From former AUSA, and current white-collar defense attorney Ken White:
"She faces a max of 65 years (3x20 + 1x5). And it's not at all clear she'll do less than 20."
Apparently the sentences will not necessarily be served concurrently.
"She faces a max of 65 years (3x20 + 1x5). And it's not at all clear she'll do less than 20."
Apparently the sentences will not necessarily be served concurrently.
> It is unusual for tech executives to face criminal changes when their startups collapse under the weight of unrealized promises.
That's because it's not illegal to over promise about your future results. It is illegal to lie about simple facts regarding the present state of your business to attract funding.
I'm so sick of so many press outlets framing this as just "fake it til you make it" gone wrong, "a page from the Silicon Valley playbook", or that it's just an over hyped company take to extremes.
No, Theranos was outright, egregious fraud, and most startups that "collapse under the weight of unrealized promises" are not committing fraud.
Most startups don't get the traction and publicity that Theranos got, however. I wouldn't be surprised if a lot of founders would go to similar lengths given the chance; they just happen to have someone apply some reality check on them before things get out of hand.
I saw tons of teardowns of their machine saying how over-engineered it was for something that squeezes a bag of precut fruits and veggies.
That's the definition of over-engineering: https://en.m.wikipedia.org/wiki/Overengineering
Theranos was unique in both the scale of the fraud and how non-investors were potentially harmed. Most of these are just founders who knowingly or unknowingly get in over their head and then basically walk away after having lied about the state of things.
I’ve heard a bunch of stories from VC friends, but the one I was the most involved with directly was probably 10 years ago. My mom mentioned to me that she had been chatting with some senior local government official who mentioned they had a startup datacenter provider taking over a nearby abandoned office complex and converting it to a green datacenter, bringing hundreds of jobs to the area - had I heard of them?
I had not, and after some digging determined that the company had claimed to have a bunch of unique technology, and leveraged that to get preferential terms from the local government - free rent, no property or payroll taxes, and other cash- and non-cash concessions. They had also raised millions from private investors by saying they had active datacenters with customers and they needed money to expand.
Except none of it was true. They had no customers, no datacenters, no employees other than the three founders and one of their daughters. They had made commitments in three different locations over the past three years to build a datacenter while simultaneously raising money by saying they ALREADY had active datacenters and customers.
I shared this with my mom, who shared it with local government, who hand waved it away as nonsense. But nothing ever happened at any of these sites, and after they ran through the money they filed for bankruptcy with revenue of $0 and assets of ~$12k. Their biggest investor took control of their land lease from the local government. Some investors complained online about being lied to, and the local government quietly swept it under the rug. I spoke with a local business reporter who basically shrugged and said, “yup, you’re right, but no one wants to talk about it”.
That would be refreshing! I might pitch to them.
She was going to great lenghts, saying her machine was already ready to production, and able to do acurate blood tests, when she knew it was impossible, and was using regular blood tests to fake results.
https://www.popehat.com/2013/02/05/crime-whale-sushi-sentenc...
For another, because the guidelines are pretty specific in this case --- that 2B1.1 crimes are charged according to --- well, here's the wording from the guidelines: "the applicable base offense level is determined by the count of conviction that provides the highest statutory maximum term of imprisonment.". So "3x20" seems off the table.
"They run concurrently except to the extent necessary to serve the full sentence the judge selects."
When he said it's not clear she'll do less than 20, I don't think he meant she might get more than 20, just that she might get 20.
On the flip side, given the huge sums involved, it's not easy to make the numbers make sense served consecutively.
Here's an article about grouping:
https://www.josephabramslaw.com/understanding-grouping-rules...
7 (Base offense)
+24 ($140MM in damages)
+2 (10+ victims)
+2 (Sophisticated means)
+4 (Leading role)
+2 (Abuse of public trust)
+2 (Obstructed investigations)
Consecutive vs. concurrent isn't the issue here; doing a $140MM wire fraud puts you on the hook for an insane sentence.
So this is a case where the whale sushi sentence is... theoretically possible?! Wow.
https://mitchellepner.substack.com/p/elizabeth-holmes-found-...
I think in theory escape risk is a part of it, too, and people with extremely long sentences are presumed to have rather more motivation to escape.
