Theranos and Holmes have agreed to settle the fraud charges levied against them. Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares. Due to the company’s liquidation preference, if Theranos is acquired or is otherwise liquidated, Holmes would not profit from her ownership until – assuming redemption of certain warrants – over $750 million is returned to defrauded investors and other preferred shareholders. The settlements with Theranos and Holmes are subject to court approval.
Someone help me out: Does this settlement really make the affected parties feel the pain? Does it discourage other companies from attempting the same thing? Given the scale of the fraud, shouldn't these two simply be in prison right now?
It also helps to have lots of family and friends who have given lots of money to lots of politicians. For nonviolent crime like this, the law really is different for different people.
Remember who was on the Board of Theranos. These upstanding Americans will never serve a day in Prison including Holmes and Balwani. Shkreli on the other hand was thrown in prison for raising the price of a drug, making money for his investors and offering a reward for one hair.
I'm not really sure that's fair. In fact, IANAL and have zero knowledge of law, but the two had seemingly nearly opposite intent of their crimes. Who knows what was going on in the girl's head, but it sounds more like a bunch of idiot investors gave a lot of money to a dreamer who wanted to make an impact and didn't know when to quit and fold her hand rather than an elaborate con. That gets taken into consideration before pitchforks come out.
At a certain point you have to wonder why did a 21 year old
get paid 700 million dollars on good faith to start a pharmaceutical company with little oversight? I remember reading about the board a few years ago and just looked it up again. Several generals, Henry Kissinger...huh?
> sounds more like a bunch of idiot investors gave a lot of money to a dreamer who wanted to make an impact and didn't know when to quit and fold her hand rather than an elaborate con
Until you said 'her', I actually thought you were referring to Shkreli. He ran a hedge fund starting at 23, and when he lost a lot of the money, he made bigger bets and tried to earn the money back rather than admitting his losses.
> I remember reading about the board a few years ago and just looked it up again. Several generals, Henry Kissinger...huh?
Shkreli raised money from Steven Cohen's SAC Capital, the family of Fred Hassan (former CEO of Schering-Plough), and Brent Saunders, the current CEO of Allergan.
Their stories, though they differ in industry, seem quite similar when compared in detail.
While I don't know either of them so it is an unfair judgment to make, I would guess there's a big difference in thoughts in the back of their head:
"These idiots aren't getting their money back, wait for my next play..."
"If I can hold them off for another year, we'll have a big breakthrough..."
Making larger bets to cover for an hide losses is a very common story for traders on wall street. Buying an AIDS drug to price gouge is not. In contrast, it seems like Holmes had an earnest desire to improve medical tech.
Again, I'm speculating, we'll see if this unfolds any further. Fun story to follow.
SEC doesn't put people in prison, it can refer to Justice Department for prosecution. Whether it does or not, depends on the circumstances of the case. They prefer quick resolution rather than years of litigation.
Many people are in jail today because they can't post bail. You can discourage ever facing incarceration by being able to afford a good legal defense. You can be forced to accept incarceration without conviction because you are poor.
Yeah, it's easy for the government to threaten plebs with prison for misreporting a few thousands in taxes...because they can't defend themselves like Holmes does.
let's dispense with political bullshit. A protracted lawsuit would cost the government millions of dollars with an uncertain outcome. Instead, Holmes is paying the government 500K and returning shares. The SEC is going to court against Balwani, where the case is presumably stronger. the plebs is strictly better off and not everything the government does is bad.
So if it’s too expensive, we should let criminals walk? Fraud is a crime you know.
She should be in jail. Kids have gone to prison for marijuana possession and this lady walks? Martha Stewart and that Martin guy went to prison for less.
no, you are totally confused. SEC doesn't have a strong case to prove that Holmes is a criminal. get it? you have to PROVE first that Holmes is a criminal and SEC decided, based on the quality of the evidence, that it is better off settling with her than trying to PROVE she is a criminal.
Saying that people are better off with a quick resolution rather than a court case is also a political statement, as it's an opinion on what we as a society should value.
no. people are better off with a quick resolution because professional attorneys at the SEC decided that the legal case against Holmes is not strong enough to waste taxpayer money trying to PROVE she committed a crime. Calling their decision into question without a shred of evidence that they did something suboptimal, based on your political beliefs alone, is what I am advocating against.
EDIT: Which part of this statement are the downvoters disagreeing with ?
I am not saying you are wrong, only that you're making a political statement. Determining when to bet on a court case and when not to is a political decision -- do you draw the line at 85% chance of conviction? 60? 30? It can certainly be pragmatic with respect to certain metrics, but choosing those metrics, e.g. deciding that the aim should be the minimization of public expense and risk of failure is very much political. The metrics we need to optimize aren't chosen for us by the laws of nature, but by our political values.
no, I am not. Attorneys at the SEC made this determination based on everything they had on Holmes. Calling their decision biased against poor people vs rich people, etc, political rather than legal, etc. without any evidence is bullshit.
... and a decision on when it is worth it to pursue a case. Unless the chance at conviction is zero, there is some politically determined risk threshold involved. Not only is the decision on the threshold political, but the risk itself is determined by the resources at the defendant's disposal. I am not saying that their decision is necessarily biased against poor people, but I am pointing out that there is a political stance involved no matter which way you come down on this issue.
Nah, the SEC rarely actually prosecutes someone (or more correctly works with DOJ to indict them and try them.) It is just how the SEC typically does business. They, (and other regulators, CTFC, SROs) take these little actions all the time in the financial industry. I think when see a case where they really try and nail someone then you look for the politics.
"and a decision on when it is worth it to pursue a case. Unless the chance at conviction is zero, there is some politically determined risk threshold involved" - you are alleging that in this specific case there was politically determined something - without any evidence whatsoever.
You two are using different meanings of "political".
There is no allegation of pulling strings and getting SEC lawyers to decide something based on her name, her connections. They act according to policy, based only on objective measures of the case.
But, it can be the policy of the SEC to objectively consider chances of winning (or getting a fraud conviction) and proceed to trial only if the chances are better than 90%, and it can be the policy of the SEC to go to trial on even 10% chances of winning, to generate as many fraud convictions as possible (at great expense to the tax payer).
Both policies are valid (I think), and the choice is political (subjective). A presidential candidate might get elected on a platform that includes going harder after well connected rich people doing white collar crimes, and then appoint a new head of the SEC to enact this new policy of being willing to spend more money to try to get people in jail for fraud.
"might". But we are talking about a specific case here. Does anyone have any evidence that SEC attorneys used considerations other than legal strategies in their decision to settle with Holmes? No? I rest my case.
I don't mean political in the same sense that you do. I don't mean back-room deals, but decisions that are based on prioritization of values and resources in society.
Deciding what constitutes "wast[ing] taxpayer money" IS a political decision. Clearly there is a difference between easily and well proven cases and cases with scant evidence, but determining precisely where the line lies is a political decision. Do you investigate weak cases to send the message that things won't be overlooked, or do you pass over them to minimise public expenditure, for example.
Actually I'm relying on the SEC's statement that she was an active participant in a large multi-year fraud. True, I've always thought Theranos was Too Good To Be True and had doubt about la Holmes' probity.
But I think you're getting downvoted because you're arguing that white collar crime, even at scale, isn't worth prosecuting, and ignoring the perverse incentives that result from such decision-making.
It isn't just white-collar crime. The justice system isn't equipped to prosecute any crimes at scale. That's why prosecutors rely on plea bargains (and their over-broad, under-scrutinized powers in negotiating same) for the vast majority of cases. The courtroom is for the small minority who can afford representation and are willing to risk a very bad outcome.
Funny fact, in 2013, Italy actually banned Silvio Berlusconi from holding public office for 6 years. But, that doesn't stop him from participating and trying to win elections anyways...
Impeachment provides for this. At the federal level, you are bared from public office for life upon conviction. And it doesn't apply only to elected officials, but all public officials. Even some low person on the totem pole could be impeached, removed from their office, and bared from holding any public office ever again. Pardons do not apply to impeachment convictions.
States vary in their impeachment proceedings and what burdens must be met.
If you are convicted for drug trafficking or plead guilty to it, any asset that you can't prove you received through other legal means is likely to be subject to seizure.
Let me show why I believe what I said. I'm no expert, and I would like it if you could clarify my understanding of why you think seizure of assets is not likely.
I think this sentence is accurate: If you are suspected of drug dealing, any asset that you can't prove you received through other legal means is likely to be subject to seizure.
I think this sentence is accurate: any asset that you can't prove you received through other legal means MAY be subject to seizure.
I think this one isn't accurate, though: any asset that you can't prove you received through other legal means is likely to be subject to seizure.
Maybe I'm just surrounded by extremely lucky people, but none of the people around me (all of whom aren't partaking in illegal behavior / have never been suspected of illegal behavior) have had the police show up and randomly take their stuff.
Everyone loves a comeback story, though. In a few years she'll take the circuit of podcasts / news outlets.
"I thought we could do it. It started with a single, tiny lie and then it snowballed. I get out of control. I took some time off and now I'm starting my own company. We will be the most transparent company in the world and we're innovating X!"
Something along those lines. It's not a life or career ender IMO.
She got to live a few years as a billionaire. She could easily get a normal, non-executive job like 99% of Americans after this.
I think most people would take a lifetime of "humiliation" if they got to live an unreasonably extravagant life for a while then return to an upper middle class lifestyle, occasionally having news articles written about them until it all fades away completely after 5-10 years. A sentence of "humiliation" would only make scams like Theranos a more appealing idea to many people. And frankly, if someone could go so deep with a scam like Theranos, I don't think they/Holmes have much of a sense of shame to begin with. They'll justify their fraud to the very end.
Yeah, I don't think she gets nothing. She was paid a salary for many years, I would't be surprised if it was a pretty hefty one. There were probably other perks, too (wasn't she known to fly private for business trips?). It looks like she simply relinquished some equity that probably wasn't worth very much anyway. This settlement doesn't look like much of a deterrent to future would-be fraudsters.
True, and besides having lost money, their investors also continue to lose credibility, considering the poor if not complete lack of due diligence on their part, as long as this fiasco is in the spotlights.
Will it though? Surely Holmes still has a few million stashed away somewhere that she can live comfortably off of? This settlement isn't going to leave her destitute.
Either that or I'm sure she set up some clever offshore accounting structure that has $10M stashed in the cook islands or some shit. As soon as you get some cash, I think "rich person 101" is you set up some complicated structure to hide rainy day money for this very reason. I would venture to guess she took home at least $50MM in all those rounds of investment (maybe more? i have no idea how that works.), I doubt she blew it all or was stupid enough to leave it in plain sight.
I often wonder about this. I know founders that have instantly taken $100k off the table on a $1M angel investment. but such is silicon valley life i suppose?
I should be more precise... This wipes out her Theranos stock. Who knows what she paid herself. Her VC was a family friend, so I suspect she has family money, and may stand to inherit Palo Alto real estate.
The big difference is for all the time invested, her current stock is worth zero.
She lied, and doing so stole people's money, and maybe hurt some people's health. Who cares she got nothing from what she did. That's how it usually works for startups anyways, you risk having wasted your time. That's why we need making it worse, a stronger deterrent then her company dying, otherwise lying can be seen as acceptable to prevent a compagnie's death, as the only negative side effect is the company dying
She’s lost every chance to get a good exec position. The SEC doesn’t send people to jail, that’s out of their jurisdiction. The government will be the ones to do that.
It's right there in the civil complaint. Dunno if there were any other forms of compensation, but at first glance it does sound like she lost everything:
> Holmes was paid a salary of approximately $200,000 to $390,000 per year between 2013 and 2015. During the same period, she also exercised approximately 53.7 million stock options and received super-majority voting, Class B common shares, which granted her almost complete voting control over the company. Holmes has never sold any of her Theranos stock.
I remember those interviews, with the black turtle necks. She was playing the part of genius, but looked full of it, especially with all the secrets.
She is basically being fined $500,000. This is pocket change. I imagine so much money is hidden. This hidden money just might be the next fraud charge?
"Bared from hiring as an officer, or director for 10 years."
She will get hired on somewhere under Something of Something, even though she's a complete fraud? She didn't even finish her degree? Hell--most people don't know anything about blood testing. In a few months, the victim will be on stage somewhere. "If a was a ---, I wouldn't be treated this way!"
She got off very light. She's pretty enough to be scooped up by a Valley Boy. We have not heard the end of her. She will be fine.
I can't imagine any retirement money went into the company, so I really don't care about the 1 percenter's who lost some pocket change.
The only thing I'm glad about is no one is going to sport the black turtle neck, for awhile at least--that look belongs to Steve anyways. Any maybe, when the genius card is thrown around, people might do a little homework?
She did enter the market, with the right look, pedigree, though. The Lookers were looking for the next Zuck. Oh well, and the band plays on.
(I have a feeling under Trump's reign, the SEC, federal courts will go very easy on these types. So--if your planning on doing something fraudulent, white, and have family money; go to work.)
I remember seeing one of her public appearances for the first time (when they were flying high and before there was any doubt), and she seemed incredibly fake to me.
Pharma Bro was just sentenced to 7 years in jail for misrepresenting facts to investors, despite said investors did not lose any money but actually made some [1]
Here Holmes not only doctored power point presentations to baloon numbers to investors, but put thousands of lives in danger (if some were lost, we will eventually find out) by providing wrong results for tests to many patients that lives relied on it, and she gets jail-free card and slap on the wrist.
Shkreli received 7 years in prison because he was found guilty by a jury for securities fraud. What you refer to as "Here Holmes..." was were SEC civil charges. A criminal investigation was opened in mid-2016 and, as far as we all know, is still underway:
Well, according to Forbes, Holmes is worth _nothing_[0], so $500,000 is probably fairly painful. Plus, relinquishing ~19 million shares regardless of their value has to hurt. Also she no longer has the majority of votes in her own company. And as a CEO who can't be an officer of a public company for 10 years, yeah that probably really hurts too. Not to mention her name is effectively toxic pretty much forever now. So she's not going to jail, but those penalties certainly look painful to me.
It seems like a much larger fraud than Shkreli's, who got 7 years. Also, as someone pointed out, they didn't just deceive investors, they deceived the people who were getting blood tests and that seems much worse. So one might suspect there's some sort of privilege going on. Or maybe the story just isn't complete yet.
Politicians needed the prosecutors to make an example of Shkrelli because they needed to distract people from the fact that cornering a drug market and hiking the prices is still perfectly legal and practiced by much larger companies.
No, there isn't often a thin line. Most founders are not out there committing massive fraud. They may be doing a lot of marketing, and are probably promising things that still have to be built, but they're not out there lying that they have millions in revenue from contracts that don't exist, or falsifying demos.
"We had $50 million in bookings this year" - Misleading because it seems like that should mean $50 million in revenue but all of the bookings were for 10 year contracts so it is really only $5 million in revenue, but it is not fraudulent because it isn't factually untrue.
"We will be able to raise prices enough to be profitable" - Often optimistic to the point of delusion, but without a time machine it is not a statement of fact so it isn't fraud.
Every founder is optimistic to the point of delusion. It's a requisite.
Investors know how to deal with that. What they don't know how to do is deciding if "those complicated papers that use words you never even heard before say we can do X" is a lie or not.
How so? Isn't that what due diligence is? You get a third-party expert (be that in accounting or biology) with a signed NDA, and have them verify those results.
What they probably can't handle is outright fabrication.
>Theranos and Holmes have agreed to settle the fraud charges levied against them. Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares. Due to the company’s liquidation preference, if Theranos is acquired or is otherwise liquidated, Holmes would not profit from her ownership until – assuming redemption of certain warrants – over $750 million is returned to defrauded investors and other preferred shareholders.
3 years ago, I never would have thought that such an outcome would actually happen.
My (limited) understanding is that they've demonstrated a level of wireless power transmission, but nothing approaching some of the early hype that had things like mobile phones recharging in people's pockets whilst they were in a coffee shop.
The controversy there isn't whether you can transfer wireless power or not, but whether you can transfer enough in an easy enough way to make a practical consumer product.
Without commenting on the viability of the method in that link one way or another, I will point out that the physics is described are completely different than what uBeam has said they are working on.
uBeam has said they are wirelessly transmitting power via high frequency sound. This link describes a method that uses magnetic fields.
Holmes isn't in trouble for hyping -- she's in trouble for lying in financial documents. Unless the uBeam pitch deck claims that they have earned $100M in revenue when they haven't or that they have accolades from Public companies when they don't, they're fine to say that they are going to change the world with wireless charging.
