Why not other tech CEOs? : NPR
Nic Coury / AP
Selling an idea in Silicon Valley requires not only grand vision, but arrogance and boastfulness as well, says Margaret O’Mara, a tech industry historian.
“Being able to tell a good story is part of a founder’s success, being able to persuade investors to invest money in your business,” she said.
And that’s exactly what Elizabeth Holmes, the former CEO of Theranos, did. She was mobilizing investments with a dream bordering on the fantastic when she promised to transform healthcare. The company’s portable blood test machine could analyze blood from a finger prick for thousands of illnesses, she promised.
In doing so, federal prosecutors allege that she and No.2 in Theranos, Ramesh “Sunny” Balwani, broke the law by misleading investors about the quality of the company and the capabilities of its testing machines, by no more allegedly providing false or erroneous test results to patients.
In Silicon Valley, the lawsuit sparked debate: Since Holmes was following a textbook used by dozens of tech CEOs, why is she the only one facing lawsuits when a company collapses in a scandal?
For Ellen Pao, the former CEO of Reddit, who vigorously criticizes gender-based discrimination in tech, sexism is partly to blame.
“When you see which CEOs continue to wreak havoc on consumers and the market, they’re people who look like venture capitalists, who are mostly white males,” Pao said.
She points to Adam Neumann, who dug WeWork into the ground; former Uber CEO Travis Kalanick, who resigned after a sexual harassment scandal; and Juul’s Kevin Burns, who resigned amid questions about the company’s role in fueling the youth vaping epidemic.
There have been prosecutions, settlements and other fallout, but notably, Pao points out, no criminal prosecution.
“That all of these people continue to lead their lives and not be held responsible for all the harm they have caused sends a message,” she said.
What makes Holmes’ case different?
Former prosecutors who tried white-collar crimes say there are several reasons Holmes stands out among disgraced tech CEOs.
First, the allegedly fraudulent behavior was blatant: Holmes told the world she had a miracle machine that would turn laboratory science upside down. Prosecutors say, based on his claims, the technology has done next to nothing at all.
Mark MacDougall, a former federal prosecutor who focused on fraud cases at the US Department of Justice, said the fact that Theranos is a biotech company raised the stakes.
“This allows the government to argue, with evidence, that the health of private citizens, the health of innocent people, has been endangered,” MacDougall said.
Another reason Holmes was charged, according to former prosecutors, was because the government said it obtained evidence that she acted intentionally, which can be difficult to establish in fraud cases.
“This is often the hardest part of a white-collar case to prove,” said Hartley West, former chief prosecutor for the US District Attorney’s Office for the Northern District of California, which controls Silicon Valley.
“Every once in a while you may find a case where there’s an email that says, ‘Boy, I hope we can defraud all these investors,’ but it’s very rare,” West said.
Prosecutors have not presented such a document from Holmes, but through emails, text messages, testimony and other evidence, prosecutors say they will be able to show that Holmes “knowingly and intentionally“defrauded investors and patients – which her defense team says is wrong. Her team argues that she is being falsely prosecuted for being the CEO of a bankrupt startup.
Proving Holmes guilty will be demonstrating his intent, because exaggerating financial forecasting and running a secret business are not federal crimes.
Prosecutors who lay charges against company executives must be convinced that, more likely than not, the person intended to break the law. But MacDougall said government lawyers must also be careful not to abuse their power to prosecute.
“If you start asking everyone who’s considering starting a business, growing a business, developing a new product, first think, ‘Can I be sued for this? “You are tinkering with something that is very fundamental to growth and the economy,” he said.
Silicon Valley Now Says “It’s Not Us”
As a pitchwoman, Holmes called Theranos’ device “the healthcare iPod”. She wore black turtlenecks in a not-so-subtle nod to Apple co-founder Steve Jobs.
Holmes now facing fraud charges and years behind bars on conviction, it has become common for technology leaders and venture capitalists to argue that his case is unique and not an accusation of the industry.
“The gap between what she and her colleagues said Theranos was doing and what she was actually doing was so wide,” O’Mara said. “It’s very easy for Silicon Valley to just say, ‘It’s not us. “”
Pao, meanwhile, said she was not defending Holmes’ actions, which she said were encouraged by the high-risk, high-return culture of venture capital.
She said prosecutors should have indicted Holmes, but Pao wants a broader discussion in Silicon Valley about why other CEOs accused of wrongdoing have not suffered criminal consequences.
“Why don’t we hold others to account in order to avoid all the damage that occurs in the tech industry? ” she asked.