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Pants on fire: Theranos founder Elizabeth Holmes has been convicted of knowingly defrauding investors. Picture: STEPHEN LAM/REUTERS
Pants on fire: Theranos founder Elizabeth Holmes has been convicted of knowingly defrauding investors. Picture: STEPHEN LAM/REUTERS

Elizabeth Holmes’s guilty verdict is a statement not only about how corrupt her company, Theranos, was, but also how corrupted the Silicon Valley "fake it till you make it" culture has become.

After a trial lasting more than four months and with the jury debating its findings for 45 hours over seven days, Holmes was convicted on four of 11 charges of defrauding investors.

The US government built a solid case against Holmes, 37, for knowingly defrauding her investors. The jury agreed, and she faces 20 years in jail on each of the four counts.

For a decade, Holmes and Theranos were media rock stars. Theranos raised $950m after its founding in 2003, reaching a peak valuation of $9bn. She was on the cover of Fortune magazine and was quickly declared the first woman self-made billionaire.

Holmes styled herself after Apple founder Steve Jobs, even wearing black turtlenecks. She was fêted at conferences and industry events and flew around the world on her private jet.

There was just one little problem: it was all a lie.

It was premised on the idea that with a single drop of blood — instead of the usual vial taken with a needle — Theranos could perform a host of tests using its own machines.

It was considered a huge medical and engineering breakthrough and led to deals with US pharmacy giants Walgreens and Safeway, as well as interest from the US military in using the machines in Afghanistan and on medical evacuation helicopters.

She attracted a star-studded cast of investors, including former secretaries of state George Shultz and Henry Kissinger, former US defence secretary James Mattis (who testified against Holmes), former education secretary Betsy DeVos (who invested $100m), former Oracle CEO Larry Ellison and media mogul Rupert Murdoch (who lost his $120m investment).

But the most her so-called breakthrough device, dubbed the Edison, could do was 12 tests — not the hundreds Holmes claimed.

For most of the 15 years Theranos operated, it used modified third-party analytics machines, which it hid from investors and board members by claiming that this was some kind of trade secret.

But when Theranos began running out of money in 2009 and was struggling to make its payroll, Holmes began making outrageous claims to new investors.

"Out of time and out of money, Elizabeth Holmes decided to lie," said assistant US attorney Robert Leach in his opening argument. "She chose fraud over business failure. That choice was not only callous, it was criminal."

With an audacious defence strategy, she claimed she was abused and controlled by Theranos’s COO, Ramesh "Sunny" Balwani, who was also her longtime boyfriend, which the two kept secret for a decade.

The judge separated their trials, but Holmes, a narcissist who seemingly couldn’t give up any power, admitted she was in control when it came to speaking to investors and the media.

As Leach emphasised: "She owned it. She controlled it. The buck stopped with her."

One of the astounding things she did was to fraudulently insert the logos of big pharmaceutical firms Pfizer, Schering-Plough and GlaxoSmithKline on technology validation reports, making it appear as if Theranos’s technology had been vetted and approved by them — a claim she repeatedly made.

Just as astoundingly, Holmes admitted to doing it herself "because this work was done in partnership with those companies and I was trying to convey that".

But in 2015 The Wall Street Journal’s John Carreyrou reported that there were problems with Theranos’s technology — and the great con began unravelling. His book, Bad Blood: Secrets and Lies in a Silicon Valley Startup, is essential for those interested in this sordid tale, as is ABC’s excellent podcast The Dropout.

Holmes, like many start-up founders, had a vision for what she wanted to achieve, but she strayed into lying to achieve it, the court found.

Holmes’s story should be a warning to Silicon Valley, and it’s a cautionary tale of how its culture of outrageous promises and rampant exaggerations can just as easily be, well, lies. We could call it "false statements", as the prosecutors said of Holmes’s many fraudulent claims, but the real definition is lying.

"The disease that plagued Theranos wasn’t a lack of effort. It was a lack of honesty," as another prosecutor, John Bostic, put it.

It’s a disease that plagues far too many businesses, especially in the start-up world, where founders often make wild claims about what their new company or technology can do. Starting a new business requires intense self-belief, as any entrepreneur can tell you. It can take many years for some ideas to germinate and for products to be developed. But crossing over, as Holmes did, into outright falsehood isn’t acceptable. This judgment makes that clear.

Note to Silicon Valley: if it’s not factually true, it’s a lie.


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