Courtesy of Pam Martens
SEC Chair Jay Clayton
On March 14 the Securities and Exchange Commission charged Theranos founder and CEO Elizabeth Holmes with a “massive fraud.” According to the SEC, Holmes had made wild and false claims about the company’s purportedly revolutionary blood testing device as the company fraudulently raised $700 million from investors.
But despite the SEC investigators’ well-developed “massive fraud” charges against Holmes, five days later the SEC let the 30-something woman off the hook with a $500,000 fine, surrender of her shares in the company, and barred her from being an officer or director of a publicly traded company for 10 years. In other words, when Holmes is in her early 40s, she will have the opportunity to once again run another massive fraud and bilk investors. This is exactly the kind of hubris we have come to expect from the SEC. (See related articles below.)
This past Sunday, CBS’s 60 Minutes detailed the history of fraud at Theranos. It had to own up to the following: “…almost every media outlet including us here at CBS bought into the Theranos myth.”
Smart people bought into the Theranos myth because Holmes had learned a pivotal lesson from Wall Street: stack your board with prestigious names and hire a big name lawyer and you can pretty much get away with enormous amounts of fraud for a very long time. At its peak, Theranos was valued at almost $10 billion, making Holmes’ a billionaire from her stake in the company.
Holmes’ board of directors carried heavyweight names like former Secretaries of State George Schultz and Henry Kissinger; current Secretary of Defense James Mattis; and former Senator Sam Nunn. All of her impressive board members were paid in shares of Theranos stock, thus incentivizing them to let the company’s value soar on wild, unsubstantiated claims.
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