Elizabeth seems the sort of person most capable of executing a plan whereby she pulls off a prison break through enlisting the aid of a bunch of other prisoners who're promised freedom themselves, but in her plan are actually there as decoys to be killed. It seems analogous to stuff she's already happily done. She is potentially a risk even to other prisoners if she carries on as she has done. I don't buy that she's not a risk to others.
I’m not talking about just Holmes here, but about prisons in general. It’s not supposed to be fun, but neither is it meant to support a collective revenge fantasy.
I'm curious where you got that understanding. Would you mind sharing?
Especially since that could put the khibosh on my retirement plans (commit a serious, but non-violent federal crime and receive a lengthy -- hopefully the rest of my life -- sentence at a minimum security "Club Fed"[0] facility).
Free housing, food, health care and clothes with no tax liability for the rest of my life? It makes me want to to massively defraud some congress-critters once I turn 70 or so.
Assuming I could be assured of conviction, I'd even hold on to the stolen money so it could be returned to the victims.
Yes, I'm being somewhat facetious. But decent assisted living facilities run from USD6-12k/month and once I've spent all my money, it's off to a Medicaid facility that isn't much better than minimum security prisons anyway.
This way, I can give my money to those I care about and not have to worry about spending down my life savings to ~USD2,000 in order to qualify for crappy accommodations at a facility that accepts Medicaid patients.
Just sayin'.
[0] https://www.washingtonpost.com/news/reliable-source/wp/2015/...
Shitty housing, unhealthy, often poorly prepared food, and frequently inadequate health care... when it isn't denied outright.
Being a prisoner in the USA, especially an elderly one, is terrible and shouldn't be joked about.
But being elderly and relying solely on Medicaid also sucks.
If war is politics by other means, I suppose a prison riot is democracy by other means.
Agreed, but most US citizens who have worked at least a few years during their lives will get Medicare, too, which is significantly better.
Note that that is a big except, when you have lots of points, which big $ frauds get you quickly.
Now, it's possible that the court wouldn't agree with that analysis and find slightly fewer points, or that it would agree but would make a downward departure, but...
> Holmes' sentencing date has not yet been set. But she faces the maximum penalty of 20 years behind bars, though legal experts say she will likely face a lesser punishment.
That is, he wasn't arguing that she will serve the max of 65, just that the max is much higher than what NPR reported.
She's not convicted of actually, physically harming anyone, esp. patients (which doesn't mean she didn't -- but she wasn't found guilty of that); she's convicted of lying to investors.
That's obviously bad, and should carry some form of punishment. Maybe 5 years? But life?? That's insane.
[0] I read John Carreyrou's book when it came out.
In both theft and fraud, the victim is deprived of of something. That’s why people consider them similar crimes.
Destroying 100 million is best compared to something like a "killdozer"[0] rampage. Holmes' crime was the destructive equivalent of leveling ~300 homes.
[0]https://en.wikipedia.org/wiki/Marvin_Heemeyer#The_'Killdozer...
It was very lucky nobody was seriously injured by that thing.
Even if you're lying to trick some companies and investors to give you millions you're still not as evil or dangerous to society as the person who chooses to terrorize individuals for their gain. The actions are what matters.
“Do you understand what I'm saying?" shouted Moist. "You can't just go around killing people!"
"Why Not? You Do." The golem lowered his arm.
"What?" snapped Moist. "I do not! Who told you that?"
"I Worked It Out. You Have Killed Two Point Three Three Eight People," said the golem calmly.
"I have never laid a finger on anyone in my life, Mr Pump. I may be–– all the things you know I am, but I am not a killer! I have never so much as drawn a sword!"
"No, You Have Not. But You Have Stolen, Embezzled, Defrauded And Swindled Without Discrimination, Mr Lipvig. You Have Ruined Businesses And Destroyed Jobs. When Banks Fail, It Is Seldom Bankers Who Starve. Your Actions Have Taken Money From Those Who Had Little Enough To Begin With. In A Myriad Small Ways You Have Hastened The Deaths Of Many. You Do Not Know Them. You Did Not See Them Bleed. But You Snatched Bread From Their Mouths And Tore Clothes From Their Backs. For Sport, Mr Lipvig. For Sport. For The Joy Of The Game.”
Fraud is not a zero-victim crime and less than petty theft is. Just because the investors can 'afford' it, their losses are passed on to society eventually.