The SEC can only bring civil charges, not criminal ones. So SEC investigations won’t bring jail time by themselves, although if the FBI or other agencies get involved that could happen
Also, Holmes and Theranos settled, which probably had some impact that on the penalties they faced
Martin Shkreli was, honest to god, an idiot. He got several chances to "kiss the ring" and show remorse, and what did he do? He put some extra oil on the fire and kept acting like an idiot until the very last moment. Sometimes you need to realise when to fold and suck it up.
Alternative take: it's disgusting and offensive to the foundational concept of blind justice that punishment is more highly correlated with charisma and obsequiousness to judges than it is to actual crimes committed.
It comes down to basic human decency. Of which he has none. And that does not make him very likeable. You can raise drug prices like he did and do it in a moral way. He was basically laughing in people's faces about what he did.
I agree courts, juries and judges are to be neutral, but a person like him just ends up getting under most people's skin. Even if there was no rational decision to go hard on him, I wouldn't be surprised if people subconsciously make that decision.
I kind of agree [1], but I don't think that's why there's a difference between the cases.
First of all, the Theranos people haven't yet been brought up on criminal charges, but it's still possible they could be, no?
Secondly, I think there were lots of material differences between the two cases that caused them to be prosecuted differently. You can't just lump every instance of fraud as the same thing.
[1] The reason I only kind-of agree: you're phrasing it in a way that makes it seem clear. But I can easily phrase it as "it makes sense that defendants who show remorse, and are therefore less likely to commit the crime again, will get a lighter sentence, as opposed to defendants who are much more likely to repeat the crimes".
On showing remorse: it's a bit ridiculous to think of this, since showing remorse does not mean you actually feel remorse. But it might mean you are intelligent enough to realise you need to show remorse to get off the hook.
But on the other hand there are probably few false positives the other way: not showing remorse and mocking the proceedings probably does mean you don't actually feel remorse.
Martin Shkreli was extremely intelligent, and the court recognized that. He continued to not show remorse (I think it's arguable that he did a bit more than simply not show remorse), why shouldn't the court believe that he truly is not remorseful?
He was not remorseful. He probably should have acted like he was remorseful if he wanted to get off the hook. He was also disrespectful of the court, I guess.
Many believe that when it comes to certain issues (like fraud) it is society that determines what justice is, and it has the right to force its members to comply.
Correct. Further, even if I did believe that, I wouldn't wish it in practice:
Criminality and psychopathy are tightly correlated, particularly with fraudsters. Psychopaths are excellent at faking remorse and other emotions that they do not actually feel.
I would not want the punishment of a criminal dependent on their acting skills.
The judicial system makes calculations to mitigate punishment based on belief of whether someone will present a danger to society. This includes the sentencing decided by the court, and subsequent reviews by parole boards. You think it better to eliminate such leniencies and move toward mandatory sentencing and 3-strikes type of policies?
Your last sentence is certainly a stretch, that the removal of remorse as a consideration means the removal of recidivism prediction, and the rigid use of policies represented by 3-strikes.
Applying the law extra hard to people who are disliked by you/the general public really isn't in the spirit of our justice system.
What happened to Martin is an injustice, and I'm saddened and disturbed by the people who celebrate it just because it was an injustice done against a "bad guy".
If you think that your attitude and words have no bearing on what happens to you in these situations you're beyond naive. The justice system is made up of people, not robots. Nothing unethical was done it him, he was convicted and sentenced accordingly.
If you get pulled over and call the cops a dick the second he walks up to your car, you're gonna have a bad time (and you deserve it.)
But there are generally ranges someone can be convicted in, for certain crimes 1 to 5 years, 5 to 10, etc.
That he got an 800% increase in sentence doesn't matter, as long as the conviction fell within the ranges set up by the law.
You can call a judge biased, but if he feels it's a correct sentence, then you're out of luck. You do know that is why we have judges right? In part to make judgement calls on sentences.
That's not how sentencing works. Unless the judge is up against a mandatory minimum, s/he has ranges to work within. Intent and attitude (lack of remorse, etc.) absolutely factor into that sentence.
If you rob a bank and then go to a casino and bet it all on 'Black', you're not absolved of that original crime if Black hits and you pay back the bank.
Shkreli lied to his investors (he claimed he had $55M under management when it never surpassed $6M), produced false financial statements, told prospective investors that his original investors had doubled their money (when they actually lost everything), raided the fund's money for personal expenses, backdated financial statements to defraud banks for new debt.... this is all laid out in the indictment: https://www.scribd.com/doc/293530336/1-main
If you think that financial criminals should face repercussions, Shkreli belongs in jail. Others surely deserve jail as well, but 'fairness' isn't letting Shkreli off, it's punishing the rest of them too.
What about the fact that Holmes actually lost money for investors and got no jail time. While martin lost no money but got 7 years of jail time. Where is the fairness? I am surprised by the stupidity I view on this forum, which is suppose to be frequented by people working in top tech.
Maybe cool it on the insults if your facts aren't right.
> What about the fact that Holmes actually lost money for investors and got no jail time. While martin lost no money but got 7 years of jail time.
A few things about this point.
1. Shkreli lost 100% of his original investors' money. He then lied to them all and told them that he doubled it. He then created fake financial statements that he used to raise new money, lying to new investors as well. He also embezzled his hedge fund's money to buy himself Picassos and Wu-Tang albums. After all of that, he undertook a very risky bet that paid off, at which time he paid back his original investors, again lying about what happened.
2. Holmes didn't "get no jail time" since the SEC can't arrest or convict people. They're a civil institution that can only apply civil remedies, like fines and management bans. The Department of Justice is also investigating Theranos and Holmes, it remains to be seen if they will issue criminal indictments. In any case, Holmes is cooperating and had agreed to settle.
3. Shkreli had the chance to settle, plead guilty, admit wrong-doing and avoid jail time. Instead he chose to have a jury trial, where 12 of his peers found him guilty of serious financial crimes that would result in 7 years in prison.
> 44. On March 2, 2011 , Shkreli stated in e-mails to MSMB investors that "MSMB returned +4.24% in February 2011 " and had "returned +41.71 % since inception on 11/1/2009." In fact, by the end of February 2011, MSMB had virtually no assets. MSMB had suffered over $7 million in losses in its account at Executing Broker as the result of its trading in Company A on February 1, 2011. Even setting aside the losses at Executing Broker, the net asset value of MSMB's prime brokerage account and the cash balance in its bank account amounted to only about $58,500.
> 45. Shkreli continued to send "performance estimates" until September 2012, when he informed the limited partners that through June 2012, MSMB had "returned +79.49% net of fees since inception on 11 /1/2009." At the end of June 2012, however, MSMB had no assets in its prime brokerage account or its bank account.
He lost 100% of his investors' money and was creating fake financial statements to lie to them about his massive losses.
Eventually, he used other people's money and huge gambles to recoup these losses. He also entered into fraudulent 'consulting agreements' with disgruntled investors from his hedge fund to make them whole using a different company's assets, essentially stealing from that company's shareholders.
What about the fact, that he paid from his own shareholding of the company, and the company investors didn't end up paying for it. The bigger point every one is missing is, he got a 800% increase from the average sentence. That IS NOT FAIR!!
He repaid investors in his hedge fund with millions of dollars in fraudulent consulting contracts from a different company that they weren't investors in. This is a breach of fiduciary duty at minimum and likely criminal fraud. He also repeatedly produced false financial statements to cover up his massive losses.
He was convicted by a jury of his peers on Federal charges and was sentenced using the Federal Sentencing Guidelines which are universal across all cases. Shouting in all caps doesn't make something unfair...
While I see the same distinction and it's hard to watch, we can enumerate Shkreli's mistakes:
1. giving the finger to Congress
2. refusing to settle and going to court
3. talking shit the entire time he was on trial, both to court journalists and on TV ("junior varsity", etc.)
4. offering money for Clinton's DNA while on bond shortly after she lost the most embarrassing election of all time (while hilarious and obviously satire, of course "they" used this against him)
And I'm sure someone else could add to my list. Meanwhile, I don't even know what Holmes looks like, let alone what her voice sounds like.
More seriously, this is why often people who know they've been caught dead-to-rights settle early: the government wants the W and doesn't want to have to spend money to get it. Shkrelli made them go for the conviction, and so he got the actual, un-discounted penalty.
The SEC is a civil agency and can not jail anyone for anything, they can only levy penalties.
Justice has to take over the case for an offender to go to prison.
Is there any kind of requirement (or general process) that says that Justice typically defers until the SEC has issues findings and sanctions before beginning (or stepping up) criminal proceedings?
How does that make the above statement any less ridiculous? Isn't that exactly what he or she is pointing out? That the system is explicitly preventing these people from serving jailtime?
Since the SEC only deals with civil penalties, they can act quickly and without the certainty required for criminal convinctions. They can also refer cases to the Justice Department, who can (and do) levy criminal charges.
Just because the SEC is the only body to publicly announce a resolution doesn't mean that Holmes or Theranos are off the hook criminally. The Obama DOJ initiated a criminal investigation in 2016 that is apparently still active and could absolutely result in jail time:
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 strategy both fraudulent and they feel they have the jurisdiction to prosecute you. And while I doubt the SEC is going to go after every CEO that raised a Series A on a pitch deck that was pure fantasy, the people who participated in the round might bring them in if it served their purposes.
That's true, which just compounds the problem of newbie investors thinking "fake it until you make it" is OK because they get positive reinforcement from their investors.
Re a previous Holmes forfeiture:
"Warmenhoven added Ms. Holmes showed “a level of selflessness and grace reflecting her commitment to the company’s success.”
Think about the decision that he had to make in 2016. He had to choose between admiting his mistake and doubling down. The downside of admitting his mistake is that he's guaranteed to get negative points; the upside is that it will minimise futures downsides. By dubling down, he's guaranteed to reduce his negative points in 2016 but exposes himself to magnified upsides (if he's proven right) and downsides (if he's proven wrong) in the future.
Now think rationally how you'd choose. The second strategy is a lot riskier so it better have better return as well! But the second strategy can only have higher reward if you either believe high probability of future upsides (i.e. Theranos might be faking till you make it, but they'll make it) or low probability of future downsides (i.e. I'm not sure what's going on, but definitely not fraud). I submit that the only way that you could come to believe either is if you're hugely misinformed about the company.
My understanding is that competence only matters when other people are giving you money, and doesn't matter at all when you're giving people money. I think you're really overestimating the downsides.
Those kind of decisions are made on a purely emotional, reactive basis without going through the rational game theory analysis you laid out. Most wealthy investors are no more rational than the rest of us.
An iterated game will tune emotional responses to achieve the same end.
Draper has no doubt had many chances in his life to provide negative but true and positive but false comments on his investments. If society punishes negative but true comments he's damn well going to notice and make fewer of them. If society further fails to punish positive but false comments about his investments, he's not going to invest the mental resources that would be required to avoid them.
A little experience substitutes for a lot of strategy.
How sure are you that you really think that way? Most people make decisions based on emotion and intuition, then rationalize those decisions after the fact and fool themselves into believing they were rational from the start. Since human memory is so unreliable it's almost impossible to accurately determine which decision making process you actually followed.
I think you're ignoring the iterated nature of the game he plays. He is looking for founders to fund -- deal flow is the lifeblood of any VC. This is a signal like many other, and what it says is "As an early stage investor I absolutely have your back."
"Venture capitalist Tim Draper, an old family friend of Theranos founder and CEO Elizabeth Holmes, who led an early $1 million investment into the company (split between two investment firms).."
SV/tech/USA is so great, anyone can make it big. You just have to be smart and work hard. Oh, and be family friends with billionaires. Yeah, that's all.
That's one way to get funding, but it's certainly not the only way, there are lots of counterexamples. As one obvious counterexample, one of the founding principles of YC is providing an open application process to provide people who don't have any personal connections access to the SV network. Larry and Sergey weren't well connected when they started, either, afaik, as most PhD students aren't. If you're doing something interesting that seems likely to succeed, and you're motivated, it's not all that hard to become connected to wealthy people who are very interested in turning their money into more money.
This is an incredibly defeatist/self pitying line of thinking that I'm seeing more of (the world is stacked against me, you have to be born into it, etc) and is related to a lot of other self-defeating thought patterns. It's not going to help you or anyone else who subscribes to it. Maybe it's just that bad news is much easier to see, thanks to the web, so people think bad behavior is more common now, and it's turning people cynical.
> Larry and Sergey weren't well connected when they started, either, afaik, as most PhD students aren't.
Doubt it. I don't think In-Q-Tel/CIA will write you a check because you just happen to have this shiny new search engine that may or may not change the world.
100% sure. Like your source says, it's a partnership between the CIA and the private sector.
"Close" does not mean part of the organisation. The founder Norman R. Augustine isn't even a CIA person. It is somewhat similar to a spinned-off company which runs independently but has tight connections (and a contract, in case of In-Q-Tel) with the organization that spinned it off.
* In-Q-Tel (theoretically) may have other contracts and major partnerships.
* In-Q-Tel gets to pick who they invest into; CIA may express interest in a particular area or a company but In-Q-Tel manage their portfolios.
* While In-Q-Tel is non-profit, the profits flow back and the employees may profit from it. Meaning, while part of the funds come from the CIA (taxpayers), part come from the past profits.
I think incorrect (or even correct, but rare) narratives are dangerous. Especially when they're the feel-good type that people tell to make themselves feel better about the way the world works. (meritocracy, egalitarianism, etc)
Anecdata, but: I left academic hard science because I realized it was too difficult to get ahead; moved to the bay since I can code and it was a way to create a runway and find myself, and pitch companies. Got a contract coding gig, because a professor on the board of my roommate's company was impressed that I had independently implemented his prototype as a personal side project. Applied to 10+ startups for "real programming jobs", including through triplebyte, rejected by all, finally got hired by a roommate's friend (on reputation only) whose company needed asses in seats for an investor meeting.
Meanwhile, I'd been pitching 3 biotech ideas and one tech idea (I had written verilog for a hardware prototype of a deep learning chip) and got no bites on any of my pitches.
Finally, a friend offered me a VP product position (because he needed someone he could trust) which I was about to jump ship for, and then my current CEO counter-offered by agreeing to put his personal money as a lead in one of the biotech startups I'd pitched (that was somewhat meritocratic because he has seen how I operate as a coder in the company and was impressed, and I think he figures, probably correctly that if I'm that good a coder then my biotech skills are even better because that's what I'm formally trained in)
Since getting here, I haven't once advanced through pure merit, and have always advanced through connections.
Being good at making connections and being seen as capable and trustworthy enough by your existing connections is absolutely a form of merit, an important one if you want to marshal enough people and resources and investors to build a successful company. My point was that the seemingly common mentality of "you have to be born into it, the rich only help the rich, etc" is not true, it's not a useful belief, and the counterexamples are not rare. It can help, certainly, but it's not a requirement by any stretch.
Yeah, I don't think any of your friends offered you a position because you're they're friend. They offered you a position because they knew you AND they knew you were smart/talented/a coder/whatever.
I got my first foot in the door via an internship on a referral from a friend who had interned there the year before. I had no formal credentials (just taking CS classes on the side of an Econ degree in college), but I had spent all of my math/CS classes studying with this kid. He knew I was smart and put his own ass on the line to get me an interview.
You can be successful purely by reading books in a room, writing code alone, and building some brilliant startup. (E.g. look at the CD Baby guy, what's his name). But it's SUPER unlikely. You're way better off being a social human being, building relationships/trust, and paying it back/forward to folks that do right by you when you know you deserve it.
my contention is not that I got any jobs because I was a friend (or a contact of a friend) but rather that I very likely wouldn't have gotten any jobs if I weren't a contact of a friend.
A lot of the SV narratives circle around meritocracy (or other ways of 'hacking the signalling game' even. And when you say "it's SUPER unlikely", I think you're 100% correct. And so challenging the meritocracy myth is important.
Your story is the "meritocracy myth" in action. You demonstrating your merit to people who then vouched for you. It'd be nice if we were good at judging people objectively without knowing them for very long, but we're not, especially in very important aspects like trustworthiness.
> Larry and Sergey weren't well connected when they started, either, afaik, as most PhD students aren't.
That was 20 years ago. As much history as Larry Ellison's story in 1970s. Things have changed a lot, and the Silicon Valley today is a poster child for cronyism.
The VCs don't even bother opening "cold emails" (a ridiculous term for something that purports to be an open club). It's a herd of arrogant hipster bros who have no clue what they're doing and try to CYA by "warm introductions" (when their bet fails, they can shift the blame on a 3rd party).
The investment is not completely off-limits (my own story is a testament to that), but it's magnitudes harder to get if you're not connected, and oftentimes you have to pay through the nose to the "people who know people". I also know some rare cases when super-angels answer to complete strangers and subsequently invest, but these are exceptions rather than the rule.
