Do the crime, pay the fine

Even I have to admit, this is sort of an injustice: Theranos, CEO Holmes, and Former President Balwani Charged With Massive Fraud

Elizabeth Holmes, the founder of blood testing startup Theranos, has been charged with engaging in a “massive fraud” by the Securities and Exchange Commission. The SEC says she and the company’s president raised more than $700 million using an “elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.”

“Massive fraud”…what comes to mind is Madoff or Enron, so you’re probably thinking it’s off to jail for her, right?


I know, going by the comments, everyone initially thought she was going to at least be prosecuted, but nope.

Damn that oppressive white male patriarchy and their $500,000 fines as punishment for orchestrating an elaborate decade-long $700 million dollar fraud. Had she been a man, she’d have gotten off as easy as Madoff…oh wait…he is serving 150 years. I guess white male privilege did not apply to him. And how about Allen Stanford? 110 years.

Even Martha Stewart served jail time, and for something much less less (perjury). But she doesn’t look as good in a black turtleneck, I suppose.

No, she won’t be going to jail over this. In fact, even though she faces some serious penalties over the charge — she’s losing control of the company and won’t profit if it is sold — she also doesn’t have to admit wrongdoing as part of a settlement with regulators.

Her punishment is merely having to disgorge some of her ill-gotten gains. By not going to jail, it’s effectively a get-out-of-jail-free card. This creates a perverse incentive for would-be fraudsters, knowing that if they get caught, they only have to forfeit some profits. Thus, the upside is getting away with it and collecting a windfall; the downside is getting caught, working out a settlement, and being ‘reset’ back to zero by paying a fine from of the ill-gotten profits. Therefore, because the expected value is always positive, it’s rational to engage in deception given there is nothing to lose, at least for the first time. If she were to repeat this stunt, then maybe she would be looking at jail time.

Accidentally take something from Walmart and you may find yourself in the backseat of police car, even before you go to trial. But orchestrate a $700 million dollar fraud that may have even put lives at risk through erogenous blood test results…eh…these were ‘accredited investors’…they knew the risks…no foul.