Federal prosecutors allege that Elizabeth Holmes and the No. 2 at Theranos, Ramesh “Sunny” Balwani, “broke the law by deceiving investors about how well the business was doing and the capabilities of its testing machines, in addition to allegedly providing false or flawed test results to patients,” reports NPR.
But they add that in Silicon Valley, the trial has launched this debate. “Since Holmes was following a playbook used by dozens of tech CEOs, why is she the only one to face prosecution when a company becomes engulfed in a scandal?”
To Ellen Pao, the former CEO of Reddit, who is a vocal critic of gender discrimination in tech, sexism is partially to blame. “When you see which CEOs get to continue to wreak havoc on consumers and the market, it’s people who look like the venture capitalists, who are mostly white men,” Pao said. She points to Adam Neumann, who drove WeWork into the ground; former Uber CEO Travis Kalanick, who resigned after a sexual harassment scandal; and Juul’s Kevin Burns, who stepped down amid questions over the company’s role in stoking the youth vaping epidemic. There were lawsuits, settlements and more fallout — but notably, Pao points out, no criminal prosecutions.
“That all these people continue to lead their lives and not be held accountable for all the harm that they’ve caused, it does send a message,” she said.
Former prosecutors who have tried white-collar crime say there are several reasons why Holmes stands out among disgraced tech CEOs. First, the allegedly fraudulent behavior was egregious: Holmes told the world she had a miracle machine that would upend laboratory science. Prosecutors say, compared with her claims, the technology barely did anything at all. Mark MacDougall, a former federal prosecutor who focused on fraud cases in the U.S. Justice Department, said Theranos’ being a biotech company raised the stakes. “It allows the government to contend, with some evidence, that the health of private citizens, the health of innocent people, was put at risk,” MacDougall said. Another reason Holmes was charged, according to former prosecutors, was that the government says it obtained evidence that she acted intentionally, which can be difficult to establish in fraud cases.
Prosecutors now plan to show Holmes “knowingly and intentionally” defrauded investors and patients, “something her defense team says is false,” the article points out. “Proving that Holmes is guilty will turn on demonstrating her intent, since exaggerating a product’s potential, missing financial forecasts and running a secretive company do not constitute federal crimes.”
Pao’s argument is that Holmes “was encouraged by the high-risk, high-reward culture of venture capital. That said, Pao said she is not defending Holmes, saying her behavior warranted prosecution.”
“At the same time, Pao wants a broader discussion in Silicon Valley about why other CEOs accused of wrongdoing have not faced criminal consequences.”
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