Also a very American way of thinking AFAICS.
In that sense, this CEO could be like the Sackler family - responsible for so much suffering across American society for the past decade or so, but because the scale is so large they've effectively abstracted themselves away from the evil and terror they are responsible for. The implication being that the opioid addict gets the full judgment of the law and society for terrorizing individuals to feed their addition, but the people who made the addiction possible get away with being tricksters. The only reason Elizabeth Holmes doesn't approach that level is because she and her startup got caught before they could release their fake products at scale, before the more serious consequences would begin.
If you ask me, I'd prefer to see both being held appropriately accountable, preferably in a way that encourages rehabilitation and not retribution or cruelty.
Above all, I think, because it's so diluted across a lot of people. To me, all these fraud-on-a-grand-scale-apologists are as naïve as Moist von Lipwig in the Pratchett quote in a sibling comment.
Personally, I'm with the gholem.
> Grand theft includes theft of property with a value of more than $950 or theft of a firearm (any value). The penalty for stealing a firearm is a felony, punishable by a state prison term of 16 months, two years, or three years. In all other cases, grand theft is a wobbler and can be charged as a misdemeanor or felony. A misdemeanor sentence results in up to one year in jail and a felony sentence results in prison time of 16 months, two years, or three years. (Cal. Penal Code §§ 487, 490.2 (2020).)
You actually can't get that much time for stealing a car or jewelry. What gives a criminal that much time is that "theft" is often actually "robbery", which involves the use of coercive violence. Violence is generally punished much more harshly.
> California Penal Code 211 PC defines the crime of robbery as “the felonious taking of personal property in the possession of another, from his person or immediate presence, and against his will, accomplished by means of force or fear.” Robbery is a felony punishable by up to 9 years in state prison.
> First-degree robbery includes robbery of
> any driver or passenger on a bus, taxi, streetcar, subway, cable car, etc., any person in an inhabited structure, or any person who has just used an ATM and is still in the vicinity of the ATM.4
> First-degree robbery leads to a California state prison sentence of between three (3) and nine (9) years.5
She should be though. People had unnecessary and invasive medical treatment as a direct result pf her fraud.
The actus reus is her fraud, the original criminal act, and having decided to do crimes she is also responsible for any harm caused.
https://en.wikipedia.org/wiki/Actus_reus
In the US is it up to the harmed individuals or their surviving relatives to peruse this?
Experts have warned from the beginning that Theranos made unrealistic to impossible announcements. Anyone investing at that scale without consulting experts IMO does not deserve protection from the law.
If Theranos is one thing, it is a real life example of why group dynamics and investing don't mix, and why the best thing to come out of r/wallstreetbets is the saying "do your own DD".
Wirecard did the same with accounting statements from the Philippines, and EY accepted them without verifying that the statements are correct at the bank offices, they didn't even cross check if the billions of dollars could even be on the books of the Philippine banking system, and now EY is in hot waters.
If I were an investor and were presented with claims of validation of a technology that is hotly contested, the very first thing I'd do is call up or otherwise contact the issuer and verify the authenticity of that claim. It's like ten minutes to find out the contact information of Pfizer's Investor Relations team and compose a letter - investors who are unwilling to commit at least this little bit of verification deserve to be relieved of their money and office.
You bring up good points (although I think I disagree with your conclusion that people ‘deserve’ to be defrauded). There seems to be active collusion at times between oversight and the companies being audited. This isn’t the first time EY has been accused of this and we see it with credit ratings agencies too.
I think I come to a different conclusion because we all outsource our quality assurance on a daily basis. Did you review the airworthiness certificate of the last plane you flew on? If not, do you “deserve” to crash because you outsourced to the FAA without verifying it yourself?
I’d say the blame should fall to the third party auditors who failed the system, not necessarily to those who trusted them.
Am I a normal airline passenger/pilot or did I sign up as a test pilot for experimental / new / freshly repaired aircraft?
The latter get higher pay simply because that risk is part of their job, and to my knowledge test pilots have the option to refuse jobs they deem to be too dangerous. Same is for investors, with the difference that human lives can irrevocably be lost whereas money is only a virtual thing.