> This is an incredibly defeatist/self pitying line of thinking that I'm seeing more of (the world is stacked against me, you have to be born into it, etc) and is related to a lot of other self-defeating thought patterns.
Can you back up this statement? Why is it self-defeating? You put it in your post as if it somehow logically follows from the rest but it doesn't.
The claim is that people who were not born or just lucked into connections with the rich and powerful are going to have to work significantly harder or get lucky to get access to those opportunities. While the people that do, can put some work in and basically claim the opportunity or just simply try again without significant loss or even having to settle for less.
"Lots of counterexamples" don't mean anything unless you can show that there are in fact so many counterexamples that they outnumber them in a similar ratio as the people in the first group utterly outnumber the people in the latter group. Or even by a factor of ten.
But they don't and almost nobody would be having this discussion if they did.
> Maybe it's just that bad news is much easier to see, thanks to the web, so people think bad behavior is more common now, and it's turning people cynical.
And you're going to need more than those words to properly argue that this is a bad thing.
Because a lot of bad news wasn't visible enough. And people have been underestimating the magnitude of bad behaviour. And a lot of people in a lot of places in the world most definitely aren't being cynical enough.
Sure there are psychological downsides to being bombarded with bad news and negative information all day, and we need to find ways to handle that, for our collective mental health. Doesn't mean the bad news is somehow wrong or faulty.
The complaints further charge that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters...[i]n truth, Theranos’ technology was never deployed by the U.S. Department of Defense...
Right, but that doesn't mean that fraud can't happen with very early stage companies....there are plenty of b2b SaaS startups out there who are raising on non-GAAP metrics like "bookings" and who are grossly inflating both the certainty and pro forma value of these projected numbers.
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.
I interpreted it somewhat differently. The money paragraph seems to be
> claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014. In truth, Theranos’ technology was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014.
This was not even a forward-looking statement, it was an outright lie in the legal document.
One can do pretty much whatever they wish with accredited investors' money, but it has to be disclosed in the PPM.
Even if you have a line item where all the money will be spend on CEO's dog's private jet travel, accredited investors who have reviewed and signed the PPM have no legal recourse.
In Theranos case it looks like a straightforward misrepresentation of facts, which is a red flag for SEC.
My interpretation is that most startups don't deal with life-or-death lines of work, whereas Theranos does. There's no room for "creative" business practices there. The government will take note at some point and come chasing.
Yes, if you want to lie about some drone-based burrito delivery service you're probably not gonna draw the same ire as life-saving medical equipment. Although if you swindle investors for over $700 million in either case I imagine the SEC will be knocking at your door eventually.
A few years ago that would have been peak Silicon Valley but now it would have to be a drone-based burrito delivery service settled on the blockchain to be peak SV in 2018.
More along the lines of pitching their startup to someone at the Wall Street Journal who signs up for a demo account but are thoroughly unimpressed and never login again. But in their pitch deck to investors they proudly claim that the Wall Street Journal is a customer.
> claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters
That is clearly a statement looking at past events, so if it was false it was clearly a lie
> the company would generate more than $100 million in revenue in 2014.
The important word there appears to be "would", in which case it was a forward-looking statement so easier to argue it was based on projections that just didn't pan out.
I agree, especially when you use the recent Shkreli case as a point of comparison. You have Shkreli who has been put away for 7 years for a hypothetical 10mil, yet Holmes commits "massive fraud", possibly losing 100's of millions of investors' money, and most likely gets away with a 600,000 fine and no jail time.
Nah they did. He lost their money on stocks, lied about the state of their investments then paid them all a healthy return from his drug ventures with them none the wiser.
I had to go through a bunch of SEC cases for an accounting project a while back. One thing stood out to me more than anything: the SEC goes after cases that are easy more than anything else. Multiple crimes committed with lots of evidence and easy-to-spot damages. It actually gave me the impression that avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught.
>It actually gave me the impression that avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught.
I assure you, it is only possible to avoid risk if you're a small fish and extremely careful. For instance, you have a good chance of getting away with skimming a neighborhood stock fund you setup. If you are managing or receiving millions of dollars in investment, you can bet anything fishy will show up on the SECs radar at some point. Most people with large sums of money don't get where they are by being stupid with it, and if they are the victims of fraud, they know where to go. While the SEC can't bring criminal charges, they have top notch investigators. Once they smell the fish, they won't stop until the entire scheme is unraveled.
I can't speak directly to the observation you made, but I personally know a high up SEC investigator, and he obsesses about the most minute details of the cases he works on and lives to take on the toughest cases possible. My guess is distribution of cases the SEC prosecutes are very heavy tailed. There are many dumb cases that are very easy to find and prosecute that involve 10s to 100s of thousands of dollars. Think skimming, ponzi schemes etc. The more sophisticated and larger cases are also more risky (for the fraudster), harder to execute, and much more rare. That might explain your observations.
In 1999, financial analyst Harry Markopolos had informed the SEC that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. According to Markopolos, it took him four minutes to conclude that Madoff's numbers did not add up, and another minute to suspect they were likely fraudulent.[73] After four hours of failed attempts to replicate Madoff's numbers, Markopolos believed he had mathematically proved Madoff was a fraud.[74] He was ignored by the SEC's Boston office in 2000 and 2001, as well as by Meaghan Cheung at the SEC's New York office in 2005 and 2007 when he presented further evidence. He has since co-authored a book with Gaytri Kachroo (the leader of his legal team) titled No One Would Listen. The book details the frustrating efforts he and his legal team made over a ten-year period to alert the government, the industry, and the press about Madoff's fraud.
Maybe you didn't carefully read my original post. I'm not claiming the SEC has a perfect record in finding frauds before the hurt anyone (that would be nearly impossible). I am pointing out that getting away with fraud is extremely difficult. Eventually, you'll get caught, the SEC will uncover everything, and you'll be broke forever. From op:
>...avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught.
This statement is mostly what I was responding to. Here is a thought experiment. For the sake of this experiment lets say our economy is perfectly competitive. If all an entity had to do to get away with fraud was "set your mind to not getting caught," then every entity that participated in the economy would be committing fraud because it is in their best interest. That sounds wrong, probably because it is. White collar criminals don't plan on getting caught, they do everything they can to get away with their crimes. To me, that qualifies as setting their mind to not getting caught. Well, they get caught anyway.
The companies you bring up (enron, worldcom, madoff) are outliers in the world of securities fraud. they achieved unprecedented levels of success and then failure. Using these cases are counterpoints to an argument that financial crimes are hard to get away with seems silly to me. After all, none of these frauds were successful in the end, instead, people ended up in prison.
Even if it's relatively easy to not get caught, you can't be sure exactly how easy it is, and the downside is catastrophic. So no, I don't think every entity in your thought experiment would be committing fraud. Only ones that knew for sure exactly how easy it is and that they would not get caught for sure. And those ones, by definition, would never be caught so the public would never know ...
You can be sure exactly how easy it is because in a perfectly competitive economy everyone has perfect information, and the experiment's key assumption is getting away with fraud is a endogenous variable in the utility function. The fraudster can manipulate this variable to optimize their utility. This means that every actor knows exactly what they must do to avoid getting caught. It's a simplification so we can consider the implications of the notion that getting away with fraud is as easy as setting your mind to it. Another assumption is entities act solely in their own financial best interest. In this setup, everyone who will be better off by committing some form of fraud, which will be everyone who participates in the economy, will commit fraud.
Oh, okay ... but everyone having perfect information AND fraud being possible to get away with are fundamentally contradictory assumptions; fraud is based on exploiting some people not having perfect information.
They are not fundamentally contradictory, everyone would know they are victims, still if it is in their net benefit to participate, they will. Again, this is an experiment with unrealistic assumptions (getting caught is an endogenous variable), it is intended to bring to bear the the absurdity of the statement that one can control their own fate if they commit fraud.
>...avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught.
The experiment is a simple application of the economic theoretic framework to the statement above. Nothing more. There isn't all that much to argue about here, as long as you accept the framework upon which almost all of theoretical economics is based.
> 1. A sufficiently large distribution will contain outliers.
A sufficiently large enough example which failed to be stopped by investigators for a decade could easily outweigh thousands of outliers ultimately being a serious net-negative and outweighing such a dismissal of facts...
The fact such a blatantly wrong example proceed to scale up for a decade and encompass billions of dollars before being shutdown is quite a good example of how any one investigator's knack for detail in their own limited exposure to particular cases (as in your personal analogy) is hardly sufficient to dismiss the idea that all complex cases need not worry of SEC investigation. Quite the opposite.
If anything that means the SEC has smart people but only a limited capacity of attention as they tend to obsess over details in individual cases (as that is what is required in a significant percentage of them). So as long as you're not one of the easy cases (obvious ponzi schemes or involving large sums, significant amounts of people, or popular advertising) then it's not as worrying a threat as they'd like to make it appear.
Again, point is not just about SEC investigation. I'm pushing back against the notion that getting away with fraud is as simple as setting your mind to it.
The counterpoint to that is Bernie Madoff, who was a big fish and careless and by the time he was caught there was an orgy of evidence against him. I think it has more to do with low-hanging fruit than anything else. That doesn't mean SEC investigators aren't diligent and hardworking, but you need to leave behind evidence. Very few schemes struck me as particularly creative frauds, it's like the most obvious stuff you can think of: either just pocketing money or lying to investors like a dumbass, or simple schemes involving capitalizing expenses, or over-payment scams. No Repo 105 or any sophisticated Enron stuff like that. It's like if you studied cyber security in school, and all the big fish are falling because they set their password to hunter5 or got phished.
I can't find it now, but I do recall the SEC itself putting the number of frauds they uncovered in the low single digits. I might ask my SEC friend himself what percentage of the iceberg he thinks is uncovered.
I have asked him this. Paraphrasing his words: eventually, the SEC investigates virtually all securities frauds. Some cases are dropped if the act was criminal in nature and the FBI or law enforcement wants it, other cases are dropped if the suspect is deceased or fled, and of course there are cases where leads go cold and the case is back burnered.
The point is, fraud is risky, and it isn't easy. You basically have to be willing to give up your life as you know it. Sometimes I wonder whether fraudsters have an internal dialogue about whether it is worth the risk. And for the fraudsters who aren't psychopaths the guilt of defrauding friends and people who trust you must be enormous. Sounds like a stressful day job that I won't ever be entertaining.
Lets not pretend that everyone isn't just following the leaders here with grandiose messaging. Major tech corporations have done this as much as small startups.
IBM's Watson comes immediately to mind.
The difference is whether or not you can come through with some percentage of your promises. The ones who can eek out some kind of repeatable traction long enough to exit are successes, the ones who never get to scale are frauds.
All of the industry AI labs follow the same pattern, even (perhaps especially) the en vogue ones (well, I guess depending on wtf "solve intelligence" is supposed to mean...). Watson is just old enough that it's now obvious the advertising agency was given too much leash.
Ditto for self-driving.
Ditto, in fact, for basically any basic or applied research happening in the research arm of any for-profit organization. And at a lot of universities besides! In fact, as far as I can tell, positive PR is some non-trivial aspect of the ROI for industry research labs.
BUT... there's a HUGE GAAP ( ;-) ) between marketing hype and lying in financial disclosures. One is eye-rolly and should be called out on internet message boards and during sales pitches. The other is criminal.
>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 you can just rewrite the laws that were slowing you down
- that no one knows what they're doing anyway, major projects are 100% guesswork, and you should just "fake it till you make it"
- that any skill is just a matter of 10,000 hours of practice
- that you can outsmart an industry before even passing or placing out of sophomore level classes
- that any self-doubt must be Impostor Syndrome, and so it's not worth your time to even check if that doubt has a factual basis
Yes, I've posted this twice before but I'm citing it and admitting to it, and it got heavily upvoted both times (thanks to Algolia for making comments so easily searchable btw):
This feels more like an over-correction to the prevailing cultural wisdom that everyone needs a post-secondary education. Contrary thesis to the prevailing wisdom is where a lot of startup fortunes have been made.
Hopefully we're about to land in a cultural place where getting an education is seen as getting an education, rather than either a panacea for individual success or a complete waste of time/money for the docile masses.
I agree with every word, but at the same time I think a lot of people here on HN like to use hating on education as a humblebrag for how smart they are.
what actual evidence do we have of her intelligence apart from starting theranos and doing the original research that led to starting theranos? honest question
I don't know, but suggesting that Marissa Mayer or Elizabeth Holmes are not among the most intelligent people ever roaming this planet quickly labels you as an insufferable misogynist here.
You can have all of those listed beliefs and still be honest about the actual state of your company, progress towards goals, etc. Doing so will probably beat those beliefs out of you, and you can come to an honest understanding of your limits.
Arrogant, presumptive behavior is annoying -- but I think it's important to keep a bright line between that and dishonesty, because one self corrects and the other doesn't. And, a pinch of presumption is necessary for exploration.
Then I'm confused: how can you a) hastily dismiss all self-doubt as Impostor Syndrome and b) believe "no one knows what they're doing either" while remaining able to accurately, honestly self-assess your skill, quality of work, and prospects for success?
Edit: If you have a good answer, then I would suggest we start posting that as the advice ("here's how you know if you're good enough") rather than immediately tell everyone they have they have Impostor Syndrome (as seems to be common practice).
> Then I'm confused: how can you a) hastily dismiss all self-doubt as Impostor Syndrome and b) believe "no one knows what they're doing either" while remaining able to accurately, honestly self-assess your skill, quality of work, and prospects for success?
IDK, I feel like that's a sweet spot most people hit at the end of a PhD. Enough confidence in yourself that you can expend lots of resources trying hard things.
Enough humility to recognize that you'll probably fail at most of those things.
And most importantly, the project management, risk management, and communication skills to hedge your big bets.
Enough experience working with top-tier people to know that all of these things are learnable skills that other successful folks are using (including fields medalists and including high-school dropouts).
Maybe there's a difference between the "informed arrogance" of a researcher working on an open problem in their field (or a serial entrepreneur trying to disrupt a huge industry) and the "uninformed arrogance" of a charlatan, hack, or (in this case) fraudster?
What's the original referent of your impostor syndrome comment? As I see the term used, it generally means "I'm an impostor among this crowd of other people who do actually know what they're doing," not "I am unable to do this thing that nobody has ever done."
That is, if you believe that you can't learn kernel hacking, that's (potentially) impostor syndrome. Lots of people have in fact learned kernel hacking, you can learn it too. Your self-doubt about it is based on (falsely) thinking that you are individually incapable of doing a thing plenty of others have done. But if you believe you can't build a perpetual motion machine, that's just thermodynamics. Nobody has built a perpetual motion machine, and doubt about your ability to do so (which isn't really self-doubt) will be quickly confirmed by a survey of the literature.
>That is, if you believe that you can't learn kernel hacking, that's (potentially) impostor syndrome. Lots of people have in fact learned kernel hacking, you can learn it too.
No, the fact that others have learned it is not (strong) evidence that you can learn it too; you would need to know how similar you are to those people, and whether those dimensions are relevant.
IOW, exactly the diagnostic criteria I suggest we search for rather than immediately skip to "so what, other people thought that too".
>Your self-doubt about it is based on (falsely) thinking that you are individually incapable of doing a thing plenty of others have done.
That's generally not what is happening in practice. People don't de novo say "I can't ever do this". Rather, they attempt (or otherwise survey) it, find difficulties ("I can't consistently understand how the stack is doing that"), see others that have no similar difficulties ("what? It would have taken me a day to work through that and it comes naturally to you"), and on that basis conclude that they're unlikely to succeed as well.
"You have Impostor Syndrome" doesn't make any headway on the core problem.
To me, "zero self-doubt" and "nobody knows what they're doing" are predictive hypotheses that can be falsified by future experience, when you get beat. I guess if you're talking about a psychopathic condition where your self-doubt bit is hard-wired to 0, then yeah you're not going to be able to assess your progress.
Those folks exist, but I meet plenty of basically honest people who are arrogant before experience and humbled after. Far more than the raging narcissists who will do what Holmes is accused of, though those get attention.
As a recent dad, I think a lot about sending my guys into a world with 10B people in it, moving incredibly fast publicizing accomplishments (real and otherwise) in ways that make it seem like every niche is filled up. It's clear to me that irreverence for status quo and honesty with themselves are going to be equally important in them finding a niche for themselves.
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
I don't know if there's a single "HN mentality". This site is an ongoing uneasy truce between the entrepreneurs (who have more of the attitude the GP is complaining about) and the developers (who tend to be more cynical about these things and, if they care about startups at all instead of working a 9-to-5, are more likely to have the "scratch your own itch" mentality). There's a lot of back-and-forth between which viewpoint is ascendant in the comments, usually depending on how badly-behaved SV companies have been recently.
