THERANOS – THE DISRUPTION THAT BECAME AN ALLEGED FRAUD CASE

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Setting up a start-up usually involves enormous risks and a lot of work. The risk of failure is greater than that of success. The formula applies: the more innovative, the more disruptive the business model, the higher the chance of failure. Failuring is part of the game and generally accepted in societies with a working venture capital culture. For founders, however, failure has many problems, both financial and legal. In many cases, failure leads to disappointed investors and criminal proceedings. As in the case of THERANOS.

Elisabeth Holmes
Elisabeth HOLMES – founder of THERANOS

On Friday, Elisabeth HOLMES, founder of the health technology startup THERANOS, and Ramesh BALWANI, the former president and CEO of the company, were accused by prosecutors of nine counts of wire fraud and two counts of conspiracy to commit wire fraud, lying to patients and doctors and defrauding investors out of $100 million.

If convicted, the pair—who were also linked romantically—face fines of $250,000 per count, plus restitution of over $100 million, and decades in prison. The maximum statutory penalty for both conspiracy to commit wire fraud under and for wire fraud itself under is 20 years per count, and each count could be served consecutively. HOLMES and her partner could be facing decades in prison. Both entered pleas of not guilty.

The criminal charges came after HOLMES settled civil fraud charges brought in March by the US SEC, which barred her from serving as an officer or director of a public company for 10 years.

The Silicon Valley startup THERANOS went from one of the most lauded “unicorn” tech startups in Silicon Valley to a company crippled by scandal. It was once valued at nearly US$10 billion, before a series of reports by journalist John CARREYROU exposed the company’s supposedly revolutionary blood-testing technology as an elaborate fraud.

While HOLMES’ attorney declined to comment on the case, BALWANI plans to fight the charges at trial. In a statement, his attorney denies any crimes were committed and argues, “If the federal government is going to start treating business failures as fraud cases, it will stifle the innovation that is the lifeblood the US needs to stay globally competitive.

Prosecutors, however, argue that HOLMES and BALWANI did not play by the rules. It’s unclear if the pun was intended. But it is evident that prosecutors want to make an example of the case.

HOLMES has apparently not yet mastered the art of failure. It is her wish that she learns this art quickly.

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