The system breaks down when the third party is corrupted or incompetent in terms mitigating that risk. If we're going to say investors/airline passengers 'deserve' an outcome regardless of the role of a third party verifier, I'd probably say there's no reason for an SEC, FAA, audits, or even journalists for that matter. We've largely said as a society those organizations play an important oversight role in mitigating risk.
Your everyday normal "retail" investor should be protected by the law and regulatory agencies, e.g. requirement that companies offered to trade their stocks for unqualified investors need to follow SEC guidelines on accounting and business best practices, that insider and politicians' deals are regulated/reported, that environmental, consumer protection and labor laws are followed and that such companies are audited for compliance. For investment vehicles (e.g. funds, stock options that are not part of "employee stock" programs), that the risk of major or complete loss is limited (=investments done by these with the assets of normal investors should follow the same rules, and that investments into assets requiring accreditation do not exceed 20% of the assets under management of the investment vehicle). Obviously, that also limits the return of investment aka the pricing of risk.
Accredited investors / investment vehicles allowed to invest in high-risk assets however? The accreditation should represent an exchange: you get the potential to higher return of investment unlocked, but as a price for that you have to:
1. prove you can stomach significant losses (=you have to own your residence and can only invest 80% of your net worth into investments requiring accreditation)
2. spread investments so that no single or related (e.g. by majority ownership) high-risk investment exceeds more than 20% of your total portfolio. Exceptions can be made for holding companies, SPACs and similar investment vehicles, provided that their investors follow the same exposure limit.
3. prove you/your staff are actually qualified to make qualified decisions: professional education (e.g. a university degree in economics, finance and related subjects or training provided as part of employment at a bank or other financial institution) and the time to adequately review the companies you invest (=someone who works 60 hours a week in a non-finance related job should not be assumed to have enough free time and mental capacity to review and follow-up documents)
4. waive your right to protection by regulatory agencies and the judicial system to a degree that reasonably expectable efforts (such as calling up certification issuers to verify authenticity of a certificate) have to be undertaken.
5. agree to be held fully liable for your loss and the loss of your clients if you violate the rules or act negligently.
That way, the assets of the majority of the population are protected against loss of their investments, actual professionals now have a monetary incentive to responsibly invest their assets, and auditors have the incentive to actually do their job (and if they do not do that on their own, their liability insurance will make them do!).
A case could also be made for an intermediate class of investor to allow people not meeting the criteria to invest a limited portion of their assets (e.g. cap at 20% of net worth excluding primary residence, require a minimum net worth of 200k $) into high-risk investment.
We do the same with other high-stakes jobs (doctors, pilots) and organizations (see e.g. how cyber-security insurances force companies to introduce IT security measures as part of providing insurance coverage) - why don't we do the same with the finance industry? There have been more than enough high-profile cases now, some of which actually caused global crisis events.
ETA: Additionally, "margin trading" should be banned or at least strictly regulated for all investors. The amounts one can see in the "Loss Porn" section of r/wallstreetbets are simply inconceivable. No one should be able to YOLO their retirement funds into Gamestop ffs, and no one should feel forced to off themselves because their bank showed them a 730k US-$ margin call [1].
[1]: https://www.forbes.com/sites/sergeiklebnikov/2020/06/17/20-y...
Regarding the margin call type investments, I would add it’s not to just prevent endangering oneself but protects society as a whole. As a layman looking at past economic bubbles, it seems the one corollary is excessive speculation coupled with excessive leverage.
As long as the economy, the financial, employment and housing markets behave somewhat reasonable, even extreme leverage is not a problem... but in sudden uncontrolled crashes, that amount of collective leverage explodes backwards and everyone has a problem.
I'm actually not sure if it is possible to regulate margin at all to a resilience degree that stands up to market depressions, given that debt and leverage are essential to the working of any economic system (including all the various forms of socialism!) in a scarcity-based world itself.
As if sending her to prison for 5-10 years wouldn't be enough? Who will give her money or believe anything she does afterwards? She's done for no matter what. 65+ years is just to be cruel and enjoyment of the cruelty.
Even if it is the health sector where harm can easily be done, punishments shouldn't be based on hypotheticals.
Fraud is harm.
