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Comment by evancoop | Hacker News Reader

The relevant detail, in my mind, is not whether Holmes deserves punishment, or even how much. The relevant detail is how the judge ultimately sentences Holmes, and more importantly, on what basis the judge selects the upper or lower range of possible sentencing outcomes. Considering that BS, stretching of capabilities, and so on are commonplace in the startup world, the point isn't whether Holmes crossed the line (she did), but rather, how exactly that line is repositioned by this precedent.

There's the easy story: "Young, ambitious wunderkind founder falls from grace." And the hard story: "Here's what might be relevant for future founders."

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Lying in both startups and even later stage companies has been way too accepted in the recent past. Granted investors should be doing better due diligence in general, but the amount of acceptable deception going on is mind blowing when you get a chance to see behind the curtain.

My hope is that a precedent is set that you can boast and talk about the future, but claiming something to be true which is patently false should be fraud. I believe that is already the definition of the word fraud, but would be better for all if the legal system enforces that.

The definition of fraud is to make false representation for "gain". In many cases, lying is not automatically fraud. The burden of proof is also on the prosecution so if you claim, "Salesforce will transform your business" and someone says it doesn't then they have to prove.

1) A reasonable person would understand the statement as fact rather than hyperbole 2) You have objectively not been transformed in your business 3) The problems are caused solely by your understanding of the Salesforce product and not just that you are a bad business owner

So that's why some things sit in the grey area.

It's not a grey area. It's simply not enforced. If you're an investor and you find out that the co-founders gave you bad numbers to juice the next round (this is common to the extent that I have personally seen it multiple times), you have no incentive to get the law involved. You would lose your entire investment, instead of just some of it.

And oftentimes, the extra juice gives them enough runway to make things work. Cheaters win, that's the way it is.

> If you're an investor and you find out that the co-founders gave you bad numbers to juice the next round [...] you have no incentive to get the law involved. You would lose your entire investment, instead of just some of it.

> And oftentimes, the extra juice gives them enough runway to make things work.

Above all, it gives you [1] time: To cash out that investment. Sell it to some later bigger sucker who doesn't already know or suspect what you know or suspect, maybe even at some more modest profit -- not making any loss at all! -- in stead of the super-jackpot you'd been hoping for if it were a "unicorn".

Early investors who start to smell a rat don't only lack an incentive to raise the alarm, they have a positive incentive to keep the lid on the story.

___

[1]: The editorial "you", the hypothetical early(ish) investor.

The more I think about it, the more parallels with Bernie Madoff!

> "Salesforce will transform your business" and someone says it doesn't then they have to prove.

You'd have to prove that Salesforce didn't believe they could transform your business, not that they didn't do the transformation.

Claims like "transform your business" or "best pizza in town" are generally considered non-specific puffery and aren't subject to fraud or false advertising enforcements.

Something like "perform n lab tests with a single drop of blood" is a very specific claim.

Also, that statement doesn’t say it will transform it in a good way :)

I think there is a pretty sharp line separating what Holmes tried, and what legitimate startups do. What she claimed had no basis in reality. It's Borat trying to patent a hoverboard, just like in Back to the Future, and telling the VC that he "needs to come up with the science" (https://www.youtube.com/watch?v=OXuDhejxz_c). Except that Holmes was worse, claiming that she had the science.

And she insulated herself from scrutiny by packing the board with old powerful men. So old that their critical thinking skills were on the decline (e.g. George Schultz, as described in Carreyrou's book), and whose expertise was NOT in the relevant subject areas.

Holmes was obviously corrupt from the beginning.

I haven't read Carreyrou's book, but do you think age and stereotypical gender roles played a part in the swindle? In other words, did the "old powerful men" let their guard down more because she was a young female?

Absolutely. It is hard for me to believe that Holmes didn't intentionally seek out powerful, influential yet clueless men. The fact that she had connections to them certainly made things simpler.

I remember first hearing about Theranos in the New Yorker profile of Holmes. The presence of Schultz, Kissinger and other non-scientist powerful old men struck me as extremely odd at the time. And given her youth and appearance, it is impossible not to speculate about her effect on them, intentional or not.

