The Theranos fraud, discussion

Regarding the Elizabeth Holmes conviction, he writes:

Ripping off rich people. This was Madoff’s big mistake. You steal from the poor, you have a better shot at skating. You steal from the wealthy and they pull levers. Not only the wealthy – she also stole from powerful people – a General and a former Secretary of State and some famous venture capital titans. And, for this crowd, worse than losing money is losing respect. She humiliated her entire board and shareholder base. They publicly promoted her. It was a fiasco. She had to pay.

Her fraud took advantage of a regulatory loophole. Unlike prescription drugs, there is considerably less oversight for blood testing. Although it would have required FDA approval for Theranos to sell its blood testing machines, it there was considerably less oversight for Theranos to sell its blood-testing services, such as to Walgreens or online. Of course, Theranos’ blood testing machines were useless.

It’s a common myth or misconception I see online that stealing from the rich incurs a much more severe penalty or certainty of punishment than stealing from the poor. Anyone who does the basic research on the matter can see that this is not true. He refutes his own argument by giving the example of Madoff, who got away with his crimes for at least three decades until finally being arrested in 2008. If protecting the rich is such a high priority, why were all the warnings and obvious signs of fraud, from as far back as 2000, ignored until it was too late? Tax evasion only has a maximum punishment of 5 years in prison, for effectively defrauding the federal government (versus up to 20 years for wire fraud). It doesn’t get any ‘richer’ than the federal government.

During the GameStop debacle in early 2021, none of the alleged manipulators on Reddit went to jail or faced any legal consequences whatsoever, even though hedge funds (which are usually for wealthy investors) lost billions of dollars.

A Google search shows plenty of of examples of people being charged for defrauding regular people, not just defrauding billionaires or multi-millionaires. Here are some examples of people being arrested for ‘elder fraud’. Again, the victims here can hardly be considered wealthy, yet justice was still meted out (a 2019 investigation netted an astonishing 225 arrests). It’s just that these smaller cases get scant media coverage, compared to a multi-billion dollar frauds like Theranos, so one may be under the mistaken assumption that criminals are getting away with fraud except for the most high profile of cases; this is wrong. Also, do you think juries are going to show more sympathy if the victim is a wealthy person who knowingly took a risk and gambled (and lost) on the latest hot start-up (and is still rich), versus some old person who was duped and left penniless?

In 2018 two Canadian nationals who stole approx. 11 bitcoin, at the time worth $150,000, were arrested while at McCarran International Airport in Las Vegas, Nevada. They were sentenced to “24 months in federal prison and three years’ supervised release.” Again, we’re not talking huge sums of money here and only a single victim, who was not some powerful, well-connected individual. There are tons of cases like but they don’t get media coverage.

This is why you should not form your opinions based on regurgitated narratives. You have to do your own research and see the evidence for yourself. The popularity of a belief is in no way predictive of its accuracy.

The ‘golden age of fraud’ was probably before the ’90s, back when digital forensics, email, cheap digital storage, and cellphones did not exist or were much less commonplace. Nowadays, everything is stored digitally, so you have no way to know if evidence is completely gone or not. It costs nothing these days to store huge troves of data for years, such as phone records or email records (even after deleting email, companies may still hold on to records), and many companies are more than happy to comply with subpoenas. Also, there was parole and no mandatory minimum sentences, so it was not uncommon for white collar criminals to only serve maybe 4-7 years in comfy minimum security prisons for fairly large frauds. Beginning the 90s, due due to public pressure and also due to Enron, WorldCom, and related scandals, all of that changed, and sentencing guidelines became more punitive.

It’s hard to find any recent examples of frauds of a similar magnitude as Theranos. Theranos is newsworthy in part because such large frauds are so uncommon.