly pertinent experiences to inform the opinions of the HN crowd. It doesn't matter if my tone offends your sensibilities.

I feel like you're playing judge, jury, and executioner. Leave the pitchforks and torches for the judicial system in this country.

What if they get found not guilty, or more likely (but still unlikely) the feds quietly drop the case?

You were convicted both of a scheme where you bypassed OfficeMax's limits on the number of printer cartridges any one person could redeem, and for a separate scheme where you claimed the purchases of strangers as your own to cash in on their rebates. A lot of people here might disagree with how much prosecutorial attention was heaped on you, but "victim" is laying it on a bit thick.

The new infographic is a nice touch.

Fuck their investors (which would have been saved the pain by giving some money to a real scientist during their due diligence), their customers were actually patients, just imagine the life altering decisions you can make or not based on wrong tests...

> Why the discrepancy? The 28th amendment hasn't been ratified yet.

What do you mean with that?

As far as I can tell, a 28th amendment hasn't even been proposed, although there is an urban legend about it that circulates in chain mails.

However...even that fantasy amendment is about equal treatment of citizens and members of congress...not sure how that would apply. The closest I can see is that Holmes's mother was a congressional staffer, but that's (a) not her, but her mother and (b) not an actual member of congress and (c) the laws aren't actually different here(?)

Puzzled.

Equal Rights Amendment. It's alive and well. Illinois just ratified it, and we need one more state to reach the magic number.

As soon as the right wing of America realizes that men are sometimes discriminated against, we won't be waiting long until one more state legislature puts it over.

From context, I think parent was probably referred to the Equal Rights Amendment: https://en.wikipedia.org/wiki/Equal_Rights_Amendment

But yes, referring to a proposed amendment as "the 28th amendment" is very confusing, since there will always be multiple proposed amendments at any given point in time.

What? Not a ounce of sympathy. What about the people they defraud and harassed on a daily basis to keep up the fraud?

Thanks for sharing your experience. Criminal justice is hard stuff.

> Why the discrepancy? The 28th amendment hasn't been ratified yet.

I predict Holmes gets at least as much time as Balwani, if not more. Why? Many of the most compelling causal explanations for the (very real and concerning) gender sentencing gap aren't applicable to this case.

(On a related note, I had an exchange about gender gaps in sentencing with another HN user 3 months ago who was complaining how unfair it was that Holmes "is spending exactly zero days in prison" and got off with "a slap in the wrist" compared to Shkreli [1].)

[1] https://news.ycombinator.com/item?id=16588351

I have a lot of sympathy for you, because I know that decent people are railroaded by federal prosecutors every day. That's not what's going on here. Prosecutors are attacking wealthy interests, not just defending them. (Since this is primarily a dispute among investors, wealthy interests are in opposition. Prosecutors have to choose a side, and they always choose the one farther up the pyramid.)

It's actually pretty unlikely that Holmes and Balwani will lose all of their fancy properties, because that sort of scene also upsets the plutocrats. They'll just have to give back most of the millions they've squirreled away.

Sympathy is better than the other thing.

The fact is that we don't know what actually happened, only what the government and media want us to know, even if it isn't so. They look guilty as hell, but so do innocent people.

Trial by jury is better than trial by media, so I'll take the high road and reserve my judgment until then.

At least in this case the media has changed its mind, which seems rare? I remember when Therano-doubters were written off as sexists rather than skeptics. If they had a working product and a mere investor disagreement, I'd be as suspicious of the Feds as I usually am. In this case there is no sign of a functioning anything, and apparently they've broken rules about medical safety.

Anyway, trial by jury is not great. If one can avoid it by appealing to the media, one definitely should do that.

Interesting timing as Preet just had part 3 of his Criminal Justice mini-series as part of his amazing Stay Tuned podcast [1]. This episode focuses on the experience of a defendant Preet's office convicted of insider trading in the Galleon Group case. He speaks to the entire process, how he felt throughout it, etc.

Highly recommended to everyone.

[1] https://player.fm/series/series-2249929/criminal-justice-par...

Anybody have a link that talk about Holmes, personality, career, why she is special, etc. I have heard she is referred to as the next Steve Jobs...

Actually this has enough info for most people: https://en.wikipedia.org/wiki/Elizabeth_Holmes

Steve Jobs definitely wasn't engaged in criminal fraud, so the prosecutor will definitely be trying to demonstrate she wasn't "the next Steve Jobs". Given what we know we should hear that prosecutors' argument.

Why the down vote, she is referred to as the next Steve Jobs: https://mashable.com/2018/03/14/elizabeth-holmes-theranos-se...

Because being popular doesn't make you above the law. The comment is at best irrelevant, at worse morally noxious.

But I asked why is she considered that way. I’m not saying she is special but why do people say she is the next Jobs.

but why do people say she is the next Jobs

Because she put considerable effort into fostering that impression, even dressing like Jobs in the same trademark black turtleneck sweaters he always wore. All part of the con.

So much for the conspiracy theory people were floating here about her being protected by her influential family and powerful connections.

We will have to wait and see what deal they make if pleading guilty.

And what cushy behind-the-scenes appointments they get after 'doing time' by playing golf at a minimum security resort for 6 months.

That was a thing? I would think that making an enemy of a bunch of billionaires and political figures would have excerbated her downfall.

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