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Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

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Re: Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

#121

Post by Bud »

_m8fo wrote: post #100
Bud wrote: post #98

Earlier quoted context omitted.

Because it does not have the authority to do so. https://www.sec.gov/oiea/investor-alerts-bulletins/ib_invest...

I've already read that -- it does not explain why . It simply states that it cannot. What law restricted it? Why was that law put into place? How often are recommendations for prosecution followed up on successfully? EDIT: Thanks everyone for the information -- very interesting.

I'm pretty sure no law restricted it, and that the SEC's powers were set when it was established in the 1930s during the New Deal. So the answer to "why" appears to be, "because that's how it was set up".

Re: Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

#122

Post by ChuckMcM »

asperous wrote: post #57
ChuckMcM wrote: post #23

Ok, this is the money line in that press release for me: “The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.” For all those entrepreneurs are trying to "fake it until you make it" be aware that the SEC considers your…

I think there is a significant difference between lying about what you can do (fraud) and simply saying you hope to accomplish something.

I don't disagree, but recognize that an investor can feel defrauded even when one can show precisely what was said and what was not actually said. Most CEOs I've heard pitch are creating a narrative and they leave out facts that would disagree with that narrative. And sometimes they state the 'facts' in a way that imply more than they actually say.

For example, you can say "We are building a tester that can run tests using only a drop of blood." and "We have test results from blood showing markers" and never mention that the "test results" came from an industry tester and not the "tester you are building". The implication is that your tester did that but you didn't actually say that. What I read from the press release was that this sort of messaging was going to be actionable. If you look at various full disclosure rules the SEC has for public companies, this felt like a shot across the bow to startups that they would do well to think about that instead of glossing over bad news.

Re: Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

#123

Post by noodle »

SilasX wrote: post #90
ChuckMcM wrote: post #23

Ok, this is the money line in that press release for me: “The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.” For all those entrepreneurs are trying to "fake it until you make it" be aware that the SEC considers your…

>For all those entrepreneurs are trying to "fake it until you make it" be aware that the SEC considers your strategy both fraudulent and they feel they have the jurisdiction to prosecute you. Holmes was, in many ways, embodying that HN mentality, acting on the basis: - that an entire industry has been doing it wrong - that it can be fixed by a low-bureaucracy, Angel-funded startup - that once you have enough success…

> that HN mentality

Is that the HN mentality? It might lean more that way now, I suppose, but I've always felt it was more in the "scratch your own itch" territory and less in the "complete industry outsider disrupts XYZ industry with revolutionary ideas" area

Re: Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

#124

Post by throwaway82729 »

jartelt wrote: post #65
Waterluvian wrote: post #25

Is Holmes still rich after this? I can't tell just how much of her wealth she's being forced to return in form of shares.

Do we know if she was rich before? Maybe she was able to cash out a lot of her shares during some of the financing rounds, but she also could have just been "rich" on paper by owning many Theranos shares. If she was rich by virtue of holding Theranos shares, her wealth has decreased a ton in the last couple years since the value of the company has surely plummeted.

I'm sure she must have sold some part of her shares when Theranos got funding in the early days.

Re: Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

#125

Post by mbesto »

Aside from everything else rightfully pointed out in this thread - the other interesting bit is that it's likely that their investment in commercial real estate will net a pretty massive return. I can't think of many places in the Bay that are better for a large office that can hold 100's of employees.

For reference, the HQ they built in PA: https://www.google.com/maps/place/1701+Page+Mill+Rd,+Palo+Al...

Re: Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

#126

Post by Nokinside »

_m8fo wrote: post #43

What exactly needs to happen for white collar criminals to be punished commensurate with their crime and consistent with the magnitude of "regular" criminals' punishment? Holmes' punishment is effectively nil. Meanwhile: [1] A man sells $40 with of cocaine and eventually 5.9g of weed lands him 20 years in prison. [2] "Illegal" voting lands a woman 8 years and deportation. [3] Possession of a few shotgun shells gets a…

> There's a word for this. Unacceptable.

Expressing emotion and anger can be healthy. But let's discuss this and find out why this is and can and what should be done?

* US justice system is designed for settlement. In US 97% of civil cases are settled or dismissed without a trial. 90% of federal criminal cases resolve without trial. 94% of state cases end via plea bargain.

* Normal criminals accept harder sentences when they plead guilty. Is it because it's easier to find them guilty or because they don't have access to better lawyers?

* Criminals can be put into prison only if they can be convicted. Many financial crimes are very hard to prosecute and end result is uncertain. Proving intent can be very hard. Concrete proof even harder. Getting something is better than getting nothing. When federal prosecutors go ahead, it's not uncommon that the result is acquittal.

sources and backround

The Difficulty of Proving Financial Crimes https://dealbook.nytimes.com/2010/12/13/the-difficulty-of-pr...

What prosecutors have to prove in order for you to be charged with a financial crime http://www.businessinsider.com/what-proof-for-financial-crim...

So what do we want? Do we want to relax the the burden of proof in financial crimes? More regulation and paper work that leads easier to prosecute trail (called bureaucracy that increases the cost of enterprise).

Re: Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

#127

Post by zitterbewegung »

I think there is a fair distinction between "fake it until you make it" and actually willfully defrauding your investors and customers. Sure this may work at the beginning but you have to do some kind of magic or goal at the end of "faking it" and have results.

Re: Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

#128

Post by brandonmenc »

_m8fo wrote: post #100
Bud wrote: post #98

Earlier quoted context omitted.

Because it does not have the authority to do so. https://www.sec.gov/oiea/investor-alerts-bulletins/ib_invest...

I've already read that -- it does not explain why . It simply states that it cannot. What law restricted it? Why was that law put into place? How often are recommendations for prosecution followed up on successfully? EDIT: Thanks everyone for the information -- very interesting.

There's probably not a law explicitly restricting it, because that's not a power it ever had in the first place.

Re: Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

#129

Post by Karunamon »

_m8fo wrote: post #100
Bud wrote: post #98

Earlier quoted context omitted.

Because it does not have the authority to do so. https://www.sec.gov/oiea/investor-alerts-bulletins/ib_invest...

I've already read that -- it does not explain why . It simply states that it cannot. What law restricted it? Why was that law put into place? How often are recommendations for prosecution followed up on successfully? EDIT: Thanks everyone for the information -- very interesting.

Criminal litigation authority is on a whitelist, not a blacklist. It's not that a law restricted them, it's that they simply were never granted that authority.

Random government authorities can't bring criminal proceedings anymore than the meter maid writing a parking ticket has the ability to haul you to court for parking in the wrong place. They send the information along to the people who do have that authority and act on it if they see fit (prosecutorial discretion).

The key words in the article are "civil, not criminal".

Re: Theranos, CEO Holmes, and Former President Balwani Charged with Fraud

#130

Post by [deleted] »

minimaxir wrote: post #46
ChuckMcM wrote: post #23

Ok, this is the money line in that press release for me: “The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.” For all those entrepreneurs are trying to "fake it until you make it" be aware that the SEC considers your…

It's worth nothing that one of Theranos's VC funders, Tim Draper, did defend Holmes despite the fraud allegations: https://news.ycombinator.com/item?id=11973102 https://www.vanityfair.com/news/2017/01/theranos-investor-cl...

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