What Elizabeth Holmes’ conviction means for tech entrepreneurs, startups

Elizabeth Holmes, founder of the blood testing company Theranos and a one-time darling of Silicon Valley, has been convicted of fraud. The verdict came down Monday night in the closely watched case and trial that rippled beyond the tech world. Stephanie Sy gets an assessment of the verdict.

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  • Judy Woodruff:

    Elizabeth Holmes, founder of the blood testing company Theranos and a one-time darling of Silicon Valley, has been convicted of fraud.

    The verdict came down last night in the closely watched trial that rippled beyond the tech world.

    Stephanie Sy has more.

  • Stephanie Sy:

    Judy, Elizabeth Holmes was found guilty on four charges of fraud for lying to investors about the effectiveness of her blood testing device. She was acquitted on four other counts related to defrauding patients who used the test. The jury could not reach a verdict on three other fraud charges.

    For more on the wider implications, I'm joined by Margaret O'Mara. She is a history professor at the University of Washington and author of the book "The Code: Silicon Valley and the Remaking of America."

    Professor O'Mara, thank you for joining the "NewsHour."

    I want to remind viewers that Elizabeth Holmes was a media sensation when she first pitched Theranos as a disrupter in the blood testing space. And then she had this remarkable fall from grace that culminated in the prosecution yesterday, yet this was a mixed verdict.

    What was your big takeaway on the jury's decision?

    Margaret O'Mara, University of Washington: Yes, this was Silicon Valley's trial of the century, indeed.

    My takeaway was, I was surprised that a guilty verdict came in. This is unusual to have these white-collar prosecutions of CEOs, much less a Silicon Valley CEO, is rare. So, that's a first for Elizabeth Holmes.

    But I think the counts on which she was — the verdict ruled guilty were ones where there was the strongest body of evidence that was really tying her to telling investors one thing, and the reality being quite different, and her accountability as a CEO.

    That doesn't mean that the other charges weren't substantial. But in terms of the evidence presented to the jury and what was being shown to them at the trial, that those charges are the ones that seemed most clear-cut.

  • Stephanie Sy:

    Help us put the importance of this case into context. The plaintiffs were multimillion-dollar investors and companies like Walgreens. They lost hundreds of millions of dollars.

    Was any greater harm done?

  • Margaret O’Mara:

    I think the bigger lesson here is a bigger lesson about finance and investment.

    We have so much money flowing into the system, that some people and families have so much money that investing a few million dollars here and there in a start-up like Theranos, particularly one that is promising such huge returns and has such illustrious people associated with it, like Henry Kissinger and George Shultz, it was not that much of a stretch.

    What is remarkable, that the trial showed, was kind of how little diligence and investigation some of these companies and investors made before they put their money in and formed alliances with Theranos.

  • Stephanie Sy:

    I cannot think of the last time a Silicon Valley executive this high up was found guilty of criminal fraud.

    Why Holmes? Was this really a one-off? Or does this case open a window into a wider problem within tech start-ups?

  • Margaret O’Mara:

    Elizabeth Holmes and Theranos were quite different than most tech start-ups.

    They weren't tech, really. It was a medical device company, a highly regulated space. They were building things, a physical device. All those things made the value proposition quite different and made the evidence of fraud much easier to accumulate and to prove.

    That doesn't mean that there aren't some really important lessons here for the start-up world in terms of the enthusiasm about young college dropouts, relatively inexperienced, giving them a lot of money and power and credibility, when perhaps what they are building is not something that they're going to be able to deliver.

  • Stephanie Sy:

    Do you think that Holmes' prosecution will affect how start-up entrepreneurs behave?

  • Margaret O’Mara:

    I'm doubtful, I think in part because Silicon Valley insiders have fairly enough distanced themselves and shown that Theranos was a quite different sort of company.

    What really changes behavior, Silicon Valley is a boom-and-bust economy. It always has been. I study its history. There's always a big up and a big down. And, really, what changes the status quo is when there is a larger market correction, when there are investors as a class kind of back away from tech.

    Right now, tech stocks are going up and up. I think we shall see what the next year or two brings in that direction.

  • Stephanie Sy:

    Well, Professor, many have observed that Elizabeth Holmes' persona, starting a biotech company, as you said, as a 19-year-old Stanford dropout, made her sort of the ultimate Silicon Valley fairy tale and may have blinded investors to performing due diligence.

    As egregious as the jury may have deemed her fraud was, do you have concerns that the first big Silicon Valley prosecution is of a young woman?

  • Margaret O’Mara:

    It is a challenge.

    I don't think her gender was why she was on trial. I think it had to do with the substance of the company and the fact that there was a very clear — clear evidence presented and aired about what Theranos was not doing.

    That being said, I think one of the reasons that Elizabeth Holmes became so prominent was because of her gender. She's a rising star in 2013-2014, right around the same time that questions are beginning to be raised publicly about the stark gender imbalance in Silicon Valley leadership, and also criticisms about the Valley's focus on apps and social media platforms, instead of important things that were truly going to change the world.

    Here was Elizabeth Holmes kind of giving a counterargument to that critique, saying, here's a female Steve Jobs, just as good as any guy. Here's someone who's truly changing the world with blood testing technology.

    It was a really compelling story. And a lot of people bought into it.

  • Stephanie Sy:

    Margaret O'Mara, author of "The Code: Silicon Valley and the Remaking of America," thank you so much for joining us with your insights.

  • Margaret O’Mara:

    Great to be here.

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