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?
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.
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.
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.
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.
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.
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 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.
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?
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.
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.
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.
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.
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 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:
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?