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Major Investor Sues Theranos

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Re: Major Investor Sues Theranos

#191

Post by forgetsusername »

jacquesm wrote: post #160
onion2k wrote: post #158

Earlier quoted context omitted.

The investor's argument is that Theranos lied . The investor believes Theranos fraudulently produced evidence that their product worked in order to fake the responses to the investor's due diligence. If that's true, and the investor can prove it, then that's not simply part of the typical risk of investing, that makes the investor the victim of a serious crime.

That's a dumb argument then. See, when you do due diligence you should assume that the company lies. That's why you go there in the first place, if you believe everything they tell you then you're going to get fleeced if they lie. Theranos did not comply with their duty to inform truthfully, but the investors did not comply with their duty to research. Asking the company is not research, the technology being complex…

>See, when you do due diligence you should assume that the company lies. That's why you go there in the first place, if you believe everything they tell you then you're going to get fleeced if they lie.

Even doing due diligence, you rely on their information, expertise and record-keeping. Lying or misleading is unacceptable.

This whole story is messed up. I still detect a bit of apologism on these boards, even though it looks like fraud was committed. Assume everyone lies? Really? What sort of world are you doing business in?

Re: Major Investor Sues Theranos

#192

Post by StreamBright »

jacquesm wrote: post #155

I'm definitely not a friend of Theranos, but : they failed to do due diligence before investing, the error is theirs. I wonder if they would sue as well if Theranos had scored big time. If you treat investing as gambling don't sue if you lose a hundred million dollars of your customers money.

There are many things that you are not a position to verify if you are an investor. On the top of that, there is a huge difference between misreporting your numbers versus stating that you are capable of doing something while you know it for sure that are not.

Re: Major Investor Sues Theranos

#194

Post by jacquesm »

bcjordan wrote: post #127

Official response posted: https://news.theranos.com/2016/10/11/company-statement-regar...

Theranos will have a hard time proving that they did not make the same or similar statements to the investors prior to making those claims elsewhere. They've now directly confessed they actually did make the claims at least once, which will make it more believable - not less - that they made those claims at different points in time as well.

'Staff writer' will have a busy time in the next coming weeks.

Re: Major Investor Sues Theranos

#195

Post by ceterum_censeo »

jacquesm wrote: post #155

I'm definitely not a friend of Theranos, but : they failed to do due diligence before investing, the error is theirs. I wonder if they would sue as well if Theranos had scored big time. If you treat investing as gambling don't sue if you lose a hundred million dollars of your customers money.

> they failed to do due diligence before investing

Do we know the scope of the DD that was done?

Re: Major Investor Sues Theranos

#196

Post by jacquesm »

meowface wrote: post #180
Gatsky wrote: post #170

Earlier quoted context omitted.

This is a valid comment. Theranos' claims for their technology should have been readily verifiable. The reason for this mess is they were given money without asking enough questions. It's actually not even that complicated as having to test the machines yourself, if they had just tried asking a few more questions, it would have become pretty obvious this was a bad investment. There were many smart VCs who kept their…

Is this common among VCs and investors in general, or was it just that Theranos' supposed technology was more complicated than what they were used to, so they couldn't accurately assess it? Or both?

Investors will invest in all kinds of stuff they personally have no knowledge of. This is perfectly ok if it is their own money and they have no responsibility to others (especially to limited partners who have no say in the matter, or, for instance in the case of a pension fund).

The way it works with such parties is that they hire people who are versed in the technology to prepare a report on the subject at hand. This is called 'due diligence', specifically, technical due diligence.

So if you cross the t's and dot the i's there will be a nice report saying 'this technology is a-ok' by some party in a drawer somewhere. If so then that party shoulders a large part of the blame. Absent such a report (and I find it hard to believe the investors did not perform due diligence, but then again, so far none of them have stepped forward to point the finger at their technical advisors) the investors themselves are far more responsible.

Re: Major Investor Sues Theranos

#197

Post by jacquesm »

forgetsusername wrote: post #191
jacquesm wrote: post #160

Earlier quoted context omitted.