Maybe "that YC/startup news mentality" would be a better qualifier. The whole "better to beg for forgiveness than ask for permission" mentality. You can find some of that on HN but I hope we're a little more diverse than that.
- that it can be fixed by a low-bureaucracy, Angel-funded startup
- that any skill is just a matter of 10,000 hours of practice
Some of these things are correct sometimes. Many industries have been doing things wrong for very long, and massively productive changes disrupted the industry. Who knew that boiling water would change the coal industry forever? Some guy came up with the pump idea and changed everything. The mine owner that invested in him made a lot of money. The industry changed. Things like that happen.
The problem lies in when you try to blindly apply these assumptions without anything to back it up. This is true of anything in life.
I get that we sometimes have gut feelings that we can't explain. We have to be honest with ourselves though. "Is it just that I don't want to face reality, or is there truly something that I can't put into words drawing me in this direction?"
Theranos was more about using politically connected power-brokers to set up deals with kickbacks (their board/investors were government and military elites), less about "disrupting the industry with new ideas"
People here gave me talking points based on what you are saying years ago when I expressed skepticism about Theranos. I worked in the diagnostic industry and know that 1. Many tests (that are in the comprehensive panel that is routinely ordered) cannot be done with a finger stick, they need venous blood. 2. This isn't like a social network you can start out of a dorm room, it is a 50+ billion dollar industry that is highly regulated and needs real science.
What if some 20 year old business major drop out said they are going to make chipsets double the speed of the old and lumbering tech companies like Intel? Everyone here would say no way and never think that would be disrupted so easily. So yes it is a case of people with HN mentality thinking that well taking blood via a venous draw and giving me my results a day later is cumbersome and stupid, and rife for disruption. Someone thinking outside the box despite me or that person knowing next to nothing about clinical lab tech can easily make it better than Roche, Quest, Lab Corp, Abbot etc. because they can move quicker, and disregard the old paradigms. With no consideration for the physical impossibility with known scientific knowledge!
So yeah please by all means look at how smug a lot of us were on earlier Theranos postings about the Steve Jobs of med tech. It is a valuable lesson to learn. Not everything is inconvenient for no reason, and not everything can be disrupted without some serious demonstrable tech.
I don't doubt that the comments you're referring to existed, but the HN community has been overwhelmingly skeptical about Theranos for years, to the point of cliché.
Yes you are right later on people had more skepticism especially after the FDA piled on. The argument I am making is the initial claims they had about testing a single drop of blood were pretty outrageous to anyone that even knows a little bit about how this stuff works. Look at some of the downvoted comments they said exactly this! There are things that can be said well we didn't know they were hiding this, and there are things that people should have listened to someone that has even elementary knowledge of how this stuff works. Look how many people dismissed the impossibility of this stuff with remarks on her connections and the might of SV....
I skimmed those threads and read them pretty differently. Even many of the pro-Theranos comments were careful to say things like "How can I know to trust their numbers?" and "the enormous change her company is saying is possible" (emphasis added). Those seem to me to have aged pretty well, and then there are the many skeptical ones, including from people like you who have direct experience in that field.
Please don't copy and paste content into Hacker News, regardless of how good you think your past comments were. The threads here are for conversation, not reciting from the record.
There is no "HN mentality", just a large statistical cloud that people see what what they want in. Most of that cloud has been the opposite of what you're suggesting. Commenters here have been not just skeptical but cynical and outraged by Theranos for years, to the point that it became tedious. It looks to me like you're engaging in a bit of revisionism for the purpose of posturing above the community. That is a popular sport but a distasteful one.
>Please don't copy and paste content into Hacker News, regardless of how good you think your past comments were. The threads here are for conversation, not reciting from the record.
Would you mind giving some guidance on what I should have done in the situation? I was doing the best I could against the constraints. The situation was that someone made point X, to which I have point Y as a reply. Both X and Y, in some form, have been posted numerous times.
Should I:
1) Not reply?
2) Reply, but make sure to reword Y each time?
3) Link to a previous version of Y?
4) Copy-paste a previous Y but not admit to it so it's not clear I did anything wrong?
I chose 5) copy-paste the best previous version of Y and be transparent that I"m doing so, and why I thought the circumstances merited it. You think that's the wrong choice. 4) and 3) don't seem much better based on what you've said.
I'm guessing you want 2), but IMO that's even worse because it disconnects the discussion from previous ones and forces us to retread the same ground more clumsily.
>There is no "HN mentality", just a large statistical cloud that people see what what they want in. Most of that cloud has been the opposite of what you're suggesting. Commenters here have been not just skeptical but cynical and outraged by Theranos for years,
That's kind of my point. The typical comment is outraged at Theranos. But the typical comment is also endorsing the very kind of behavior that avoids and ignores those very same warning signs. "Well sure, I consistently said over the years to 'never listen to the haters'. But I didn't mean when they were right, of course!"
"HN [most often] tells everyone that no one knows what they're doing either" is not revisionism. Revisionism would be claiming outrage that someone would press ahead when they didn't know what they were doing.
Writing a new comment would be fine! and linking to an old one would also be fine. I agree that what you did is better than #4 (and am grateful for that) but it's still not kosher. Think of how good conversation works. People can make the same points in different contexts without literally repeating past statements. Something about creating each statement in the moment—even though there are only so many ideas to go around—serves conversational flow.
I don't agree with you at all about what the typical HN commenter is endorsing; it seems to me you're adding a lot of interpretation to a lot of disparate information and constructing something of a straw man.
By the way, if anyone is interested, only a small minority (10% if that) of HN users are in Silicon Valley. And plenty of those identify more against it than with it.
"fake it till you make it" is one thing if your product is a new dating app to compete with grindr, or a clone of flappy bird... entirely another thing if you're making tangible claims about the ability of a medical device.
I’m glad, and frankly I’m tired of all these “fake it till you make it”, “lean” startup, wizard of oz type companies polluting people’s attention with fake or half baked product offerings for shit that doesn’t exist just so they can get a signal to see if something is really worth doing or not. Consumer hostile.
You can believe in yourself without faking anything, and it’s healthy to do so.
Faking it implies you want to give others the impression you’re already a big shot, and it dilutes out the accomplishments of people who actually made it.
The downside should be that if you’re faking it and you don’t make it, your shame should be relentless and brutal, and no one should ever take you seriously again. Also, even if you make it you will feel alone and empty in your success, because everyone will have long thought you already “made it” and you have to continue hiding your true story. There is no one to celebrate with except those who are also in on it.
Where as if you would have just been humble and true to where you currently are, people have headroom to express sympathy and support should you encounter a setback.
> You can believe in yourself without faking anything...
I don't think so. Self-doubt is natural. Mandatory, really. Someone who never has moments of self-doubt is a bad investment risk; it means they probably aren't thinking hard enough about what could go wrong. But concealing those doubts is also mandatory: if you can't, it may be a sign that you have more problems than you know how to deal with.
It is not mandatory, it merely requires courage to go forward knowing you could fail and things could go wrong.
If you choose to ignore it and fake your way up, you are not being brave, you are being delusional. I'm not sure if delusional people are good investments.
As with anything there is the way in which something is offered and the way in which it is consumed. I have encountered many people who have internalized "fake it" to mean "pretend that you are hitting all your milestones and you executing against your plan". These folks see this as a way to keep the questions of why they aren't actually doing all of that at bay because later when they are "making it" those questions will be irrelevant.
For example you lie about how your marketing efforts are reaching customers who are signing up in droves while you use mechanical turk and other techniques to make the observable metrics go up. At some point your visibility reaches the point where you actually are reaching your customers and so you can stop doing the shady stuff. By doing this you avoid the inefficiency of the whole "we aren't sure you can do this" discussion which helps no one.
On the outside, one clean narrative, traction and growth from day 1, now a multi-million (or billion) dollar business. Or as my Grandfather would say, all yummy sausage and no discussion at all about what not-yummy things are in there too.
Everyone should believe in themselves. That is just a given, if you don't (or can't) then you won't reach your expectation. There isn't any "faking" there as far as I can see (unless it is suppressing your own doubts about the effort).
"I have encountered many people who have internalized "fake it" to mean "pretend that you are hitting all your milestones and you executing against your plan". These folks see this as a way to keep the questions of why they aren't actually doing all of that at bay because later when they are "making it" those questions will be irrelevant."
This is 100% correct. I also know a fair number entrepreneurs who engage (or have engaged) in exactly what you describe. Also, it's a short and murky step from many of the "naughty" stories that are lauded in entrepreneur lore, to outright fraud. Too often, we make post hoc rationalizations for unethical behavior, based on outcome.
It's a huge dilemma if you want to behave ethically, but you're competing with lots of people who don't have that limitation.
> it's a short and murky step ... to outright fraud.
Staying vigilant against the normalization of deviance[1] is difficult even in ideal situations. Choosing to normalize deviance as a business strategy is practically guaranteed to rapidly accelerate deviations from acceptable behavior.
In any system - including every business - resilience and safety means fixing small problems before they grow into bigger, more damaging problems[2].
> rationalizations for unethical behavior
Often, it doesn't even need to be rationalized. When deviant behavior is slowly normalized in small steps, the human mind tends to only see the "small, insignificant problems", and often skips[3] over big changes that should be "obvious".
You've hit the nail on the head with "normalization of deviance".
First you shade the truth slightly. You're uncomfortable at first, but the line seems to work, so you try it again. You use it another 10 times and you start to believe it.
And then you shade the truth a little more. After the hundredth pitch, you're a fabulist, and you barely noticed.
Well, TBF, if you are doing something genuinely new, it can be hard to figure out what's real and what's not. It can be hard to figure out what are meaningful metrics and what aren't.
I was sympathetic to the Theranos side of things until I learned they actually submitted fraudulent test data. That was the point where it became clear to me they were not confused as to where to draw some line. They were being willfully deceptive. Deception like that doesn't grow out of confusion. It grows out of clarity that you are selling BS.
> I have encountered many people who have internalized "fake it" to mean "pretend that you are hitting all your milestones and you executing against your plan".
This thread is the first time I've heard it applied seriously as to encourage lying and fraud.
Another similar common saying is "dress for the job you want, not the job you have." But sayings imply that you should act as if you've made it even if you haven't. You aren't "what you want to be," but you can present yourself in that way.
Finally, while you may have met many people who have turned "fake it" into lying and fraud, they are not the majority.
> For example you lie about how your marketing efforts are reaching customers who are signing up in droves while you use mechanical turk and other techniques to make the observable metrics go up
> By doing this you avoid the inefficiency of the whole "we aren't sure you can do this" discussion which helps no one.
Pretty sure that it would help investors differentiate between those who can actually make it, and those merely good at faking it and making observable metrics go up ... especially if the ones actually capable of making the <big thing> don't make the metrics go up quite as high as the ones putting their effort into faking it.
And like another commenter said, that difference might well be worth billions.
I thought it was mainly about lying to others about how well you are doing, given that the central idea is that of giving an impression of success before you are successful, in order to gain access to the people and markets you require in order for you to become actually successful.
Yea, I think people blow up the saying out of context from self-confidence to business. If I say, "We're confident we can develop the machine learning technology to deploy X, even though we are currently using human checking" that's a lot different than saying "We can currently do all these things with this machine learning technology we developed" despite the technology not existing yet.
It's essentially someone stating a vision they have as reality, which is fraud.
And the difference between those whose confidence was justified and those whose plans were 'a bridge too far' is... upwards of $900 Billion.
Every building is a blueprint at some point. Some jabroni pointing at the sky and describing what will be is part of the dilemma of innovation and construction.
"fake it until you make it" generally refers to the product implementation vs pitch on the consumer side. e.g. You pitch "The best automated way to do X!", but in actuality you have a horde of people doing the work initially to figure out the problem before building the actual automation. There is nothing wrong with this and remains a completely viable approach. What you don't do is tell your investors you've already built the automation tech and hide the labor cost of doing it manually in your financials.
I think the Concierge and Wizard of Oz approaches [1] are just one thing people mean by "fake it 'til you make it", but I definitely don't think they're the most common meaning.
Startups engage in all sorts of puffery, trying to project the appearance of success long before they have actual success. Fancy websites, fancy offices, sales and investment pitches that cherry pick stories, numbers, and milestones that give an enormously positive impression of what's generally a very bumpy reality.
I personally don't like that, but the game is the game. But it's very easy for that puffery to slide over into outright fraud when things get desperate. Which is why I'm so glad that the SEC is going after Theranos with great vigor. Hopefully these clowns will end up sharing a cell with Shkreli, giving every would-be startup CEO a clear example of what happens when they push it too far.
This is fine when the elements of automation aren't beyond the state of the art. However when you have startups like Spinvox et-al hoping that automated transcription will show up and save them (I mean transcription of variety of voice in variety of environments, using uncharacterized microphones and transcoded from mobile to core ect) or the current rash of chatbot liars and charlatans then real real damage gets done to real companies where execs believe the trendy w*nkers vs real people who understand technology. I've seen good engineers hounded out and scores of millions of pounds wasted because of "warp drive over powerpoint" and I've had enough. Not that I'm bitter or anything.
Isn't uber just waiting for automated drivers (self driving cars) to show up and save them? I have three businesses at the moment that all use people to do things that maybe one day can be solved by AI/tech. My customers don't care how I get it done and aren't impressed by tech anyway. If automation shows up and helps me then my margins go through the roof. But as it is, the margins are pretty good anyway.
And it can even be fine when things are beyond the state of the art, as long as the CEO has the bravery to look reality in the face and either a) find another way, or b) say "sorry, startups are gambles, and this one's a busted flush".
And it's the liars and charlatans that really get to me. I figure it's at least 30% likely that I'll end up in jail because somebody says "blockchain" to me one too many times regarding some application which would be better off done with a MySQL database.
It’s probably “fine” in the sense that nobody will sue you. But you’re basically arguing “it’s okay to lie to consumers about something that’s immaterial.” That’s true, but the standard for materiality under state consumer protection law is pretty low. E.g., under California’s Unfair Competition Law, statements that a lock was Made in America were found actionable under the UCL, even though the lock worked perfectly fine. People might care whether the service is automated or not, even if the end product is the same.
Of course, the benefit from the puffery might outweigh whatever legal risk exists. I’d call that a “calculated risk,” not “fine.”
Yes there is. You're selling investors on capabilities you don't have, or at least intentionally misleading them about your abilities. Unless you're explicitly telling them that you WILL have "The best automated way to do X!" and are working hard on it, you're deceiving them.
If I, an investor, give you money because you tell me you have automated technology, but really it's people in a room, that's a lie and there is absolutely something wrong with it!!
If you can make the automated technology before I find out, well, maybe I won't sue you, but that sure doesn't make it right or acceptable.
> You pitch "The best automated way to do X!", but in actuality you have a horde of people doing the work initially to figure out the problem before building the actual automation.
This is "do things that don't scale" not "fake it until you make it."
I have never heard of someone using "fake it until you make it," referring to Wizard of Oz or Concierge as William Pietri (gosu Lean practitioner) below has mentioned.
> in actuality you have a horde of people doing the work
> There is nothing wrong with this
um in what universe does "technically legal in the US of A" equate to "nothing wrong with" ?
using legality as a shortcut for a moral compass is putting the cart before the horse at best, but very often argued out of laziness or pure self-interest at worst. it's a narrative that causes people to stop introspection and think about what is actually right or wrong, instead going for the much, much easier choice of what is legal and what is not. not easier because the legal system is simpler than ethics (it usually isn't), but easier because the choice is made for them.
and as your post demonstrates, once the choice is made, it's easy enough to conflate legality, lawfulness and judgement with morality, rightfulness and justice.
but once you poke at that distinction, the argument just falls apart.
there isn't "nothing wrong with this".
all you're really saying is that it's probably not illegal.
Don't get me started on the whole ICO, crypto hype. Responsible optimism and execution is key to a company's success. Disregard this, and you'll face consequences like these.
> Ms. Holmes and Balwani falsely claimed to investors [...] and that Theranos would generate more than $100 million in revenues in 2014, the SEC said in its complaints. In fact, the company’s revenues were a little more than $100,000 that year.
I couldn't figure out why investors were putting all that money in. Telling them you were making $100m makes the investments make a hell of a lot more sense.
What's 3 orders of magnitude between friends? She deserves prison time for this.
It really depends on whether the intent to defraud was there or not. The SEC is probably not out to outlaw founders being true believers in their vision, even if their beliefs are often misguided. On the other hand, if there is solid proof that founders knew their vision had no hope of succeeding but presented it as though it did, that could and should be a problem.
