Jan 04 2022

Elizabeth Holmes Guilty of Fraud

There are a lot of complexities to this case, as you might imagine. Some question whether or not Holmes, CEO of the now disgraced Theranos company that claimed it had revolutionized blood testing, was unfairly targeted because she is a woman. Her defense was also complex, including a claim she was abused by her boyfriend. These details are, of course, important in the pursuit of individualized justice. But I want to focus on some big picture factors – what might the results of this case mean?

I first wrote about Theranos in 2016 – I recognized the story as a skeptical cautionary tale. The claims that Holmes was making were implausible in the extreme. She claims her company innovated the technology to perform hundreds of different blood tests with a very small amount of blood and within a short period of time. The public is used to such advances in technology, and this claim, while bold, may seem plausibly incremental. However, medical experts recognized the claim for the nonsense it was. Far from being incremental, such a feat would have required hundreds of scientific breakthroughs all brought to technological fruition in a marketable product. This kind of advance does not come out of nowhere, without a paper trail of scientific research behind it.

Holmes was counting on a general level of scientific illiteracy, specifically to how the process of science works. It is increasingly difficult to make a major discovery or technological advance without all the groundwork being laid by incremental research spread out among various experts and institutions. Often when we hear of a new technology hitting the market, there is 20-30 years of background research. The idea for an mRNA vaccine started in the 1980s, for example. The new medical technologies that are coming online in the last decade have roots that go back decades.

Therefore, when a company claims to have technology based on something entirely new, without such a history to back it up, there is good reason to be extremely skeptical. In the case of Theranos, such skepticism was entirely justified. It was also almost entirely absent from mainstream reporting in the early days of the company. Theranos was no different than the countless snake oil peddlers making implausible claims absent the science to back it up. In the case of Holmes she was able to parlay the false hype into a multi-billion dollar company.

This is why I hope the fallout from this decision will be significant. The reporting about this case all refers to the Silicon Valley culture of “fake it ’til you make it.” But this culture goes beyond Silicon Valley. This attitude also tends to normalize fraud, to portray it as mere salesmanship. In the trial there was also a large focus on whether or not Holmes believed her own hype. In the end, appropriately, it was determined that it did not matter. That is an extremely important point. But let’s dissect these points a bit further.

There is a fuzzy line between commercial hype and fraud, but it does seem we need to clarify that line further. Much of the reporting on this case points out how difficult it is to prosecute for fraud, because of the fuzzy line. Over time, if anything, this line has become even more indistinct, and within certain industries, like the supplement industry, the line has been obliterated. For example, is it OK to make a claim that is not strictly a lie but is simply an unknown? Where is the burden of proof? When does speculation about what a technology might be able to do turn into a lie about what it can do? What about implied claims that are not explicit? Joan took this pill and lost weight. That does not explicitly claim that the pill caused Joan to lose weight, or that it will help you to do so, but the implicit claim is obvious.

Another loop hole is the anecdote, using third parties to make claims for a product without the company making those claims themselves. Endorsements are another way to slip claims in through the back door. Have some guy in a white coat with some letters after their name endorse the product, without making explicit claims, combine that with some anecdotes and you have a powerful story. Holmes got into trouble because Theranos suggested they had endorsements from Pfizer and GlaxoSmithKline when they didn’t. This tactic is common, often by getting press coverage and then using that coverage as an implied endorsement of legitimacy.

The focus on whether or not Holmes believed the claims for her company is also highly significant. Often fraud cases turn on this detail, but it is also often difficult to impossible to prove someone’s intent. Rarely (outside of cinema)  is there a smoking gun where someone outlines their evil plan in detail. I would argue, however, that intent should not be a necessary criterion for a finding of fraud. It make reasonable be taken into account when determining the punishment, but not the guilt. It is simply too easy to argue that someone believes their own nonsense, and in some cases they may. But being gullible oneself should not alleviate them of the responsibility for due diligence. The person making the claim, especially for the explicit purpose of marketing a product or service, has the burden of responsibility to determine that their claims do not constitute fraud.

In other words, if someone is making a marketing claim, they should bear the legal responsibility to determine ahead of time that their claims are reasonably true. It should not be the burden of others to prove their claims wrong, and further to prove what the person making the claims believed about them. I am not stating here what the current law is, I am saying what I think it should be. It is way too easy to commit and get away with fraud, hiding under the shield of marketing hype, uncertainty, let the buyer beware, and the impossibility of proving what you believe.

For these reasons I think the Holmes guilty verdict (on four of the 11 charges) may be a good thing. Right now it’s springtime for fraudsters in our culture. This needs to shift significantly. This is also part of a far broader trend of treating facts and truth as purely matters of opinion. In such a world there is no fraud. Everyone is entitled to their own reality, there are no standards, and no accountability. This trend has to turn around.

 

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