Thursday, March 15, 2018

Theranos tries to sidestep founder’s fraud charges

The moral of the Theranos story is a simple one: Tell the truth, or face the consequences.

What was once a startup valued at billions of dollars is now struggling to distance itself from the legal woes of its founder, Elizabeth Holmes, after she settled a lawsuit charging she defrauded investors and misled patients.

Bloomberg reported:

Elizabeth Holmes raised hundreds of millions of dollars from investors on the promise that her medical-testing startup Theranos Inc. would change medicine with a single drop of blood. On Wednesday, securities regulators called her a fraud and forced her to give up the company she built.

The lawsuit and settlement announced Wednesday by the U.S. Securities and Exchange Commission detailed how Holmes and her chief deputy lied for years about their technology, snookered the media, and used the publicity to get investors to hand more than $700 million to keep the closely held company afloat.

As part of the accord, Holmes will pay a $500,000 fine, surrender 19 million shares and is barred from being an officer or director of a public company for 10 years.

The organization is now trying to move on without Holmes and separate its image from that of its former poster girl.

Bloomberg continued:

Theranos said in a statement that it was “pleased to be bringing this matter to a close and looks forward to advancing its technology.” The company said it cooperated with the SEC’s investigation. John Dwyer, a lawyer for Holmes with Cooley LLP, declined to comment.

“The Theranos story is an important lesson for Silicon Valley,” said Jina Choi, director of the SEC’s San Francisco Regional Office. “Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”

Holmes and her former partner, Ramesh “Sunny” Balwani, have been careful to avoid any admission of wrongdoing.

The Washington Post reported:

Holmes and Theranos have not admitted or denied the allegations, but they have resolved the case. […]

“I think it’s a pretty unique set of remedies,” said Steven Peikin, the co-director of the SEC’s enforcement division. “I think it’s a particularly meaningful one . . . in Silicon Valley, where the founders of start-up companies like this obviously value the concept of control.”

[RELATED: A communications audit from Ragan Consulting Group is the first step in achieving corporate communications excellence .]

The story is a cautionary tale for Silicon Valley firms that routinely sell their founders as wunderkinds and rely on a cult of personality to create buzz around their product.

The Washington Post continued:

Holmes began to do media interviews in 2013 and 2014, appearing on magazine covers and drawing comparisons to innovators such as Apple co-founder Steve Jobs.

She cultivated the image of an idealist set on transforming medicine, who met resistance from skeptics whose doubts were just a ploy to preserve business models that could be turned upside down by her disruptive technology.

In her meetings with investors, Holmes would explain her fear of needles and her vision for fast, cheap blood testing before inviting people to try Theranos technology for themselves.

A communications failure sparked The Wall Street Journal’s report that eventually brought down the house of cards at Theranos.

Vanity Fair wrote :

As my colleague Nick Bilton recounted , Carreyrou’s curiosity had been piqued by one particular line in a New Yorker profile of the Stanford dropout, published some months earlier. “A chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel,” Holmes had explained, cryptically to Ken Auletta. Carreyrou dug deeper. On October 16, 2015, the Journal published the story that would mark the beginning of the end of Holmes’s company: “Hot Startup Theranos Has Struggled with Its Blood-Test Technology.”

On Twitter, some noted that the charges were vindication for the reporter who first broke the story:

Others noted that while Holmes may have escaped having to admit wrongdoing, she is prohibited from implying the case was without factual basis:

Others put the magnifying glass on the board of directors:

How would you advise the organization to move forward, PR Daily readers?

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