Well, 'prosecute'... no one is going to jail. White collar crime is normalized and expected in upper class circles. A single case like this is a drop in the bucket. While certainly not a majority, there are absolutely people in this world that believe if someone will not come to you and put a gun to your head, back you into a cage, and lock you in it, then whatever they are doing is fair game. If people really wanted to stop them, they'd take it that far. So they see any other standard as frivolous and silly to pay attention to. Ethics? What ethics?
Also, "fake it until you make it" might work for photo sharing apps and such but it should never be the case when human health is involved. Holmes and people around her were no other than quacks who promised the world to whoever they met.
"For all those entrepreneurs are trying to "fake it until you make it" be aware that the SEC considers your strategy both fraudulent "
Sigh. The SEC is concerned with lying about actual numbers. Not about future projections. What a terrible comment on a startup forum. "Fake it until you make it" it as about having confidence -- not about lying to investors. Please downvote this parent comment.
The SEC is concerned with lying about actual numbers. Not about future projections.
Our experiences are different I suspect, Check this out
https://www.sec.gov/fast-answers/answers-regfdhtm.html. I sat in the courtroom once as one of the officers of a company was being prosecuted for violating this disclosure rule. There are a number of regulations that the SEC enforces that have nothing to do with "actual numbers" and everything to do with information asymmetry where the company knows something and the investors don't.
They have historically been all about that when non-accredited investors are involved (aka public companies). And reading their action with respect to Theranos suggested to me that they are going to bring that hammer into the startup space.
What this has to do with the parent comment? I'm asking these because I'm not sure I follow the reasoning.
Your concern is that the SEC has very strict reporting standards and regulations. These are intended to provide a fair field between all investors (accredited and non-accredited) in order for the market to function in a more efficient way. In exchange for this increased cost of regulation upfront, the transaction between investors on the company's shares have a much lower friction (and transaction costs).
Private companies have lower regulation because the assumption is that the investors willing to buy shares are open to assume higher transaction costs in terms of due diligence. Obviously, reporting the false could open the company to lawsuits, but that's also part of the potential cost for the investors.
The choice between being a public company and a private one, in the end, is a function also of this trade-off. If I understand your reasoning, you fear that the SEC forcing himself into the private market could increase the regulatory cost of all startup. Am I right?
If that is correct, my answer would be that the SEC is not imposing the full regulation but just a minimum level of accurate reporting on behalf of the investors. This is because there's an assumption that a well behaved private market is essential to make the economy more active (imagine if this level of lying was accepted, how many investors would be willing to invest?). On the other side, I see the risk of a slippery slope and having the SEC power to grow to large and kill the startup ecosystems. I don't have a clear answer for that.
[styling note, I had pulled out the statement made in the GP comment and made it italics to emphasize it, in reference to the above comment's question "what this has to do with the parent comment].
So stylism aside, you have correctly surmised my concern that the SEC is looking to move into private markets more aggressively. I think the reason for that is nuanced but having lived through the dot.com bubble and watched how the government responded to that bubble (Sarbanes Oxley anyone?) And the huge losses that are being taken by the large banks as their Unicorns died in this the Unicorn bubble, basically accredited or not investors with lots of capital get mad when they are mislead, and their anger typically results in them getting their "friends" to do something about it. We currently have an integration between banking interest and the administration that is as deep as it has ever been. So there are many contacts both official and unofficial between Wall Street and DC.
There is also the perception of the disproportionate channeling of wealth creation to a smaller number of people through private company 'trading'. Add the antics of Uber and Theranos to the mix and it provides a convenient place for the powers that be to take "logical" and "needed" steps to curb the abuses. Generally resulting in more regulation and more risk on startups.
These are desperately embattled claims at scale. If you lie to the SEC and you are an ass to the government they will crush you. Oldest story in the valley, and certainly beyond... another tale of hubris that ends in classic tragedy.
She's half a million poorer from the fine. Any proceed from the sale of the (worthless) shares will need to be returned to defrauded investors amounting to 750 mil before she gets anything.
So i think unless her entire position is sold for more then $36 a share she has lost everything from the company.
No idea what her personal finances were going in to this event.
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.
As a curious aside: In some scandanavian countries, the penalties are directly tied to wealth (e.g. the $103,000 speeding ticket [1]). The idea is to make the punishment proportional to each individual so that wealth cannot simply grant you a free pass to violate "minor" laws.
I think there is a reasonable argument that it should be proportional to finance. Let's say two people both get speeding tickets, one of whom is making $10 an hour the other makes $100 an hour. There is an argument that you should fine them based on their income as a proportional punishment, otherwise the fine may be excessive for the person with a small income, but negligible and not a deterrant for a person with a large income.
I think it plays into it quite a bit. Odds are, of the two crimes listed, stealing a car is more likely to be done by a black male. Hence, it's punished harder, despite Theranos objectively doing more harm.
Well the thing is, due to the redlining practices of yore, black people have a significant disadvantage when compared to even the meager wealth of poor whites. And that's not even getting into the cultural issues surrounding "ghetto" culture (which is also predominantly traceable to redlining.)
Not to mention schools being funded by property taxes, so people living in high-density, lower-value areas (depressed urban, almost always nonwhite) always have underfunded schools while those who live in relatively low-density, higher-value (wealthy suburbs, almost always white) areas have extremely well funded schools. Also, rampant employment discrimination based on name alone (Are Greg and Emily More Employable Than Lakisha And Jamal, 2003, pdf: https://tinyurl.com/ydghdzuc) Also, higher police scrutiny than whites, and even higher conviction and incarceration rates than whites for the same crimes. etc. etc. etc.
While there are economically depressed whites who have some of the same problems as economically depressed non-whites simply because they're economically depressed, their situations are not equivalent. Saying that they are is nothing more than a way for white people to distance themselves from the fact that we are in fact privileged because of our race, and that our relative success isn't solely attributed to our hard work, smarts and persistence.
In salaries, perks etc ... I can imagine that a large part of the 700 million dollars would have been spent on salaries, perks etc ... 500,000 dollar fine seems paltry when you've essentially been able to con people out of 700 million.
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 man 15 years.
Meanwhile, defrauding investors hundreds of millions results in... nothing, really?
The SEC can't jail people, they only have civil authority. They can only refer criminal cases to the us attorneys and DOJ and offer assistance (and i assume they did)
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.
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).
> Criminals can be put into prison only if they can be convicted.
Huh? A large percentage of those jailed in the USA have not been convicted of the crime for which they are charged. They are detained until trial because they cannot afford bail.
I wonder if Holmes was male if she would be treated like Martin Shkreli and attacked in every horrible way possible. Don’t see much rhetoric against her.
Theranos was a punch line in my office just this morning, and she'll forever be associated with that.
But Shkreli has brought on himself another order of magnitude of personal criticism because of his statements and actions beyond the price fixing. In my experience from the days after his sentencing, people who know nothing about tech or healthcare know his name and react to it with scorn, while quite few of them know the name of his funds or companies.
Hoo boy, you are right, the world sure is hard for us white males. Discrimination lurks around every corner. I can't believe nobody realizes that ol Martin wasn't punished because he made a public ass of himself and openly mocked the justice department. It was because he was a white male.
Less than a year later, before punishments really started to be officially levied against her and Theranos, a movie project with Jennifer Lawrence drew a frenzy of bidding.
Why can't the SEC send people to jail? I don't understand the point you're making. If people believe something is an injustice should they just shut up? Even if they can't send people to jail people should complain if they feel that shouldn't be the case -- it's a signal that perhaps the current process is wrong. After all, all restrictions and rules were created by us to begin with. Complaining can be useful feedback.
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".
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".
Do you believe that every agency in the government should be able to send people to jail? The SEC can't send people to jail for the same reason the Dept of Housing and Urban Development and the Post Office can't, because they have not been granted that legal authority. The ability to imprison is not granted to most Federal agencies.
Why would the SEC be able to imprison people? That's not their job. They also can't set the prime interest rate or grant radio spectrum rights to AT&T.
Because in general, Americans dislike the idea that a bureaucrat, in addition to the powers they may wield within their own domain of influence, may also subject people to criminal liability at their own discretion.
The concept of limited government demands that certain powers must be separated such that they never come together in the same person. That simple measure ensures that tyranny can arise only through conspiracy, cooperation, and collusion between multiple bad actors, rather than just one person acting alone. Why can't your HOA put you in jail for not mowing your lawn often enough? Because the kind of petty nagging nitpicking bastard that typically volunteers to serve on the HOA enforcement committee makes the absolute worst kind of cop. The power goes right to their heads, and they abuse the heck out of it to further their own goals and agenda.
The question we should be asking is why do the federal criminal investigators and prosecutors seem to pay less attention to financial crimes referred to them by the SEC than they attend to other crimes?
You asked "Why can't the SEC send people to jail?", to which the answer is simply that they have not been granted that power -- whilst there is no law specifically restricting it, the SEC cannot act ultra vires its granted power, and doing so without authorisation would come up against false imprisonment, human rights etc.
IF you are asking "Why hasn't the SEC been granted the power to send people to jail?", then that's a deeper philosophical question. There would be a concern that the diffusion of such powers could be abused or wielded by non-judicial-experts who aren't necessarily acting in the interests of justice and broader public policy, and more generally the principle of separation of powers discourages such to prevent tyranny/the abuse of state power.
Because criminal litigation can foreclose other criminal litigation from the same transaction, meaning that splitting up criminal litigation power crestes a significant risk that an agency would accidentally block prosecution of more serious offenses within a different agencies jurisdiction. Centralizing prosecutorial authority prevents that.
There you can see most clearly their civil authority and what they are allowed to do.
You can see it says "Whenever it shall appear to the Commission that any person is engaged ... in acts or practices constituting a violation of {a bunch of stuff} .. it may in its discretion bring an action ... to enjoin such acts or practices ... .
The Commission may transmit such evidence as may be available concerning such acts or practices as may constitute a violation of any provision of this chapter or the rules or regulations thereunder to the Attorney General, who may, in his discretion, institute the necessary criminal proceedings under this chapter"
It then goes on to add additional monetary penalty authority that you see exercised here.
I believe the Justice Department brings all federal criminal charges [1] under the Federal Rules of Criminal Procedure [2]. Bringing criminal charges is specialized work. It makes sense to have the specialists handle specialist work.
There is a difference between complaining that the SEC should have the authority to send people to jail and complaining that the SEC can send people to jail but won't.
Regulatory agencies lack the authority. It's the same with the FAA. If you're a pilot and you fly drunk, the FAA will revoke your certification, but forward the case to the DoJ who have a U.S. attorney assigned to prosecute the case in federal court under federal law, not under FAA regulations. (Of course flying drunk tends to solve itself.)
I don't see any mention of the matter being referred to the Department of Justice in the press release. I mean sure, DoJ surely watched what is coming out of the SEC and will decide separately, but (as we see here) the casual reader who is unfamiliar with agency structure will understandably conclude that the government is done with her.
Absolutely DoJ will jump on it... they don't need other Dept blessings; now seeing Holmes taking deals, its a much easier case for prosecution. Give it 2 years max.
is the "Massive" part just grand standing, or does it correspond to a legal qualification of the alleged offense? Interestingly I can't google that because I get drowned under Theranos results.
So do those of us accused of sexism for not supporting Holmes a few years ago now get vindicated? Attacking her competence and questioning the Theranos Kool-Aid was seen as sexist and unfair, but it turns out we were right — she is a criminal — or at least a civil violator of securities law.
The accusations (at least the ones I made) were never about her guilt or innocence.
From what I remember, HN and similar just had dozens and dozens articles each week on this case, far more than for other, comparable cases. MtGox was around the same time, I believe.
My subjective impression was also that Holmes featured far more prominently in the articles and discussions than male CEOs in other cases.
Here is one commentator in this thread comitting all sorts of crimes against grammar to accentuate her gender: “The FBI should recommend charges for this Holmes lady.”
Edit: I just noticed the comment I cited was by the same user I was replying to :) I guess my sexism-radar is well-tuned today.
I think some perspective is needed. The idea that medical services you may get could be a fraud and nobody who matters really cares is much more threatening to the average person than some cryptocurrency exchange losing money or other cases of wealthy speculators being defrauded. Lots of news articles were written about the LIBOR scandal too, but even if I read them, I don't believe deep down that it affected me meaningfully.
Can you link to threads/places where people ripping on Holmes (post-WSJ investigation) were under heavy fire? Investor Tim Draper continued to call critics sexist/malicious but I wouldn't call him status quo by any stretch of the imagination:
For those interested in learning about the United States government moving from prosecuting white-collar criminals to settling, the difference between the SEC and Justice Department misses the point.
I have seen this idea from time to time. I don't think it's right. The problem is they are stealing from people with abilities, smarts, and resources. Of course, there are going to be backlashes.
> The problem is they are stealing from people with abilities, smarts, and resources.
To be fair, these sorts of people tend to be wealthy.
I think the real lesson is don't steal in the public eye. Theranos had so much press surrounding their rise, and fall. It was inevitable the SEC would get involved.
That's ridiculous. She would have gotten thrown in jail if she carried an ounce of cocaine. "Stealing from the rich" resulted in a "civil" violation. Big deal.
When the Department of Justice charges, convicts and throws her in prision -- then we can talk about the "number one rule."
More than just the financial fraud, these folks engaged in behavior that actively endangered the public. I hope this isn't the end of the government actions against them.
Her public behavior was exceptionally bizarre and almost none of what's been revealed comes as any real surprise. For timeline purposes:
556 comments
[ 3.2 ms ] story [ 356 ms ] threadSomeone help me out: Does this settlement really make the affected parties feel the pain? Does it discourage other companies from attempting the same thing? Given the scale of the fraud, shouldn't these two simply be in prison right now?
Compare and contrast with Shkreli sentencing. Some animals are more equal than others.
Most rich criminals know that when you scoff at the law, you should do it quietly.
Justice has been served.
Junk away....
And Elizabeth thought her technology actually worked. A honest mistake...
Junk away....
At a certain point you have to wonder why did a 21 year old get paid 700 million dollars on good faith to start a pharmaceutical company with little oversight? I remember reading about the board a few years ago and just looked it up again. Several generals, Henry Kissinger...huh?
This is all seems pretty obvious in hindsight.
Until you said 'her', I actually thought you were referring to Shkreli. He ran a hedge fund starting at 23, and when he lost a lot of the money, he made bigger bets and tried to earn the money back rather than admitting his losses.
> I remember reading about the board a few years ago and just looked it up again. Several generals, Henry Kissinger...huh?
Shkreli raised money from Steven Cohen's SAC Capital, the family of Fred Hassan (former CEO of Schering-Plough), and Brent Saunders, the current CEO of Allergan.
Their stories, though they differ in industry, seem quite similar when compared in detail.
"These idiots aren't getting their money back, wait for my next play..."
"If I can hold them off for another year, we'll have a big breakthrough..."
Making larger bets to cover for an hide losses is a very common story for traders on wall street. Buying an AIDS drug to price gouge is not. In contrast, it seems like Holmes had an earnest desire to improve medical tech.
Again, I'm speculating, we'll see if this unfolds any further. Fun story to follow.
She should be in jail. Kids have gone to prison for marijuana possession and this lady walks? Martha Stewart and that Martin guy went to prison for less.
EDIT: Which part of this statement are the downvoters disagreeing with ?
... and a decision on when it is worth it to pursue a case. Unless the chance at conviction is zero, there is some politically determined risk threshold involved. Not only is the decision on the threshold political, but the risk itself is determined by the resources at the defendant's disposal. I am not saying that their decision is necessarily biased against poor people, but I am pointing out that there is a political stance involved no matter which way you come down on this issue.
There is no allegation of pulling strings and getting SEC lawyers to decide something based on her name, her connections. They act according to policy, based only on objective measures of the case.
But, it can be the policy of the SEC to objectively consider chances of winning (or getting a fraud conviction) and proceed to trial only if the chances are better than 90%, and it can be the policy of the SEC to go to trial on even 10% chances of winning, to generate as many fraud convictions as possible (at great expense to the tax payer).
Both policies are valid (I think), and the choice is political (subjective). A presidential candidate might get elected on a platform that includes going harder after well connected rich people doing white collar crimes, and then appoint a new head of the SEC to enact this new policy of being willing to spend more money to try to get people in jail for fraud.
But I think you're getting downvoted because you're arguing that white collar crime, even at scale, isn't worth prosecuting, and ignoring the perverse incentives that result from such decision-making.
I agree she got away lightly.
States vary in their impeachment proceedings and what burdens must be met.
Changing that "likely to be" into a "may be" would make the statement true(r) without the if-clause.
Also if the if-clause stated "suspected of" rather than "convicted of", then the "is likely to be" part would be true in general.
https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United...