Also, the book made it very clear that Schultz's judgement was clouded by personal feelings. He blew up his relationship with his grandson over his defense of Holmes; the grandson saw what was going on.

Carreyrou's book is really good and I strongly recommend it - it's made clear in the book that a lot of them had family friendship connections to Holmes as well.

I imagine this may also have clouded their judgement.

I would not underestimate the powerful effect of a young, attractive woman flattering an old man.

I always wonder why people who buy Tesla's fsd think that is any different.

The company literally tells them the hardware is there, it's "only" missing the software.

Like, what's a robot worth without the undeveloped software.

> It's Borat trying to patent a hoverboard

Wow! That's interesting! While nobody has been paying attention, forward-looking patents have become acceptable (I don't agree that this is a good thing). Seriously, that's a fact; and here comes Holmes apparently claiming to have the science, am I right? There is language which apparently (IANAL) needs to be watched especially around verb tense when filing such patents.

Can you provide some examples?

https://law.stanford.edu/wp-content/uploads/2019/06/Fictitio...

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3202493

One of the harmful externalities of the practice is that when incorrect / impossible prophetic claims are made (and they are), they negatively impact the progress of science since they are generally presumed to be true and so might be used to refute a legitimate science or technical claim.

Was there really no science at all? I've not followed the details, but I assumed she had something, but that it was just unworkable now or anytime soon

As I understand it a drop of blood is simply not large enough of a sample to get statistically reliable results.

It's been a while since I read the book, but I don't recall any scientific basis at all. Pure hoverboard.

The worst possible outcome of this, and I hope clarification presses this, would be "You can't lie and bend the truth in biology startups, but can everywhere else."

Which would effectively siphon money away from an already hard but critical space.

The jury found Holmes guilty. But she should have been found just as guilty if she'd been running an adtech startup or a crypto company.

I don't think it's just about biotech startups. I think the obvious distinction here is that her behavior put lives at risk fairly directly. Theranos was administering blood tests to a large number of people in a beta program. These tests were incomplete and inaccurate. Said tests were used to monitor the status/recurrence of cancers and other conditions like diabetes.

If you similarly put people's lives or safety in danger with an AI startup somehow (with enough of a lack of ethics, this might be possible), you too could be eligible to win an all expenses paid vacation.

“This case was specifically about what Holmes told Theranos investors, although her lies also impacted partners and patients.”

This had nothing to do with patients though I am sure the patient angle helped underscore the lies to investors.

The actual convictions didn't have anything to do with patients, but if there hadn't been a direct human safety aspect to this then I doubt it would have received as much attention, and maybe not even prosecution. I really don't think much would have happened to her if this had been an AI startup claiming to use ground breaking techniques (black box) to achieve nearly general purpose AI, when in fact they were just using bog standard methods in xgboost or TensorFlow.

They weren't also testing these people with approved methods? Who would sign up for that and how is that legal or ethical? Even if she hadn't been lying these people were gambling their lives against the success of her company.

> weren't also testing these people with approved methods?

Often not and which method used wasn't disclosed so test results couldn't be sanitized.

> Who would sign up for that?

Somebody who was lied to.

> and how is that legal or ethical?

It is neither legal or ethical.

> Even if she hadn't been lying these people were gambling their lives

You are exactly correct. People were gambling their lives unwittingly.

Exactly, that is why she is in so much trouble

To be fair, a big reason she probably wasn't convicted on the patient fraud charges (she took the investor fraud charges) was because one of the things she lied about was not testing people with Theranos methods.

I.e. what Theranos said "We're testing you using our novel testing systems" vs what Theranos was actually doing "We're testing you using a standard test system"

So, most people who got Theranos tests were lied to, but in a way with a more positive outcome for them.

>Considering that BS, stretching of capabilities, and so on are commonplace in the startup world, the point isn't whether Holmes crossed the line (she did), but rather, how exactly that line is repositioned by this precedent.