That's a dumb argument then. See, when you do due diligence you should assume that the company lies. That's why you go there in the first place, if you believe everything they tell you then you're going to get fleeced if they lie. Theranos did not comply with their duty to inform truthfully, but the investors did not comply with their duty to research. Asking the company is not research, the technology being complex…

> See, when you do due diligence you should assume that the company lies. That's why you go there in the first place, if you believe everything they tell you then you're going to get fleeced if they lie. Even doing due diligence, you rely on their information, expertise and record-keeping. Lying or misleading is unacceptable. This whole story is messed up. I still detect a bit of apologism on these boards, even thoug…

Yes, lying or misleading is unacceptable. And this should lead to the deal being terminated before it is closed. There is no reason the company should get away with this prior to the deal being closed, assuming everybody plays their assumed role. But in this case I suspect that the investors did a slipshod job of their duty to inspect. After all, what the company said doesn't really matter, what matters is what the investors themselves determined to be the truth based on the evidence provided to their technical team and what the technical team did to ascertain this evidence was correct.

As for what world I'm doing business in: I work hard to keep the money of my clients safe by detecting mistakes/fraud/omissions/issues before the deal is consumed and I have a hard time believing anybody competent signed off on the Theranos deals from a technical point of view.

It's a fact of life that when you're an investor every now and then someone will attempt to take you for a ride, this is why investors perform due diligence to begin with, to make sure that they have covered their responsibility towards those whose money they manage.

Re: Major Investor Sues Theranos

#198

Post by tim333 »

jacquesm wrote: post #160
onion2k wrote: post #158

Earlier quoted context omitted.

The investor's argument is that Theranos lied . The investor believes Theranos fraudulently produced evidence that their product worked in order to fake the responses to the investor's due diligence. If that's true, and the investor can prove it, then that's not simply part of the typical risk of investing, that makes the investor the victim of a serious crime.

That's a dumb argument then. See, when you do due diligence you should assume that the company lies. That's why you go there in the first place, if you believe everything they tell you then you're going to get fleeced if they lie. Theranos did not comply with their duty to inform truthfully, but the investors did not comply with their duty to research. Asking the company is not research, the technology being complex…

You should do your diligence but fraud is still fraud.

Re: Major Investor Sues Theranos

#199

Post by jacquesm »

rsp1984 wrote: post #190
jacquesm wrote: post #160

Earlier quoted context omitted.

That's a dumb argument then. See, when you do due diligence you should assume that the company lies. That's why you go there in the first place, if you believe everything they tell you then you're going to get fleeced if they lie. Theranos did not comply with their duty to inform truthfully, but the investors did not comply with their duty to research. Asking the company is not research, the technology being complex…

See, when you do due diligence you should assume that the company lies Really? I'm not naive enough to believe that everything you get to hear during due dilligence is 100% truth but I also don't think we live in a world where everyone can get away with deception and lies. After all the civilized world has developed a constitutional state with a law that offers some level of protection. So there is a point where busi…

When there are millions of $ on the line 'good faith' doesn't cover it any more. You have to make sure that you are spending that money on something real. That doesn't mean there can't be risk involved, it doesn't mean that companies invested in won't fail. But you owe it to yourself, your partners and those who trusted you with their hard earned money that you do everything in your power to invest wisely.

The state will protect you if you have done your own homework.

I'm not saying the investors didn't look well enough, I'm saying that if they hired some party to look at the technology that party was asleep at the switch or they didn't do due diligence at all. There is no way that outside expert in the field would have been fooled if they came prepared to look at the technology in depth.

If the investment was done before the technology was realized then they probably would have raised some issues with respect to the fact that the core tech was unproven and might very well not work for a number of reasons.

Due diligence will never be perfect, that we agree on. But to get the core issue wrong is extremely rare, first and foremost you verify each and every claim the company made. It is not a discovery process, it is a verification process and given the fact that Theranos made some pretty strong and very verifiable claims is what makes me wonder how much DD was actually done.

From the outside looking in it looks as if a whole bunch of totally clueless investors couldn't wait to fork over their money to not miss the boat without so much as a shred of doubt about the miracle machine.

Re: Major Investor Sues Theranos

#200

Post by jacquesm »

ceterum_censeo wrote: post #195
jacquesm wrote: post #155

I'm definitely not a friend of Theranos, but : they failed to do due diligence before investing, the error is theirs. I wonder if they would sue as well if Theranos had scored big time. If you treat investing as gambling don't sue if you lose a hundred million dollars of your customers money.

> they failed to do due diligence before investing Do we know the scope of the DD that was done?

I haven't seen any proof that DD was done at all - to date, this may change - but if the scope didn't at least include a review of the core technology then it was too narrow.
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