I think this sentence is accurate: If you are suspected of drug dealing, any asset that you can't prove you received through other legal means is likely to be subject to seizure.
I think this sentence is accurate: any asset that you can't prove you received through other legal means MAY be subject to seizure.
I think this one isn't accurate, though: any asset that you can't prove you received through other legal means is likely to be subject to seizure.
Maybe I'm just surrounded by extremely lucky people, but none of the people around me (all of whom aren't partaking in illegal behavior / have never been suspected of illegal behavior) have had the police show up and randomly take their stuff.
I'm going to hazard that location, socio-economic status and skin color each could have more to do with it than luck.
This “punishment” doesn’t seem like one. She should be in jail.
"I thought we could do it. It started with a single, tiny lie and then it snowballed. I get out of control. I took some time off and now I'm starting my own company. We will be the most transparent company in the world and we're innovating X!"
Something along those lines. It's not a life or career ender IMO.
I think most people would take a lifetime of "humiliation" if they got to live an unreasonably extravagant life for a while then return to an upper middle class lifestyle, occasionally having news articles written about them until it all fades away completely after 5-10 years. A sentence of "humiliation" would only make scams like Theranos a more appealing idea to many people. And frankly, if someone could go so deep with a scam like Theranos, I don't think they/Holmes have much of a sense of shame to begin with. They'll justify their fraud to the very end.
The job of the SEC is to protect investors so they are probably doing the right thing here.
The government still should go after them for endangering people’s lives. There should be long jail terms for that.
But the SEC won't, because that's not what they do. And this is, I think, as it should be.
Will it though? Surely Holmes still has a few million stashed away somewhere that she can live comfortably off of? This settlement isn't going to leave her destitute.
Either that or I'm sure she set up some clever offshore accounting structure that has $10M stashed in the cook islands or some shit. As soon as you get some cash, I think "rich person 101" is you set up some complicated structure to hide rainy day money for this very reason. I would venture to guess she took home at least $50MM in all those rounds of investment (maybe more? i have no idea how that works.), I doubt she blew it all or was stupid enough to leave it in plain sight.
The big difference is for all the time invested, her current stock is worth zero.
https://www.bloomberg.com/view/articles/2018-03-14/theranos-...
> Holmes was paid a salary of approximately $200,000 to $390,000 per year between 2013 and 2015. During the same period, she also exercised approximately 53.7 million stock options and received super-majority voting, Class B common shares, which granted her almost complete voting control over the company. Holmes has never sold any of her Theranos stock.
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-4...
I remember those interviews, with the black turtle necks. She was playing the part of genius, but looked full of it, especially with all the secrets.
She is basically being fined $500,000. This is pocket change. I imagine so much money is hidden. This hidden money just might be the next fraud charge?
"Bared from hiring as an officer, or director for 10 years."
She will get hired on somewhere under Something of Something, even though she's a complete fraud? She didn't even finish her degree? Hell--most people don't know anything about blood testing. In a few months, the victim will be on stage somewhere. "If a was a ---, I wouldn't be treated this way!"
She got off very light. She's pretty enough to be scooped up by a Valley Boy. We have not heard the end of her. She will be fine.
I can't imagine any retirement money went into the company, so I really don't care about the 1 percenter's who lost some pocket change.
The only thing I'm glad about is no one is going to sport the black turtle neck, for awhile at least--that look belongs to Steve anyways. Any maybe, when the genius card is thrown around, people might do a little homework?
She did enter the market, with the right look, pedigree, though. The Lookers were looking for the next Zuck. Oh well, and the band plays on.
(I have a feeling under Trump's reign, the SEC, federal courts will go very easy on these types. So--if your planning on doing something fraudulent, white, and have family money; go to work.)
Here Holmes not only doctored power point presentations to baloon numbers to investors, but put thousands of lives in danger (if some were lost, we will eventually find out) by providing wrong results for tests to many patients that lives relied on it, and she gets jail-free card and slap on the wrist.
[1] https://www.cnbc.com/2018/03/09/pharma-bro-martin-shkreli-se...
https://www.npr.org/2016/04/19/474868428/innovative-blood-te...
https://en.wikipedia.org/wiki/Directors_and_officers_liabili...
As part of the settlement, there was no actual admission of wrongdoing or fraud, so it's quite possible that the insurance would pay the fine.
[0] https://www.forbes.com/sites/matthewherper/2016/06/01/from-4...
Often does not imply most nor does it mean that there must be massive levels of fraud such that the SEC has to be involved.
"We had $50 million in bookings this year" - Misleading because it seems like that should mean $50 million in revenue but all of the bookings were for 10 year contracts so it is really only $5 million in revenue, but it is not fraudulent because it isn't factually untrue.
"We will be able to raise prices enough to be profitable" - Often optimistic to the point of delusion, but without a time machine it is not a statement of fact so it isn't fraud.
Investors know how to deal with that. What they don't know how to do is deciding if "those complicated papers that use words you never even heard before say we can do X" is a lie or not.
What they probably can't handle is outright fabrication.
There is a material difference between lying and the type of framing and optimism that successful founders typically engage in.
The line just isn't particularly thin. Elizabeth Holmes didn't have a minor accident. She deliberately engaged in serious fraud.
3 years ago, I never would have thought that such an outcome would actually happen.
Presumably she's still pretty wealthy, enough not to have to work again or to lie-low for the next decade before staging a comeback.
https://www.forbes.com/sites/matthewherper/2016/06/01/from-4...
The controversy there isn't whether you can transfer wireless power or not, but whether you can transfer enough in an easy enough way to make a practical consumer product.
If you want (alot) more detail this is a good thread to read http://www.eevblog.com/forum/projects/the-ubeam-faq/1175/
While not using the same Qi-like charging mechanism, the physics has been proven: https://www.disneyresearch.com/publication/quasistatic-cavit...
uBeam has said they are wirelessly transmitting power via high frequency sound. This link describes a method that uses magnetic fields.
Ask Skillrelli.
The SEC can only bring civil charges, not criminal ones. So SEC investigations won’t bring jail time by themselves, although if the FBI or other agencies get involved that could happen
Also, Holmes and Theranos settled, which probably had some impact that on the penalties they faced
I agree courts, juries and judges are to be neutral, but a person like him just ends up getting under most people's skin. Even if there was no rational decision to go hard on him, I wouldn't be surprised if people subconsciously make that decision.
First of all, the Theranos people haven't yet been brought up on criminal charges, but it's still possible they could be, no?
Secondly, I think there were lots of material differences between the two cases that caused them to be prosecuted differently. You can't just lump every instance of fraud as the same thing.
[1] The reason I only kind-of agree: you're phrasing it in a way that makes it seem clear. But I can easily phrase it as "it makes sense that defendants who show remorse, and are therefore less likely to commit the crime again, will get a lighter sentence, as opposed to defendants who are much more likely to repeat the crimes".
Criminality and psychopathy are tightly correlated, particularly with fraudsters. Psychopaths are excellent at faking remorse and other emotions that they do not actually feel.
I would not want the punishment of a criminal dependent on their acting skills.
What happened to Martin is an injustice, and I'm saddened and disturbed by the people who celebrate it just because it was an injustice done against a "bad guy".
If you get pulled over and call the cops a dick the second he walks up to your car, you're gonna have a bad time (and you deserve it.)
Dumbfounded by your words, a 800% increase from the average sentence is, I think completely ok in a just system.
That he got an 800% increase in sentence doesn't matter, as long as the conviction fell within the ranges set up by the law.
You can call a judge biased, but if he feels it's a correct sentence, then you're out of luck. You do know that is why we have judges right? In part to make judgement calls on sentences.
Shkreli got convicted because he was running "Ponzi Scheme" where no one lost money. Figure that one out.
Offering a bounty for Clinton's DNA while she was under the protection of the secret services was pure suicide.
I quite like the guy if im honest.
Shkreli lied to his investors (he claimed he had $55M under management when it never surpassed $6M), produced false financial statements, told prospective investors that his original investors had doubled their money (when they actually lost everything), raided the fund's money for personal expenses, backdated financial statements to defraud banks for new debt.... this is all laid out in the indictment: https://www.scribd.com/doc/293530336/1-main
If you think that financial criminals should face repercussions, Shkreli belongs in jail. Others surely deserve jail as well, but 'fairness' isn't letting Shkreli off, it's punishing the rest of them too.
> What about the fact that Holmes actually lost money for investors and got no jail time. While martin lost no money but got 7 years of jail time.
A few things about this point.
1. Shkreli lost 100% of his original investors' money. He then lied to them all and told them that he doubled it. He then created fake financial statements that he used to raise new money, lying to new investors as well. He also embezzled his hedge fund's money to buy himself Picassos and Wu-Tang albums. After all of that, he undertook a very risky bet that paid off, at which time he paid back his original investors, again lying about what happened.
2. Holmes didn't "get no jail time" since the SEC can't arrest or convict people. They're a civil institution that can only apply civil remedies, like fines and management bans. The Department of Justice is also investigating Theranos and Holmes, it remains to be seen if they will issue criminal indictments. In any case, Holmes is cooperating and had agreed to settle.
3. Shkreli had the chance to settle, plead guilty, admit wrong-doing and avoid jail time. Instead he chose to have a jury trial, where 12 of his peers found him guilty of serious financial crimes that would result in 7 years in prison.
Source? I hadn't heard that.
http://fortune.com/2017/08/05/why-martin-shkreli-is-guilty-w...
https://www.sec.gov/litigation/complaints/2015/comp-pr2015-2...
> 44. On March 2, 2011 , Shkreli stated in e-mails to MSMB investors that "MSMB returned +4.24% in February 2011 " and had "returned +41.71 % since inception on 11/1/2009." In fact, by the end of February 2011, MSMB had virtually no assets. MSMB had suffered over $7 million in losses in its account at Executing Broker as the result of its trading in Company A on February 1, 2011. Even setting aside the losses at Executing Broker, the net asset value of MSMB's prime brokerage account and the cash balance in its bank account amounted to only about $58,500.
> 45. Shkreli continued to send "performance estimates" until September 2012, when he informed the limited partners that through June 2012, MSMB had "returned +79.49% net of fees since inception on 11 /1/2009." At the end of June 2012, however, MSMB had no assets in its prime brokerage account or its bank account.
He lost 100% of his investors' money and was creating fake financial statements to lie to them about his massive losses.
Eventually, he used other people's money and huge gambles to recoup these losses. He also entered into fraudulent 'consulting agreements' with disgruntled investors from his hedge fund to make them whole using a different company's assets, essentially stealing from that company's shareholders.
All of this is incredibly illegal.
I guess its like Bernie Madoff's investors got most of their money back, but Citigroup investors lost 90%.
He was convicted by a jury of his peers on Federal charges and was sentenced using the Federal Sentencing Guidelines which are universal across all cases. Shouting in all caps doesn't make something unfair...
1. giving the finger to Congress
2. refusing to settle and going to court
3. talking shit the entire time he was on trial, both to court journalists and on TV ("junior varsity", etc.)
4. offering money for Clinton's DNA while on bond shortly after she lost the most embarrassing election of all time (while hilarious and obviously satire, of course "they" used this against him)
And I'm sure someone else could add to my list. Meanwhile, I don't even know what Holmes looks like, let alone what her voice sounds like.
More seriously, this is why often people who know they've been caught dead-to-rights settle early: the government wants the W and doesn't want to have to spend money to get it. Shkrelli made them go for the conviction, and so he got the actual, un-discounted penalty.
Deliberately commit fraud for years and steal millions and millions of dollars; slap on the wrist.
Our system is so ridiculous.
Maybe that's coming but it doesn't seem like it, and that's the point of my comment. I didn't say "The SEC sucks", I said the system sucks.
Since the SEC only deals with civil penalties, they can act quickly and without the certainty required for criminal convinctions. They can also refer cases to the Justice Department, who can (and do) levy criminal charges.
Just because the SEC is the only body to publicly announce a resolution doesn't mean that Holmes or Theranos are off the hook criminally. The Obama DOJ initiated a criminal investigation in 2016 that is apparently still active and could absolutely result in jail time:
https://www.nytimes.com/2016/04/19/business/theranos-sec-jus...
“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 strategy both fraudulent and they feel they have the jurisdiction to prosecute you. And while I doubt the SEC is going to go after every CEO that raised a Series A on a pitch deck that was pure fantasy, the people who participated in the round might bring them in if it served their purposes.
https://news.ycombinator.com/item?id=11973102
https://www.vanityfair.com/news/2017/01/theranos-investor-cl...
[1] https://news.ycombinator.com/item?id=11973420
Re a previous Holmes forfeiture: "Warmenhoven added Ms. Holmes showed “a level of selflessness and grace reflecting her commitment to the company’s success.”
Think about the decision that he had to make in 2016. He had to choose between admiting his mistake and doubling down. The downside of admitting his mistake is that he's guaranteed to get negative points; the upside is that it will minimise futures downsides. By dubling down, he's guaranteed to reduce his negative points in 2016 but exposes himself to magnified upsides (if he's proven right) and downsides (if he's proven wrong) in the future.
Now think rationally how you'd choose. The second strategy is a lot riskier so it better have better return as well! But the second strategy can only have higher reward if you either believe high probability of future upsides (i.e. Theranos might be faking till you make it, but they'll make it) or low probability of future downsides (i.e. I'm not sure what's going on, but definitely not fraud). I submit that the only way that you could come to believe either is if you're hugely misinformed about the company.
I.e. that guy is just a bit incompetent.
Draper has no doubt had many chances in his life to provide negative but true and positive but false comments on his investments. If society punishes negative but true comments he's damn well going to notice and make fewer of them. If society further fails to punish positive but false comments about his investments, he's not going to invest the mental resources that would be required to avoid them.
A little experience substitutes for a lot of strategy.
"Venture capitalist Tim Draper, an old family friend of Theranos founder and CEO Elizabeth Holmes, who led an early $1 million investment into the company (split between two investment firms).."
This is an incredibly defeatist/self pitying line of thinking that I'm seeing more of (the world is stacked against me, you have to be born into it, etc) and is related to a lot of other self-defeating thought patterns. It's not going to help you or anyone else who subscribes to it. Maybe it's just that bad news is much easier to see, thanks to the web, so people think bad behavior is more common now, and it's turning people cynical.
Doubt it. I don't think In-Q-Tel/CIA will write you a check because you just happen to have this shiny new search engine that may or may not change the world.
https://www.cia.gov/library/publications/intelligence-histor...
"Close" does not mean part of the organisation. The founder Norman R. Augustine isn't even a CIA person. It is somewhat similar to a spinned-off company which runs independently but has tight connections (and a contract, in case of In-Q-Tel) with the organization that spinned it off.
* In-Q-Tel (theoretically) may have other contracts and major partnerships.
* In-Q-Tel gets to pick who they invest into; CIA may express interest in a particular area or a company but In-Q-Tel manage their portfolios.
* While In-Q-Tel is non-profit, the profits flow back and the employees may profit from it. Meaning, while part of the funds come from the CIA (taxpayers), part come from the past profits.
More detail to those interested in law: https://scholarlycommons.law.northwestern.edu/cgi/viewconten....
It's fairly unusual for the US, but similar structures exist in countries trying to nurture their startup ecosystem.
Anecdata, but: I left academic hard science because I realized it was too difficult to get ahead; moved to the bay since I can code and it was a way to create a runway and find myself, and pitch companies. Got a contract coding gig, because a professor on the board of my roommate's company was impressed that I had independently implemented his prototype as a personal side project. Applied to 10+ startups for "real programming jobs", including through triplebyte, rejected by all, finally got hired by a roommate's friend (on reputation only) whose company needed asses in seats for an investor meeting.
Meanwhile, I'd been pitching 3 biotech ideas and one tech idea (I had written verilog for a hardware prototype of a deep learning chip) and got no bites on any of my pitches.
Finally, a friend offered me a VP product position (because he needed someone he could trust) which I was about to jump ship for, and then my current CEO counter-offered by agreeing to put his personal money as a lead in one of the biotech startups I'd pitched (that was somewhat meritocratic because he has seen how I operate as a coder in the company and was impressed, and I think he figures, probably correctly that if I'm that good a coder then my biotech skills are even better because that's what I'm formally trained in)
Since getting here, I haven't once advanced through pure merit, and have always advanced through connections.
I got my first foot in the door via an internship on a referral from a friend who had interned there the year before. I had no formal credentials (just taking CS classes on the side of an Econ degree in college), but I had spent all of my math/CS classes studying with this kid. He knew I was smart and put his own ass on the line to get me an interview.