I really don't see the line being repositioned at all because typical founder bs and Holme's fraud have a clear difference:

- bs is often overinflated promises of the _future_ that don't come true ; E.g. Musk overpromises fully-self-driving cars next year blah blah blah

- fraud is often lying about the _past_ with falsified documents etc. E.g. Holmes deliberately fabricated "military contracts" that didn't exist and forged papers with supposed Pfizer endorsements to trick investors to wire money. Likewise, Madoff faked the so-called fund's audited statements showing profitable trades. Therefore, convictions of wire fraud charges are easier to prosecute.

Holme's guilty convictions really have no relevance to the pie-in-the-sky overconfidence of founders. Therefore, unrealistic projections will continue to be made.

Is there any credible evidence showing Elon Musk falsified documents and fabricated income to trick investors into SpaceX/Tesla?

> pie-in-the-sky overconfidence of founders

I always wonder do they really are overconfident, or are they so because somehow they think they would miss opportunities if they are less overconfident than their competitors ?

It sounds much like advertising always selling you things using very ambiguous wording in order to make you dream. For me that's just lying.

This is a documented bias in civil projects and one of the factors of why they are notoriously over schedule and over budget.

An optimism bias leads naive project managers to gauge cost and schedule on best case scenarios. Less naive managers then have to give equally optimistic projections, just to have a hope of getting funded even if they know the projections are wrong.

Maybe someone with a legal background can weigh in more intelligently, but skimming through the US Code that she was actually convicted of doesn't make any distinction between past and future. Most of it is centered around claims of material fact (i.e., not subjective) and intentional and realized damage.

I think some of the grey area with Musk is the marketing of the product, like terming it "autopilot" which has a very specific connotation in the public perception. I'm granting that's not fraud in the same sense as the Theranos case, but I think it (probably deliberately) walks into a grey area of ethics. I think the damage claim is readily apparent but the intentional claim may be more difficult, in part because I don’t think there is a standardized definition of “autopilot”, even if it knowingly means something specific to the general public.

If I create an EV model named the "ThousandMiler" but put an asterisk in the manual that says it's only capable of 500 miles, maybe that's not fraud but it's skirting the line.

> There's the easy story: "Young, ambitious wunderkind founder falls from grace." And the hard story: "Here's what might be relevant for future founders." There's the easy story: "Young, ambitious wunderkind founder falls from grace." And the hard story: "Here's what might be relevant for future founders."

I don't think thats quite correct.

Holmes committed fraud, the part that seemed to sink her was attaching other company's names to literature.

However most of us would have assumed the bit that _should_ have nailed her and a lot of the executive committee is the industrial fraud of individual, vulnerable patients.

THeranos was only able to commit this fraud because of the breathless, non critical PR pumped out by tech "journalism"

B.S. and fraud are two different things though. BS in the startup world is commonplace, but not fraud.

What's the difference? Aren't both knowingly lying to affect an outcome?

There's a difference between optimistically saying "Everyone is going to want our super expensive juice maker!" versus telling investors that you have built 1,000 functional juice makers when in fact the juice makers don't work.

The former is an optimistic projection of demand. It's not a lie if it turns out not to be true, since it's a prediction. The latter is a lie: it's telling somebody something that is objectively and unambiguously false.

B.S. is in the eye of the beholder. I can start a company and ask you to invest in it because it will be worth 3 trillion in 20 years. It may be BS in your eyes, but I might believe there is a real chance of success. Fraud is different, fraud is blatantly concealing or misprepresenting certain facts.

> What's the difference? Aren't both knowingly lying to affect an outcome?

"This product will revolutionize the industry", "We are going to disrupt X", etc. is usually BS, based on irrational optimism about the future. Of course, in the unlikely case that it comes true, they will say you "had vision"

"I have a working prototype, and if you give me $Xmm we'll productize it". If you don't in fact have a working prototype, this is fraud.

Fraud is lying to get money. If you lie to stroke your ego, or similar such behavior, it's not fraud, unless you gain wealth by it.

> And the hard story: "Here's what might be relevant for future founders."

Honestly, these founders are crap. I met a lot of different types of founders, there are a lot of snake oil sellers out there, and then there are the good ones. I'm willing to bet that nothing good came out of the snake oil sellers.

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