Apr 17 2023

Elizabeth Holmes Going to Prison

I first wrote about the Theranos scandal in 2016, and I guess it should not be surprising that it took 7 years to follow this story through to the end. Elizabeth Holmes, founder of the company Theranos, was  convicted of defrauding investors and sentenced to 11 years in prison. She will be going to prison even while her appeal is pending, because she failed to convince a judge that she is likely to win on appeal.

I think her conviction and sentencing is a healthy development, and I hope it has an impact on the industry and broader culture. To quickly summarize, Holmes began a startup called Theranos which claimed to be able to perform 30 common medical laboratory tests on a single drop of blood and in a single day. So instead of collecting multiple vials of blood, with test results coming back over the course of a week, only a finger stick and drop of blood would be necessary (like people with diabetes do to test their blood sugar).

The basic idea is a good one, and also fairly obvious. Being able to determine reliable blood-testing results with a smaller sample, and being able to run multiple tests at a time, and very quickly, have obvious medical advantages. Patients, for example, who have prolonged hospital stays can actually get anemic from repeated blood draws. At some point testing has to be limited. Repeated blood sticks can also take its toll. For outpatient testing, rather than going to a lab, you could get a testing kit, provide a drop of blood, and then send it in.

The problem was that Holmes was apparently starting with a problem to be solved rather than a technology. We can think of technological development as happening in one of two primary ways. We may start with a problem and then search for a solution. Or we can start with a technology and look for applications. Both approaches have their pitfalls. The sweet spot is when both pathways meet in the middle – a new technology solves a clear problem.

When starting with a problem and then searching for a solution, this often requires extensive research and development. There is also no guarantee you will find a solution. The technology may simply not be ready. The problem with Holmes is that she pretended she had the technology in hand, when she didn’t. All she had was an idea about a problem to be solved. There never was any technology or even research paradigm behind it. Holmes figured that she would follow the Silicon Valley culture of “fake it till you make it”.

Admittedly this is often a continuum – when searching for investors in a new startup, it is generally assumed that companies will put their best foot forward. They will hype the potential of the new technology they are trying to develop, exaggerate the problem they are trying to solve, downplay competing solutions, and paint a very optimistic projection of progress. At some level all of this is just marketing, and it is up to investors to be savvy in sorting out the true potential of any new company and technology. But when does marketing hype become fraud? When does “faking it” become defrauding investors? Elizabeth Holmes was essentially one test case to probe that demarcation, and she fell on the wrong side of it.

As a side story, Theranos was already selling their services to customers while the tech was still “in development”. The company just ran standard blood tests, and never provided any of the services they promised in terms of new blood-testing tech. But she was not convicted of consumer fraud. It may say something unfortunate about our legal system that investors get more protection than consumers.

But I see the Theranos story as one piece of our broader cultural struggle with misinformation. Holmes was operating under the idea that we can, in a way, determine our own reality, our own “facts”. In her world, marketing is reality. You say something with enough confidence, and it is real. Of course, that is the philosophy of the “confidence man” or “con man” for short. The con man approach to reality has deeply infiltrated not just Silicon Valley and business in general, but politics, and even the news. We elected a con man for president in 2016 (all partisanship aside – I have been calling Trump a con man long before he ran for president). There are entire news organizations based on the philosophy of “alternative facts”. The term “gaslighting” is now much more widely known – because the phenomenon of gaslighting is much more common.

Misinformation, arguably, is the greatest threat to our democracy, both internally and externally. I do not fear an old-style AI apocalypse where SkyNet takes over the world with killer robots. But I do fear AI tools being exploited to weaponize misinformation on a epic scale, far beyond what we already have.

So anything that whacks back the “fake it” culture, in my book, is a good thing. The way to fight misinformation is with transparency and accountability. Fraud is still fraud, it’s not just marketing, and it’s not a legitimate “alternative”.

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