I’m an American. As a society, we believe in the deterrent value of punishment (which is proven not to work). We also see prison as a place to put dangerous people in order to protect society. We see only the risk of letting dangerous people out of prison, not any potential benefit. If we have to lock up 1 innocent person to be sure that 9 dangerous people gets locked up, those numbers work for us. It’s a kind of tunnel vision focused on the worst offenders and ignoring the many non-violent or rehabilitated offenders.
So, it’s just this very one-sided view, very risk averse and without much empathy or grace toward the offender.
Do you genuinely believe that high-IQ white collar criminals are exactly the type of person unable to do even the most basic risk-reward analysis?
According to this fact sheet, "the certainty of being caught is a vastly more powerful deterrent than punishment". Elizabeth Holmes and Bernie Madoff probably didn't think they would be caught.
https://www.ojp.gov/pdffiles1/nij/247350.pdf
NIJ is the research, development and evaluation agency of the U.S. Department of Justice.
She didn’t of course, but it wasn’t impossible to do. She just wasn’t good enough.
After all most cells in your body do a few thousand blood tests on millilitres of blood every second. Our technology has a long way to go but it can be done.
Penalizing mass murder also doesn't seem to have worked to prevent 9/11. The question is how representative the perpetrators are in these cases. I'd say not very -- do you disagree?
> According to this fact sheet, "the certainty of being caught is a vastly more powerful deterrent than punishment".
Just because you read it in some fact sheet doesn't mean it's true or even makes any sense. Probabilities and punishments are not commensurable so what does this even mean (without some attempt to describe a subjective loss function)?
Taken literally it's obviously untrue. Examples abound where people don't care much about being caught because the punishment close to non-existent or very light in comparison to the rewards. This is why why gangs like to groom minors, the likely reason why San Francisco has a shoplifting problem, or to bring it back to white-collar crime, why certain types of corporate and individual malfeasance occur over and over again, because the risks, even when caught, are minor but the rewards are not.
Your original claim is tantamount to saying that people don't react to incentives. Which beggars belief. That is not to say that criminals in particular respond to incentives in a way that maximizes their life outcomes or is intuitively obvious, or that for many crimes lowering penalties and investing in other things instead (like detection or prevention) wouldn't produce better societal results. But on the whole I'd expect high-flying financial criminals to respond to incentives set by justice system in a way that is more aligned with their actual utility function than say crack addicts committing robberies to finance their next fix.
Part of the reason is because punishment is so wildly variable and also sentences are almost always shortened drastically. It never looks like justice prevails. A "20 year sentence" is never actually "20 years", it could easily end up being a few years + probation, or even less.
Also, america sure as shit better not go light on a rich lady who sold profit dreams to old men while giving outrageous sentences to poor people everyday. You want to talk about criminal Justice reform she is definitely last on the list of people who deserve leniency.
If you assume average salary of 100k per year per person with 1/4th of time work per year. that's effectively 400k per year per person. He stole a hundred million which would be 250 years.
"Notably, Theranos’ investors weren’t the usual-suspect venture capital firms. Rather, her funding came from individuals like former Secretary of Education Betsy DeVos, billionaire media mogul Rupert Murdoch, former Secretary of State Henry Kissinger and the Walton family, among other wealthy elites. Some evidence showed that these investors were willing to give Theranos money even when Holmes evaded their more probing questions."
https://techcrunch.com/2022/01/03/elizabeth-holmes-verdict-g...
And there we have the crux of why she was prosecuted...
You're much better off screwing average people, then it's just "capitalism".
From people who could easily afford to lose it and who should have known better. None of the people she defrauded have a materially worse quality of life than they did before.
Her biggest crime was making rich people look stupid, and they REALLY don't like that.
Who in turn gained their money from trickle-up economics targeting the working and middle classes, in all likelihood.
I don't get this apologetic comment.
The crime she was convicted of isn't a crime you should spend effectively the rest of your life in jail for. It's as simple as that.
Not if you're a young(-ish) and relatively good-looking female billionaire CEO, at least.
Apparently, judging from the fact that I haven't seen all you people spouting this line on the barricades fighting for more lenient sentences for ordinary lowlife ugly middle-aged male fraudsters.
That's how simple it is.
It does not matter at all that they could afford to lose it. Her biggest crime was the one she just got convicted of, being a fraud and lying for profit.
One side of this conversation is unnecessarily harsh, I get that, but the other side of this conversation is playing mental gymnastics to try and downplay what she did. Both are wrong.