You can be successful purely by reading books in a room, writing code alone, and building some brilliant startup. (E.g. look at the CD Baby guy, what's his name). But it's SUPER unlikely. You're way better off being a social human being, building relationships/trust, and paying it back/forward to folks that do right by you when you know you deserve it.
A lot of the SV narratives circle around meritocracy (or other ways of 'hacking the signalling game' even. And when you say "it's SUPER unlikely", I think you're 100% correct. And so challenging the meritocracy myth is important.
That was 20 years ago. As much history as Larry Ellison's story in 1970s. Things have changed a lot, and the Silicon Valley today is a poster child for cronyism.
The VCs don't even bother opening "cold emails" (a ridiculous term for something that purports to be an open club). It's a herd of arrogant hipster bros who have no clue what they're doing and try to CYA by "warm introductions" (when their bet fails, they can shift the blame on a 3rd party).
The investment is not completely off-limits (my own story is a testament to that), but it's magnitudes harder to get if you're not connected, and oftentimes you have to pay through the nose to the "people who know people". I also know some rare cases when super-angels answer to complete strangers and subsequently invest, but these are exceptions rather than the rule.
Can you back up this statement? Why is it self-defeating? You put it in your post as if it somehow logically follows from the rest but it doesn't.
The claim is that people who were not born or just lucked into connections with the rich and powerful are going to have to work significantly harder or get lucky to get access to those opportunities. While the people that do, can put some work in and basically claim the opportunity or just simply try again without significant loss or even having to settle for less.
"Lots of counterexamples" don't mean anything unless you can show that there are in fact so many counterexamples that they outnumber them in a similar ratio as the people in the first group utterly outnumber the people in the latter group. Or even by a factor of ten.
But they don't and almost nobody would be having this discussion if they did.
> Maybe it's just that bad news is much easier to see, thanks to the web, so people think bad behavior is more common now, and it's turning people cynical.
And you're going to need more than those words to properly argue that this is a bad thing.
Because a lot of bad news wasn't visible enough. And people have been underestimating the magnitude of bad behaviour. And a lot of people in a lot of places in the world most definitely aren't being cynical enough.
Sure there are psychological downsides to being bombarded with bad news and negative information all day, and we need to find ways to handle that, for our collective mental health. Doesn't mean the bad news is somehow wrong or faulty.
Generally, "they're family" sounds like a sensible default attitude for a VC towards their investments.
https://news.ycombinator.com/newsguidelines.html
The complaints further charge that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters...[i]n truth, Theranos’ technology was never deployed by the U.S. Department of Defense...
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.
> claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014. In truth, Theranos’ technology was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014.
This was not even a forward-looking statement, it was an outright lie in the legal document.
One can do pretty much whatever they wish with accredited investors' money, but it has to be disclosed in the PPM.
Even if you have a line item where all the money will be spend on CEO's dog's private jet travel, accredited investors who have reviewed and signed the PPM have no legal recourse.
In Theranos case it looks like a straightforward misrepresentation of facts, which is a red flag for SEC.
I wouldn't suggest lying about anything in the aviation sector either.
Well, I'm sold!
Not joking, I have heard this pitch.
http://mobile.abc.net.au/news/2018-03-13/drone-delivery-syst...
https://www.investopedia.com/terms/o/offeringmemorandum.asp
> claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters
That is clearly a statement looking at past events, so if it was false it was clearly a lie
> the company would generate more than $100 million in revenue in 2014.
The important word there appears to be "would", in which case it was a forward-looking statement so easier to argue it was based on projections that just didn't pan out.
Technically fraud. Everyone got paid, but he still committed a process crime
That wasn't illegal at all though :)
Just that he lied to his investors about the source of the returns.
I assure you, it is only possible to avoid risk if you're a small fish and extremely careful. For instance, you have a good chance of getting away with skimming a neighborhood stock fund you setup. If you are managing or receiving millions of dollars in investment, you can bet anything fishy will show up on the SECs radar at some point. Most people with large sums of money don't get where they are by being stupid with it, and if they are the victims of fraud, they know where to go. While the SEC can't bring criminal charges, they have top notch investigators. Once they smell the fish, they won't stop until the entire scheme is unraveled.
I can't speak directly to the observation you made, but I personally know a high up SEC investigator, and he obsesses about the most minute details of the cases he works on and lives to take on the toughest cases possible. My guess is distribution of cases the SEC prosecutes are very heavy tailed. There are many dumb cases that are very easy to find and prosecute that involve 10s to 100s of thousands of dollars. Think skimming, ponzi schemes etc. The more sophisticated and larger cases are also more risky (for the fraudster), harder to execute, and much more rare. That might explain your observations.
In 1999, financial analyst Harry Markopolos had informed the SEC that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. According to Markopolos, it took him four minutes to conclude that Madoff's numbers did not add up, and another minute to suspect they were likely fraudulent.[73] After four hours of failed attempts to replicate Madoff's numbers, Markopolos believed he had mathematically proved Madoff was a fraud.[74] He was ignored by the SEC's Boston office in 2000 and 2001, as well as by Meaghan Cheung at the SEC's New York office in 2005 and 2007 when he presented further evidence. He has since co-authored a book with Gaytri Kachroo (the leader of his legal team) titled No One Would Listen. The book details the frustrating efforts he and his legal team made over a ten-year period to alert the government, the industry, and the press about Madoff's fraud.
https://en.wikipedia.org/wiki/Bernard_Madoff#Investment_scan...
2. Madoff was caught because his scheme fell apart, not due to any SEC or other government action.
>...avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught.
This statement is mostly what I was responding to. Here is a thought experiment. For the sake of this experiment lets say our economy is perfectly competitive. If all an entity had to do to get away with fraud was "set your mind to not getting caught," then every entity that participated in the economy would be committing fraud because it is in their best interest. That sounds wrong, probably because it is. White collar criminals don't plan on getting caught, they do everything they can to get away with their crimes. To me, that qualifies as setting their mind to not getting caught. Well, they get caught anyway.
The companies you bring up (enron, worldcom, madoff) are outliers in the world of securities fraud. they achieved unprecedented levels of success and then failure. Using these cases are counterpoints to an argument that financial crimes are hard to get away with seems silly to me. After all, none of these frauds were successful in the end, instead, people ended up in prison.
>...avoiding the ire of the SEC is relatively easy if you set your mind to committing fraud without getting caught.
The experiment is a simple application of the economic theoretic framework to the statement above. Nothing more. There isn't all that much to argue about here, as long as you accept the framework upon which almost all of theoretical economics is based.
A sufficiently large enough example which failed to be stopped by investigators for a decade could easily outweigh thousands of outliers ultimately being a serious net-negative and outweighing such a dismissal of facts...
The fact such a blatantly wrong example proceed to scale up for a decade and encompass billions of dollars before being shutdown is quite a good example of how any one investigator's knack for detail in their own limited exposure to particular cases (as in your personal analogy) is hardly sufficient to dismiss the idea that all complex cases need not worry of SEC investigation. Quite the opposite.
If anything that means the SEC has smart people but only a limited capacity of attention as they tend to obsess over details in individual cases (as that is what is required in a significant percentage of them). So as long as you're not one of the easy cases (obvious ponzi schemes or involving large sums, significant amounts of people, or popular advertising) then it's not as worrying a threat as they'd like to make it appear.
IMO that is naive. He is an outlier. Sort of like saying committing mass acts of terrorism is easy because 911.
I can't find it now, but I do recall the SEC itself putting the number of frauds they uncovered in the low single digits. I might ask my SEC friend himself what percentage of the iceberg he thinks is uncovered.
The point is, fraud is risky, and it isn't easy. You basically have to be willing to give up your life as you know it. Sometimes I wonder whether fraudsters have an internal dialogue about whether it is worth the risk. And for the fraudsters who aren't psychopaths the guilt of defrauding friends and people who trust you must be enormous. Sounds like a stressful day job that I won't ever be entertaining.
IBM's Watson comes immediately to mind.
The difference is whether or not you can come through with some percentage of your promises. The ones who can eek out some kind of repeatable traction long enough to exit are successes, the ones who never get to scale are frauds.
That isn't "We are on shaky ground with new, unproven tech." That's "We know it doesn't work. We are comfortable lying about it because money."
All of the industry AI labs follow the same pattern, even (perhaps especially) the en vogue ones (well, I guess depending on wtf "solve intelligence" is supposed to mean...). Watson is just old enough that it's now obvious the advertising agency was given too much leash.
Ditto for self-driving.
Ditto, in fact, for basically any basic or applied research happening in the research arm of any for-profit organization. And at a lot of universities besides! In fact, as far as I can tell, positive PR is some non-trivial aspect of the ROI for industry research labs.
BUT... there's a HUGE GAAP ( ;-) ) between marketing hype and lying in financial disclosures. One is eye-rolly and should be called out on internet message boards and during sales pitches. The other is criminal.
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 you can just rewrite the laws that were slowing you down
- that no one knows what they're doing anyway, major projects are 100% guesswork, and you should just "fake it till you make it"
- that any skill is just a matter of 10,000 hours of practice
- that you can outsmart an industry before even passing or placing out of sophomore level classes
- that any self-doubt must be Impostor Syndrome, and so it's not worth your time to even check if that doubt has a factual basis
Yes, I've posted this twice before but I'm citing it and admitting to it, and it got heavily upvoted both times (thanks to Algolia for making comments so easily searchable btw):
https://news.ycombinator.com/item?id=12071172
Hopefully we're about to land in a cultural place where getting an education is seen as getting an education, rather than either a panacea for individual success or a complete waste of time/money for the docile masses.
Arrogant, presumptive behavior is annoying -- but I think it's important to keep a bright line between that and dishonesty, because one self corrects and the other doesn't. And, a pinch of presumption is necessary for exploration.
Edit: If you have a good answer, then I would suggest we start posting that as the advice ("here's how you know if you're good enough") rather than immediately tell everyone they have they have Impostor Syndrome (as seems to be common practice).
IDK, I feel like that's a sweet spot most people hit at the end of a PhD. Enough confidence in yourself that you can expend lots of resources trying hard things.
Enough humility to recognize that you'll probably fail at most of those things.
And most importantly, the project management, risk management, and communication skills to hedge your big bets.
Enough experience working with top-tier people to know that all of these things are learnable skills that other successful folks are using (including fields medalists and including high-school dropouts).
Maybe there's a difference between the "informed arrogance" of a researcher working on an open problem in their field (or a serial entrepreneur trying to disrupt a huge industry) and the "uninformed arrogance" of a charlatan, hack, or (in this case) fraudster?
That is, if you believe that you can't learn kernel hacking, that's (potentially) impostor syndrome. Lots of people have in fact learned kernel hacking, you can learn it too. Your self-doubt about it is based on (falsely) thinking that you are individually incapable of doing a thing plenty of others have done. But if you believe you can't build a perpetual motion machine, that's just thermodynamics. Nobody has built a perpetual motion machine, and doubt about your ability to do so (which isn't really self-doubt) will be quickly confirmed by a survey of the literature.
No, the fact that others have learned it is not (strong) evidence that you can learn it too; you would need to know how similar you are to those people, and whether those dimensions are relevant.
IOW, exactly the diagnostic criteria I suggest we search for rather than immediately skip to "so what, other people thought that too".
>Your self-doubt about it is based on (falsely) thinking that you are individually incapable of doing a thing plenty of others have done.
That's generally not what is happening in practice. People don't de novo say "I can't ever do this". Rather, they attempt (or otherwise survey) it, find difficulties ("I can't consistently understand how the stack is doing that"), see others that have no similar difficulties ("what? It would have taken me a day to work through that and it comes naturally to you"), and on that basis conclude that they're unlikely to succeed as well.
"You have Impostor Syndrome" doesn't make any headway on the core problem.
Those folks exist, but I meet plenty of basically honest people who are arrogant before experience and humbled after. Far more than the raging narcissists who will do what Holmes is accused of, though those get attention.
As a recent dad, I think a lot about sending my guys into a world with 10B people in it, moving incredibly fast publicizing accomplishments (real and otherwise) in ways that make it seem like every niche is filled up. It's clear to me that irreverence for status quo and honesty with themselves are going to be equally important in them finding a niche for themselves.
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
- that it can be fixed by a low-bureaucracy, Angel-funded startup
- that any skill is just a matter of 10,000 hours of practice
Some of these things are correct sometimes. Many industries have been doing things wrong for very long, and massively productive changes disrupted the industry. Who knew that boiling water would change the coal industry forever? Some guy came up with the pump idea and changed everything. The mine owner that invested in him made a lot of money. The industry changed. Things like that happen.
I get that we sometimes have gut feelings that we can't explain. We have to be honest with ourselves though. "Is it just that I don't want to face reality, or is there truly something that I can't put into words drawing me in this direction?"
What if some 20 year old business major drop out said they are going to make chipsets double the speed of the old and lumbering tech companies like Intel? Everyone here would say no way and never think that would be disrupted so easily. So yes it is a case of people with HN mentality thinking that well taking blood via a venous draw and giving me my results a day later is cumbersome and stupid, and rife for disruption. Someone thinking outside the box despite me or that person knowing next to nothing about clinical lab tech can easily make it better than Roche, Quest, Lab Corp, Abbot etc. because they can move quicker, and disregard the old paradigms. With no consideration for the physical impossibility with known scientific knowledge!
So yeah please by all means look at how smug a lot of us were on earlier Theranos postings about the Steve Jobs of med tech. It is a valuable lesson to learn. Not everything is inconvenient for no reason, and not everything can be disrupted without some serious demonstrable tech.
https://news.ycombinator.com/item?id=8181339 https://news.ycombinator.com/item?id=7951019
There is no "HN mentality", just a large statistical cloud that people see what what they want in. Most of that cloud has been the opposite of what you're suggesting. Commenters here have been not just skeptical but cynical and outraged by Theranos for years, to the point that it became tedious. It looks to me like you're engaging in a bit of revisionism for the purpose of posturing above the community. That is a popular sport but a distasteful one.
Would you mind giving some guidance on what I should have done in the situation? I was doing the best I could against the constraints. The situation was that someone made point X, to which I have point Y as a reply. Both X and Y, in some form, have been posted numerous times.
Should I:
1) Not reply?
2) Reply, but make sure to reword Y each time?
3) Link to a previous version of Y?
4) Copy-paste a previous Y but not admit to it so it's not clear I did anything wrong?
I chose 5) copy-paste the best previous version of Y and be transparent that I"m doing so, and why I thought the circumstances merited it. You think that's the wrong choice. 4) and 3) don't seem much better based on what you've said.
I'm guessing you want 2), but IMO that's even worse because it disconnects the discussion from previous ones and forces us to retread the same ground more clumsily.
>There is no "HN mentality", just a large statistical cloud that people see what what they want in. Most of that cloud has been the opposite of what you're suggesting. Commenters here have been not just skeptical but cynical and outraged by Theranos for years,
That's kind of my point. The typical comment is outraged at Theranos. But the typical comment is also endorsing the very kind of behavior that avoids and ignores those very same warning signs. "Well sure, I consistently said over the years to 'never listen to the haters'. But I didn't mean when they were right, of course!"
"HN [most often] tells everyone that no one knows what they're doing either" is not revisionism. Revisionism would be claiming outrage that someone would press ahead when they didn't know what they were doing.
I don't agree with you at all about what the typical HN commenter is endorsing; it seems to me you're adding a lot of interpretation to a lot of disparate information and constructing something of a straw man.
By the way, if anyone is interested, only a small minority (10% if that) of HN users are in Silicon Valley. And plenty of those identify more against it than with it.
Faking it implies you want to give others the impression you’re already a big shot, and it dilutes out the accomplishments of people who actually made it.
The downside should be that if you’re faking it and you don’t make it, your shame should be relentless and brutal, and no one should ever take you seriously again. Also, even if you make it you will feel alone and empty in your success, because everyone will have long thought you already “made it” and you have to continue hiding your true story. There is no one to celebrate with except those who are also in on it.
Where as if you would have just been humble and true to where you currently are, people have headroom to express sympathy and support should you encounter a setback.
https://en.wikipedia.org/wiki/Fake_it_till_you_make_it
I don't think so. Self-doubt is natural. Mandatory, really. Someone who never has moments of self-doubt is a bad investment risk; it means they probably aren't thinking hard enough about what could go wrong. But concealing those doubts is also mandatory: if you can't, it may be a sign that you have more problems than you know how to deal with.
If you choose to ignore it and fake your way up, you are not being brave, you are being delusional. I'm not sure if delusional people are good investments.
For example you lie about how your marketing efforts are reaching customers who are signing up in droves while you use mechanical turk and other techniques to make the observable metrics go up. At some point your visibility reaches the point where you actually are reaching your customers and so you can stop doing the shady stuff. By doing this you avoid the inefficiency of the whole "we aren't sure you can do this" discussion which helps no one.
