[downandout]

My take on it is that Elizabeth Holmes set out to make this idea a reality, but has been unable to do so. Sadly, all signs point to her trying to buy time via smoke and mirrors. If she has misled investors in the same way she has misled the media, given that she has raised $400 million, she's looking at decades in federal prison.

I see this whole thing ending in tragedy, whether that just means the loss of $400 million that could have gone to other startups, a full-scale criminal prosecution, or some other dramatic end. Whatever happens, a happy ending no longer seems to be in the cards.

[tptacek]

Prosecution seems fabulously unlikely, given how infrequently founders have gotten in trouble with the law for misleading their investors. Holmes won't be close to the most lurid bad-faith founder claim (if that's how the story indeed ends).

This is why we have investor "accreditation".

[downandout]

You'd be amazed at the seemingly minor misrepresentations that a federal prosecutor can turn into a fraud case. That said, whether or not it gets that far depends entirely on the how the investors feel about it, exactly what they were told, whether they choose to report it as a crime to the FBI, etc.

[sixQuarks]

I wouldn't be too sure about that. Investor fraud isn't the only thing we're talking about here. There are questions about the accuracy of the blood tests themselves.

[jonnathanson]

Indeed. I wouldn't be surprised if prosecutors take a particularly unkind view of the possibility that Holmes has potentially put lives at stake.

That said, her board is a veritable who's who of DC powerbrokers. That will definitely be a factor.

[cft]

http://techcrunch.com/2015/04/01/cuzyolo/

[notacoward]

You're right, it is possible that people started with good intentions and sincere beliefs, then got desperate. That does happen. I do feel bad for the many innocent and even idealistic people who will suffer the consequences along with the true miscreants. On the other hand, there are others who had information the rest of us don't have, and a specific duty (to their own investors) to blow the whistle early if they saw anything amiss. It's a lot harder for them to claim innocence.

[Retric]

Pfizer, on the other hand, told the Financial Times that the company's dealings with Theranos were limited. "We've done only very limited historical exploratory work with Theranos through a few pilot projects,

So, the root of this could simply have been poor reporting not deception. I mean you generally don't do multiple pilot projects with vaporware and Pfizer is a huge drug company.

PS: 400M is a lot of money, but probably not enough to do much R&D and start jumping though the hoops if the FDA get's picky.

[dbcooper]

A prototype device probably costs $150k to $200k to build, so $400M should buy an enormous amount of R&D!

[Retric]

Matthew Herper recently totaled R&D spending from the 12 leading pharmaceutical companies from 1997 to 2011, and found that they had spent $802 billion to gain approval for just 139 drugs: a staggering $5.8 billion per drug.

Granted, we are talking about medical devices, but as soon as the FDA wants clinical trials things get damm expencive and 400M is a drop in the bucket. 200K is about a weeks budget for a well staffed modern lab. Sure, you can get a minor iteration in a week, but nobody is going to send anything down the pipeline without a lot more research than that.

[joezydeco]

Given how loaded her board is with insanely high-ranking ex-government officials, you can pretty almost certain that any federal prosecution will not happen.

[steven2012]

The more dirty it is, the faster the support will drop from these ex-officials, so it's actually the opposite.

[saryant]

The same was true of Enron's board and they still saw prison time.

edit: Apparently I wasn't clear. Enron's board was also stacked with high-ranking politicians and many executives still saw jail time.

My point was that a well-connected board won't necessarily shield executives from prosecution.

[chc]

Enron's board wasn't just outfoxing accredited investors, it was taking advantage of the company's accounting fraud to engage in insider trading.

[nilkn]

Enron defrauded the public, not just accredited investors.

[x0x0]

accounting fraud, not "optimism" (various definitions of optimism)