Jan 5, 2022 3:57 PM

The Elizabeth Holmes Verdict and the Legal Loophole for 'Disruption'

The case against the Theranos founder is a troubling reminder: It's easier for the law to protect investors and much harder to protect the public.

Collage of images of Elizabeth Holmes vial of blood and red blood cells

When you first heard the story of the smoke-and-mirrors health care startup Theranos—whether through John Carreyrou’s Wall Street Journal exposés, his best-selling book Bad Blood, or the many podcasts and documentaries that followed—was your thought, “Gee, I hope at last there will be justice for the wealthy folks misled into investing a slice of their fortunes by Theranos’ charismatic founder, Elizabeth Holmes?”

If so, then the guilty verdicts on Monday from a federal jury in San Jose, California on four counts of wire fraud must have warmed your heart. Holmes now faces the likelihood of serious time in prison for those financial crimes, in part because sentencing recommendations are based on the size of the fraud, and hers was enormous. One victim, the family of former education secretary Betsy DeVos, lost a staggering $100 million.

If, however, you were more offended by Holmes’ audacity to enter the marketplace with a “miracle” blood-testing device she knew didn’t work, you may be forgiven for being let down by the verdict. When it came to the four counts of fraud meant to punish Holmes for misleading customers into trusting the results of Theranos’ nonfunctioning Edison blood analyzer, the jury voted not guilty. (The jury was unable to reach a decision on three other counts.) “I’m disappointed but not surprised at all,” Sheri Ackert, a potential witness whose hormone test from Theranos yielded worrisome, inaccurate results, told the Wall Street Journal. “It appears it all boiled down to money.”

There were particulars in this case that explain why the jury may have declined to convict on the fraud against patients, starting with the prosecution’s decision to devote fewer resources to those charges and the presiding judge’s rulings that restricted what those victims could say. The fraud toward investors was direct, from Holmes herself, while the patients were not in Holmes’ direct line of BS. Yet when we take a step back, the way the Holmes verdicts went down should give us pause—they represent an important missed opportunity for the legal system to restrain Silicon Valley’s dangerous embrace of “disruption” at all costs by calling the intentional disregard for the public’s welfare a crime.

Theranos wasn’t merely a financial venture. As a card-carrying Silicon Valley startup, it was a change agent in the field of medicine, as described in a flattering 2015 profile in T Magazine written by prominent Silicon Valley figure Laura Arrillaga-Andreessen. Holmes, the piece explained, was “standing up to lawmakers and entities with vested interests for individuals’ fundamental right to access their health care information,” and in the process “may be doing more than running one of the world’s most successful startups—she may be starting a movement to change the health care paradigm as we know it.”

Theranos was a phenomenon familiar in our time—in this case, a medical disruptor that was willing to practice faulty medicine on the way to achieving its dreams. How many other tech companies can we think of that aspire to bring great things to life but are content to wreak havoc along the way? This is the problem that has plagued us for much of the last decade. The law would seem to be a fine way to instruct tech companies and their officers—through crime and punishment—about the way they need to behave toward the public and their users. But it has yet to prove very useful.

Convicting a corporate officer like Holmes of a crime against the public is filled with hurdles, particularly the need to prove intent, says Jacob T. Elberg, an associate professor of law at Seton Hall who used to prosecute health care fraud at the United States Justice Department. “Central to our criminal justice system has been knowledge and intent and not just results,” he says, and this burden frequently creates a challenge for prosecutors attempting to hold corporate executives accountable.

It made sense that prosecutors would focus on financial fraud in the Holmes case, Elberg said, rather than on the misled patients, because “there were clear-cut, black-and-white lies, which is what the system currently requires.” That’s a troubling feature for those who saw this trial as a chance to finally hold a founder accountable for abusing the public’s trust.

When the verdict came down, Alex Gibney, director of the Elizabeth Holmes documentary The Inventor, says he was stunned and disheartened by the message it sent. “In making the film, the bright red line was the immorality of it all,” he tells me over the phone. “They were putting patients at risk,” he says. “I wouldn’t have been interested in telling this story if it was just about hosing high-net-worth individuals—she crossed a moral boundary.”

The trial ultimately didn’t follow a similar narrative arc. Perhaps it’s naive to think a courtroom is about morality, or even social responsibility. Certainly, there are scores of lawyers—whether attorneys general and district attorneys or class-action specialists—thinking creatively about how to enlist the law to punish opioid manufacturers, fossil fuel companies, tobacco companies, and gun makers for the social harms they’ve caused. But these individuals tend to use civil law, which does not carry the same requirements of intent as criminal law does.

With tech companies, the task of holding them criminally accountable for the social damage they bring about is even harder. To start, these companies are often popular with the public and challenge accusations of harm by looking far into the distance, at the happy place they are leading us to. They also benefit from being seen as passive—they aren’t digging wells, they tell us, they are only letting anti-vax people spew. The source of their misdeeds may be a mysterious algorithm that seemingly operates itself. It’s a convenient, technologically enabled detachment from the decisions being made on their platforms. This might explain the feeling of helplessness many of us have when it comes to the growing power of technology companies—there seem to be victims all around us, but no crimes or criminals ever linked to the suffering.

To change this orientation—to protect the public as scrupulously as we protect investors—requires a rethinking of how we expect corporations and their officers to behave. We would need to expand the capacity of federal agencies like the Food and Drug Administration to do the kind of deep investigating that can expose the bad intent of corporate officials. Additionally, we could shift the standard from criminal intent in these cases to something easier to prove, like negligence, which Senator Elizabeth Warren proposed in 2019 as part of her Corporate Executive Accountability Act.

The purpose of these changes wouldn’t necessarily be to fill the prisons with more corporate executives, like Holmes, but rather to put them on notice: When you consider how to treat the public, act with the same respect for the law as you would when asking for a big check from investors.