Will Elizabeth Holmes’s conviction change Silicon Valley?

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·Senior Editor
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  • Elizabeth Holmes
    American businessperson; a subject of an SEC investigation

“The 360” shows you diverse perspectives on the day’s top stories and debates.

What’s happening

Elizabeth Holmes, the idiosyncratic founder of blood-testing company Theranos, was found guilty Monday on four counts of defrauding investors for misrepresenting her firm’s financial situation and growth potential.

Holmes, 37, faced a total of 11 felony counts. She was found not guilty on four counts related to false claims made to patients, and the jury could not reach a verdict on three additional counts of wire fraud related to misleading investors.

Holmes, who founded Theranos at age 19 in 2003, became a rising star in Silicon Valley as her company experienced explosive growth over the next decade based on the promise that its technology could revolutionize the medical testing industry — a promise that was ultimately revealed to be a lie. At its peak in 2014, Theranos raised more than $400 million from investors and was valued at $9 billion.

That rise was followed by an even more precipitous fall after it was revealed that Theranos lab machines — which Holmes and other senior executives claimed could run dozens of tests from a single drop of blood — simply didn’t work. The company dissolved in September 2018, a few months after Holmes and her partner, both romantically and in business, Ramesh “Sunny” Balwani, were indicted on felony fraud charges.

Why there’s debate

The Theranos story has been considered by many as a prime example of the perils of Silicon Valley’s “fake it till you make it” culture, where charismatic founders often attract enormous sums of money from investors based on grand promises about what their companies can achieve.

In the eyes of some observers, Holmes’s conviction could prove to be a cautionary tale that forces other business leaders to scale back lofty claims when pursuing financial backing, knowing that they could find themselves behind bars if they stray too far from the truth. They also say the lessons of Theranos could prompt investors to be more diligent about where they put their money and temper the race to secure a stake in startups with high growth potential.

But others are more skeptical that the case will have much of an impact. A number of high-profile tech industry investors have argued for years that although it had a lot of the characteristics of a classic Silicon Valley company, Theranos was a medical device company and not a technology company. Therefore, in their view, the circumstances behind Holmes’s downfall don’t really apply to the rest of the industry. Some critics of Silicon Valley’s culture argue the financial rewards of success are so enormous that nothing will change the way Silicon Valley operates.

What’s next

The Theranos legal saga is far from over. Holmes is expected to appeal her convictions, and it’s unclear whether prosecutors will pursue another trial for the three counts on which the jury failed to reach a verdict. Holmes faces up to 20 years in prison. Her sentencing date hasn’t been set. Balwani’s trial is scheduled to start in February.

Perspectives

Holmes’s conviction is a reckoning for Silicon Valley

“The conviction of Holmes … represents the ultimate reckoning for the brazenness of Silicon Valley that she personified. And while Silicon Valley says it has moved on and become more accountable and responsible, it is also scarred by what she got away with for years.” — Nitasha Tiku and Rachel Lerman, Washington Post

Company leaders will be wary of making grand pronouncements they can’t back up

“For the rest of Silicon Valley, the case may be a reminder that there is a limit to how much startups can get away with — and that the government is watching.” — Arielle Pardes, Wired

Tech industry whistleblowers will feel emboldened by the case

“The verdict could also mark a new era for workers in technology, who are increasingly speaking out against their powerful employers.” — Kari Paul, Guardian

Companies may be more willing to own up when their false claims are revealed

“The investors she defrauded weren’t naifs. But she never did admit the truth that the company’s blood-test technology wasn’t what she promised, and for that she may now go to jail.” — Editorial, Wall Street Journal

Holmes’s deception was dramatically different from most founders’ lofty visions

“When Silicon Valley entrepreneurs tell tales about their vision for changing the world, so long as they really are talking about something that is a vision, they’re going to continue, I think, to be OK in a criminal sense. If they lie about something that’s going on right now, that’s where they’re going to get into trouble. That’s what happened to Elizabeth Holmes.” — David Brancaccio, tech industry reporter, to Marketplace

Investors may feel even more comfortable throwing money at unproven companies

“This is a win for those kinds of investors. Because now, they have additional leverage over startup founders. This is just going to intensify that culture of risk.” — Aron Solomon, legal analyst, to USA Today

Startup founders will continue chasing billions by any means necessary

“So where does this conviction leave the rest of us — her marks, her enablers, her investors and former fans? Ripe for the next huckster that comes along, probably. Some Silicon Valley promises are so sweet we just can’t get enough of them. Immortality. Crypto. Flying cars. Mars. Digital harmony. Wealth beyond compare.” — David Streitfeld, New York Times

The case did nothing to prevent companies from taking advantage of their customers

“Nothing about the result of this trial is going to prevent the next Theranos from bilking investors because no one is punished when investors don’t engage in due diligence. The onus is instead on the legal system — and thus, the average taxpayer — to get a guilty verdict in court. And because that’s easier to prove than the behavior that’s more likely to harm average people, that’s where prosecutors will focus.” — Elizabeth Lopatto, Verge

The case was about white-collar crime, not Silicon Valley

“A lotta [people] think Theranos is a skeleton key for Silicon Valley culture. I think it was closer to a sui generis case of obvious fraud and abject failure.” — Atlantic writer Derek Thompson

Is there a topic you’d like to see covered in “The 360”? Send your suggestions to the360@yahoonews.com.

Photo illustration: Yahoo News; photos: Justin Sullivan/Getty Images, Getty Images (2)

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