October 20, 2021

Excellent Pix

Unlimited Technology

The Elizabeth Holmes Trial Sparks A Silicon Valley Debate: Why Not Other Tech CEOs?

Photo caption:

Selling an idea in Silicon Valley takes not only a grand vision but also swagger and bluster, says Margaret O’Mara, a historian of the tech industry.

“Being able to tell a good story is part of being a successful founder, being able to persuade investors to put money into your company,” she said.

And Elizabeth Holmes, the former CEO of Theranos, did just that. She was drumming up investment with a dream that bordered on the fantastical when she promised to transform health care. The company’s portable blood-testing machine could analyze a finger-prick’s worth of blood for thousands of diseases, she vowed.

In doing so, federal prosecutors allege, she and the No. 2 at Theranos, Ramesh “Sunny” Balwani, broke the law by deceiving investors about how well the business was doing and the capabilities of its testing machines, in addition to allegedly providing false or flawed test results to patients.

In Silicon Valley, the trial has launched a debate: Since Holmes was following a playbook used by dozens of tech CEOs, why is she the only one to face prosecution when a company collapses in scandal?

To Ellen Pao, the former CEO of Reddit, who is a vocal critic of gender discrimination in tech, sexism is partially to blame.

“When you see which CEOs get to continue to wreak havoc on consumers and the market, it’s people who look like the venture capitalists, who are mostly white men,” Pao said.

She points to Adam Neumann, who drove WeWork into the ground; former Uber CEO Travis Kalanick, who resigned after a sexual harassment scandal; and Juul’s Kevin Burns, who stepped down amid questions over the company’s role in stoking the youth vaping epidemic.

There were lawsuits, settlements and more fallout — but notably, Pao points out, no criminal prosecutions.

“That all these people continue to lead their lives and not be held accountable for all the harm that they’ve caused, it does send a message,” she said.

What makes Holmes’ case different?

Former prosecutors who have tried white-collar crime say there are several reasons why Holmes stands out among disgraced tech CEOs.

First, the allegedly fraudulent behavior was egregious: Holmes told the world she had a miracle machine that would upend laboratory science. Prosecutors say, compared with her claims, the technology barely did anything at all.

Mark MacDougall, a former federal prosecutor who focused on fraud cases in the U.S. Justice Department, said Theranos’ being a biotech company raised the stakes.

“It allows the government to contend, with some evidence, that the health of private citizens, the health of innocent people, was put at risk,” MacDougall said.

Another reason Holmes was charged, according to former prosecutors, was that the government says it obtained evidence that she acted intentionally, which can be difficult to establish in fraud cases.

“That is frequently the most difficult part of a white-collar case to prove,” said Hartley West, a former top prosecutor in the U.S. Attorney’s Office for the Northern District of California, which polices Silicon Valley.

“Occasionally you might find a case where there’s an email that says, ‘Boy, I hope we can defraud all these investors,’ but that is very rare,” West said.

Prosecutors have not presented such a document from Holmes, but through emails, text messages, witness testimony and other evidence, prosecutors say, they will be able to show that Holmes “knowingly and intentionally” defrauded investors and patients — something her defense team says is false. Her team argues that she is being wrongly prosecuted for being the CEO of a failed startup.

Proving that Holmes is guilty will turn on demonstrating her intent, since exaggerating financial forecasts and running a secretive company do not constitute federal crimes.

Prosecutors mulling charges against company executives need to be confident that, more likely than not, the person intended to break the law. But MacDougall said government lawyers also must be careful not to abuse their power to prosecute.

“If you begin to require everyone who is considering starting a company, expanding a company, developing a new product, to first think, ‘Can I be prosecuted for this?’ you’re tinkering with something that’s very fundamental to growth and the economy,” he said.

Silicon Valley now says, “This isn’t us”

As a pitchwoman, Holmes called Theranos’ device “the iPod of health care.” She wore black turtlenecks in a not-so-subtle nod to Apple co-founder Steve Jobs.

With Holmes now facing fraud charges and years behind bars if convicted, it has become common for tech leaders and venture capitalists to argue that her case is a one-off, not an indictment of the industry.

“The gap between what she and her colleagues were saying Theranos was doing and what it actually was doing was so vast,” O’Mara said. “It’s very easy for Silicon Valley to just say, ‘This isn’t us.’ “

Pao, meanwhile, said she is not defending Holmes’ actions, which she said were encouraged by the high-risk, high-reward culture of venture capital.

She said prosecutors should have charged Holmes, but Pao wants a broader discussion in Silicon Valley about why other CEOs accused of wrongdoing have not faced criminal consequences.

“Why aren’t we holding other people accountable so we can avoid all the harm that is happening in the tech industry?” she asked.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

FEATURED PODCAST

San Diego News Now podcast branding

San Diego news; when you want it, where you want it. Get local stories on politics, education, health, environment, the border and more. New episodes are ready weekday mornings. Hosted by Anica Colbert and produced by KPBS, San Diego and the Imperial County’s NPR and PBS station.

Curious San Diego banner

To view PDF documents, Download Acrobat Reader.

Source News