Elizabeth Holmes used the SEC as a criminal defense team | Emily Chang

Investigative journalists across the country began to realize a couple of months ago that the Securities and Exchange Commission might launch a lawsuit against the founder of Theranos, Elizabeth Holmes. The SEC was scheduled…

Elizabeth Holmes used the SEC as a criminal defense team | Emily Chang

Investigative journalists across the country began to realize a couple of months ago that the Securities and Exchange Commission might launch a lawsuit against the founder of Theranos, Elizabeth Holmes. The SEC was scheduled to file its complaint this week and reports made this case public; so it’s worth taking a look at the following documents:

The suit alleges that, while the company was touting itself as a breakthrough, Holmes personally manipulated the market, selling over $850m of the company’s stock in secret. The SEC took advantage of corporate and personal secrecy laws to access her emails and access a more complete picture of the company’s declining trajectory. The complaint claims Holmes learned of a planned SEC inquiry before it happened and told several staff members to sign nondisclosure agreements. When questioned, Holmes responded that she “cannot explain … the comments in these emails” but said the allegations were “exaggerated”.

The SEC action caps off a nightmare that has seemed almost fiction-like since an article published by the Wall Street Journal on October 2016 first reported on the accuracy of allegations made in other investigations about Holmes’s claims about Theranos and its technology.

Specifically, the SEC alleges that Theranos manufactured blood testing devices but not “bioidentical” blood testing technologies. Theranos also misrepresented its relationship with hospitals, which the company did not have the equipment to perform. Even more explosive is the suggestion that Theranos collected more data than it actually had access to and kept that data and their use secret from potential clients. Moreover, the SEC claims the company intentionally kept data access and data use secret from regulators to prevent the government from gaining access to potentially crucial information on Theranos’s technology. All of this is alleged to have taken place while Holmes was CEO.

It is absolutely stunning that Holmes would engage in these shady actions. And the allegations are absolutely damning:

Her subordinates were instructed not to speak to anyone outside the company about Theranos and were instructed never to touch Theranos finances. She also had them remove emails referring to Theranos from a website her then-daughter-in-law set up. She has repeatedly lied about the conditions of Theranos clinical labs and the claims made by Theranos to date, and never allowed the presence of independent medical experts to evaluate its technology. She received financial help from a men’s basketball coach at Stanford University to pay for an expensive education that she was unable to return to after being drafted to the National Basketball Association, although her father had pledged to pay her way through college. She has been the subject of numerous complaints to the state of California, which allege she gave false information to customers and authorities about the technology. Holmes ignored her own corporate code of conduct that provides a mechanism for dealing with employees in an adverse situation. These policies and procedures are significant and reasonable and reasonable in light of the company’s circumstance, but were ignored on an almost daily basis.

The list goes on.

As someone with a background in business journalism, I wonder how the numerous journalists at the Wall Street Journal, as well as other outlets like the New York Times and BuzzFeed, have not picked up on these revelations. The complaint also takes a shot at both Theranos’s Silicon Valley PR firms, Heller Weinberg and Definers, as well as its former chief scientist Dr Jane Zhang.

Even the original Wall Street Journal reporter who broke the story about Theranos’s technology is now making the rounds speaking with journalists across the country, as well as speaking on a panel on fair news coverage and the state of journalism. Following her events, I was in Los Angeles, where I had lunch with Rob Walker, also of WSJ fame. He was asked to comment on the allegations against Holmes and the wall he set at the paper. He told me that the financial impact that media have to pay attention to these cases in the long run could be a reverse windfall for Silicon Valley startups.

At the end of the day, legal action by the SEC marks a sad coda to a lost era of innovation, news, and investigative journalism. Whether the allegations prove to be true, the legal action taken against Holmes will likely mean the end of her leadership of Theranos.

At the very least, it feels like an an incomplete and muddled bookend to a chapter in the history of Silicon Valley.

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