On the outside, one clean narrative, traction and growth from day 1, now a multi-million (or billion) dollar business. Or as my Grandfather would say, all yummy sausage and no discussion at all about what not-yummy things are in there too.
Everyone should believe in themselves. That is just a given, if you don't (or can't) then you won't reach your expectation. There isn't any "faking" there as far as I can see (unless it is suppressing your own doubts about the effort).
This is 100% correct. I also know a fair number entrepreneurs who engage (or have engaged) in exactly what you describe. Also, it's a short and murky step from many of the "naughty" stories that are lauded in entrepreneur lore, to outright fraud. Too often, we make post hoc rationalizations for unethical behavior, based on outcome.
It's a huge dilemma if you want to behave ethically, but you're competing with lots of people who don't have that limitation.
Staying vigilant against the normalization of deviance[1] is difficult even in ideal situations. Choosing to normalize deviance as a business strategy is practically guaranteed to rapidly accelerate deviations from acceptable behavior.
In any system - including every business - resilience and safety means fixing small problems before they grow into bigger, more damaging problems[2].
> rationalizations for unethical behavior
Often, it doesn't even need to be rationalized. When deviant behavior is slowly normalized in small steps, the human mind tends to only see the "small, insignificant problems", and often skips[3] over big changes that should be "obvious".
[1] https://en.wikibooks.org/wiki/Professionalism/Diane_Vaughan_...
[2] https://www.youtube.com/watch?v=PGLYEDpNu60
[3] https://www.cse.iitk.ac.in/users/se367/10/presentation_local...
First you shade the truth slightly. You're uncomfortable at first, but the line seems to work, so you try it again. You use it another 10 times and you start to believe it.
And then you shade the truth a little more. After the hundredth pitch, you're a fabulist, and you barely noticed.
I was sympathetic to the Theranos side of things until I learned they actually submitted fraudulent test data. That was the point where it became clear to me they were not confused as to where to draw some line. They were being willfully deceptive. Deception like that doesn't grow out of confusion. It grows out of clarity that you are selling BS.
This thread is the first time I've heard it applied seriously as to encourage lying and fraud.
Another similar common saying is "dress for the job you want, not the job you have." But sayings imply that you should act as if you've made it even if you haven't. You aren't "what you want to be," but you can present yourself in that way.
Finally, while you may have met many people who have turned "fake it" into lying and fraud, they are not the majority.
> Everyone should believe in themselves.
At least you admit here admit I'm right.
> By doing this you avoid the inefficiency of the whole "we aren't sure you can do this" discussion which helps no one.
Pretty sure that it would help investors differentiate between those who can actually make it, and those merely good at faking it and making observable metrics go up ... especially if the ones actually capable of making the <big thing> don't make the metrics go up quite as high as the ones putting their effort into faking it.
And like another commenter said, that difference might well be worth billions.
Almost like they're asserting a confidence in a belief that isn't really merited -- wish we had a term for that.
It's essentially someone stating a vision they have as reality, which is fraud.
Every building is a blueprint at some point. Some jabroni pointing at the sky and describing what will be is part of the dilemma of innovation and construction.
Startups engage in all sorts of puffery, trying to project the appearance of success long before they have actual success. Fancy websites, fancy offices, sales and investment pitches that cherry pick stories, numbers, and milestones that give an enormously positive impression of what's generally a very bumpy reality.
I personally don't like that, but the game is the game. But it's very easy for that puffery to slide over into outright fraud when things get desperate. Which is why I'm so glad that the SEC is going after Theranos with great vigor. Hopefully these clowns will end up sharing a cell with Shkreli, giving every would-be startup CEO a clear example of what happens when they push it too far.
[1] https://www.allencheng.com/concierge-mvp/
And it can even be fine when things are beyond the state of the art, as long as the CEO has the bravery to look reality in the face and either a) find another way, or b) say "sorry, startups are gambles, and this one's a busted flush".
And it's the liars and charlatans that really get to me. I figure it's at least 30% likely that I'll end up in jail because somebody says "blockchain" to me one too many times regarding some application which would be better off done with a MySQL database.
Of course, the benefit from the puffery might outweigh whatever legal risk exists. I’d call that a “calculated risk,” not “fine.”
If it's a significant factor in a buying decision, it's not immaterial. If it's not material, it's probably not worth lying about.
Yes there is. You're selling investors on capabilities you don't have, or at least intentionally misleading them about your abilities. Unless you're explicitly telling them that you WILL have "The best automated way to do X!" and are working hard on it, you're deceiving them.
If you can make the automated technology before I find out, well, maybe I won't sue you, but that sure doesn't make it right or acceptable.
It is plain dishonesty.
I have never heard of someone using "fake it until you make it," referring to Wizard of Oz or Concierge as William Pietri (gosu Lean practitioner) below has mentioned.
> in actuality you have a horde of people doing the work
> There is nothing wrong with this
um in what universe does "technically legal in the US of A" equate to "nothing wrong with" ?
using legality as a shortcut for a moral compass is putting the cart before the horse at best, but very often argued out of laziness or pure self-interest at worst. it's a narrative that causes people to stop introspection and think about what is actually right or wrong, instead going for the much, much easier choice of what is legal and what is not. not easier because the legal system is simpler than ethics (it usually isn't), but easier because the choice is made for them.
and as your post demonstrates, once the choice is made, it's easy enough to conflate legality, lawfulness and judgement with morality, rightfulness and justice.
but once you poke at that distinction, the argument just falls apart.
there isn't "nothing wrong with this".
all you're really saying is that it's probably not illegal.
> Ms. Holmes and Balwani falsely claimed to investors [...] and that Theranos would generate more than $100 million in revenues in 2014, the SEC said in its complaints. In fact, the company’s revenues were a little more than $100,000 that year.
I couldn't figure out why investors were putting all that money in. Telling them you were making $100m makes the investments make a hell of a lot more sense.
What's 3 orders of magnitude between friends? She deserves prison time for this.
Sigh. The SEC is concerned with lying about actual numbers. Not about future projections. What a terrible comment on a startup forum. "Fake it until you make it" it as about having confidence -- not about lying to investors. Please downvote this parent comment.
Our experiences are different I suspect, Check this out https://www.sec.gov/fast-answers/answers-regfdhtm.html. I sat in the courtroom once as one of the officers of a company was being prosecuted for violating this disclosure rule. There are a number of regulations that the SEC enforces that have nothing to do with "actual numbers" and everything to do with information asymmetry where the company knows something and the investors don't.
They have historically been all about that when non-accredited investors are involved (aka public companies). And reading their action with respect to Theranos suggested to me that they are going to bring that hammer into the startup space.
What this has to do with the parent comment? I'm asking these because I'm not sure I follow the reasoning. Your concern is that the SEC has very strict reporting standards and regulations. These are intended to provide a fair field between all investors (accredited and non-accredited) in order for the market to function in a more efficient way. In exchange for this increased cost of regulation upfront, the transaction between investors on the company's shares have a much lower friction (and transaction costs).
Private companies have lower regulation because the assumption is that the investors willing to buy shares are open to assume higher transaction costs in terms of due diligence. Obviously, reporting the false could open the company to lawsuits, but that's also part of the potential cost for the investors.
The choice between being a public company and a private one, in the end, is a function also of this trade-off. If I understand your reasoning, you fear that the SEC forcing himself into the private market could increase the regulatory cost of all startup. Am I right?
If that is correct, my answer would be that the SEC is not imposing the full regulation but just a minimum level of accurate reporting on behalf of the investors. This is because there's an assumption that a well behaved private market is essential to make the economy more active (imagine if this level of lying was accepted, how many investors would be willing to invest?). On the other side, I see the risk of a slippery slope and having the SEC power to grow to large and kill the startup ecosystems. I don't have a clear answer for that.
So stylism aside, you have correctly surmised my concern that the SEC is looking to move into private markets more aggressively. I think the reason for that is nuanced but having lived through the dot.com bubble and watched how the government responded to that bubble (Sarbanes Oxley anyone?) And the huge losses that are being taken by the large banks as their Unicorns died in this the Unicorn bubble, basically accredited or not investors with lots of capital get mad when they are mislead, and their anger typically results in them getting their "friends" to do something about it. We currently have an integration between banking interest and the administration that is as deep as it has ever been. So there are many contacts both official and unofficial between Wall Street and DC.
There is also the perception of the disproportionate channeling of wealth creation to a smaller number of people through private company 'trading'. Add the antics of Uber and Theranos to the mix and it provides a convenient place for the powers that be to take "logical" and "needed" steps to curb the abuses. Generally resulting in more regulation and more risk on startups.
So i think unless her entire position is sold for more then $36 a share she has lost everything from the company.
No idea what her personal finances were going in to this event.
> Holmes was paid a salary of approximately $200,000 to $390,000 per year between 2013 and 2015
> https://news.ycombinator.com/item?id=16586011
> "on the front page, please check for duplicates before submitting"
But why it matters at all? Penalty should be proportional to the deed, not to the person's finances.
[1] https://www.theatlantic.com/business/archive/2015/03/finland...
I would argue the opposite, why do you think this is the case?
Remember kids, the rich are not playing the same game the rest of us are.
While there are economically depressed whites who have some of the same problems as economically depressed non-whites simply because they're economically depressed, their situations are not equivalent. Saying that they are is nothing more than a way for white people to distance themselves from the fact that we are in fact privileged because of our race, and that our relative success isn't solely attributed to our hard work, smarts and persistence.
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 man 15 years.
Meanwhile, defrauding investors hundreds of millions results in... nothing, really?
There's a word for this.
Unacceptable.
[1] http://www.baltimoresun.com/news/maryland/crime/bs-md-ci-twe...
[2] https://www.nytimes.com/2017/02/10/us/illegal-voting-gets-te...
[3] http://www.nytimes.com/2013/08/11/opinion/sunday/kristof-hel...
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).
That is scary
Huh? A large percentage of those jailed in the USA have not been convicted of the crime for which they are charged. They are detained until trial because they cannot afford bail.
But Shkreli has brought on himself another order of magnitude of personal criticism because of his statements and actions beyond the price fixing. In my experience from the days after his sentencing, people who know nothing about tech or healthcare know his name and react to it with scorn, while quite few of them know the name of his funds or companies.
Less than a year later, before punishments really started to be officially levied against her and Theranos, a movie project with Jennifer Lawrence drew a frenzy of bidding.
https://www.vanityfair.com/hollywood/2016/06/jennifer-lawren...
edit: added "wasn't"
They have only civil authority.
They refer criminal cases to the US attorneys/DOJ, and offer assistance. All evidence suggests they did so here.
The decision to criminally prosecute or not is out of their hands.
yes, people should inform themselves before talking. Jail time and other penalties will depend on the Justice Department
https://www.sec.gov/oiea/investor-alerts-bulletins/ib_invest...
EDIT: Thanks everyone for the information -- very interesting.
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".
My keyword is why.
Separation of powers. The SEC is part of the executive branch. The judicial branch is responsible for bringing suit.
If you want the why for that why, that's a philosophical discussion that probably won't be well served by a HN comment thread.
Why would the SEC be able to imprison people? That's not their job. They also can't set the prime interest rate or grant radio spectrum rights to AT&T.
The concept of limited government demands that certain powers must be separated such that they never come together in the same person. That simple measure ensures that tyranny can arise only through conspiracy, cooperation, and collusion between multiple bad actors, rather than just one person acting alone. Why can't your HOA put you in jail for not mowing your lawn often enough? Because the kind of petty nagging nitpicking bastard that typically volunteers to serve on the HOA enforcement committee makes the absolute worst kind of cop. The power goes right to their heads, and they abuse the heck out of it to further their own goals and agenda.
The question we should be asking is why do the federal criminal investigators and prosecutors seem to pay less attention to financial crimes referred to them by the SEC than they attend to other crimes?
IF you are asking "Why hasn't the SEC been granted the power to send people to jail?", then that's a deeper philosophical question. There would be a concern that the diffusion of such powers could be abused or wielded by non-judicial-experts who aren't necessarily acting in the interests of justice and broader public policy, and more generally the principle of separation of powers discourages such to prevent tyranny/the abuse of state power.
Here is the law and reasons: https://www.justice.gov/usam/usam-9-27000-principles-federal...
Here are the statistics https://www.bjs.gov/index.cfm?ty=tp&tid=63
1) https://www.oas.org/juridico/mla/en/usa/en_usa-int-desc-guid...
They cannot do other things just because "no law restricts it".
The exact authority grant is complicated.
You want:
https://www.law.cornell.edu/uscode/text/15/78d and following sections, plus a whole bunch of stuff enacted elsewhere.
The part you are probably most looking for is: https://www.law.cornell.edu/uscode/text/15/78u
There you can see most clearly their civil authority and what they are allowed to do. You can see it says "Whenever it shall appear to the Commission that any person is engaged ... in acts or practices constituting a violation of {a bunch of stuff} .. it may in its discretion bring an action ... to enjoin such acts or practices ... . The Commission may transmit such evidence as may be available concerning such acts or practices as may constitute a violation of any provision of this chapter or the rules or regulations thereunder to the Attorney General, who may, in his discretion, institute the necessary criminal proceedings under this chapter"
It then goes on to add additional monetary penalty authority that you see exercised here.
I believe the Justice Department brings all federal criminal charges [1] under the Federal Rules of Criminal Procedure [2]. Bringing criminal charges is specialized work. It makes sense to have the specialists handle specialist work.
[1] https://www.justice.gov/usao/justice-101/steps-federal-crimi...
[2] https://www.law.cornell.edu/rules/frcrmp
What evidence? I have flipped through the SEC filing and some news articles and I don't see anything about it being referred to the DOJ.
From what I remember, HN and similar just had dozens and dozens articles each week on this case, far more than for other, comparable cases. MtGox was around the same time, I believe.
My subjective impression was also that Holmes featured far more prominently in the articles and discussions than male CEOs in other cases.
Here is one commentator in this thread comitting all sorts of crimes against grammar to accentuate her gender: “The FBI should recommend charges for this Holmes lady.”
Edit: I just noticed the comment I cited was by the same user I was replying to :) I guess my sexism-radar is well-tuned today.
>The FBI should recommend charges for this Holmes guy.
No one would think twice. Stop looking for reasons to be outraged, you'll be better off for it.
https://www.axios.com/tim-draper-keeps-defending-theranos-15...
The book The Chickenshit Club https://www.amazon.com/Chickenshit-Club-Department-Prosecute... by a Pulitzer Prize winning journalist tells a more thorough and comprehensive, though infuriating and tragic, story.
To be fair, these sorts of people tend to be wealthy.
I think the real lesson is don't steal in the public eye. Theranos had so much press surrounding their rise, and fall. It was inevitable the SEC would get involved.
Claiming you have contracts signed when you don't is fraud, but claiming you have $100M in DoD revenue when you don't is elaborate corporate suicide.
When the Department of Justice charges, convicts and throws her in prision -- then we can talk about the "number one rule."
More than just the financial fraud, these folks engaged in behavior that actively endangered the public. I hope this isn't the end of the government actions against them.
Her public behavior was exceptionally bizarre and almost none of what's been revealed comes as any real surprise. For timeline purposes:
Dec 24, 2017 - They get $100m lifeline investment https://www.wsj.com/articles/blood-testing-firm-theranos-get...
June 21, 2017 - Walgreens settlement https://www.wsj.com/articles/theranos-walgreens-reach-deal-t...
May 30, 2017 - Crisis on the Board https://www.wsj.com/articles/court-documents-shed-light-on-t...
April 21, 2017 - Caught using outside lab gear to fake tests https://www.wsj.com/articles/theranos-secretly-bought-outsid...
April 5, 2017 - Holmes found to owe $25m to her own startup https://news.ycombinator.com/item?id=14047457
Jan 19, 2017 - Closes last lab after failing inspection https://news.ycombinator.com/item?id=13433840
Jan 17, 2017 - second lab fails inspection https://www.wsj.com/articles/second-theranos-lab-failed-u-s-...
Jan 6, 2017 - Lays off 41% of workforce https://news.ycombinator.com/item?id=13338996
Nov 17, 2016 - Whistleblower comes out https://www.kqed.org/futureofyou/283681/theranos-whistleblow...
July 8, 2016 - Banned from operating a lab for 2 years https://news.ycombinator.com/item?id=12053721
Jan 27, 2016 - Letter from the feds https://news.ycombinator.com/item?id=10983747
Dec 20, 2015 - Some skepticism https://news.ycombinator.com/item?id=10765562
Oct 16, 2015 - Struggles with tech https://www.wsj.com/articles/theranos-has-struggled-with-blo...