Holmes verdict continues tech trust death spiral

Elizabeth Holmes’ conviction on four felony counts of fraud should serve as a reality check for Bay Area startups and their “fake it until you make it” mindset.

But odds are it won’t. The words “integrity” and “Silicon Valley” are seldom used in the same sentence these days. The more likely takeaway for today’s tech entrepreneurs is “don’t get caught.”

Meanwhile, trust in tech and its products just took another well-deserved hit. The days when the likes of David Packard ruled the tech industry are long gone. It’s small wonder a Public Affairs Council poll in October found that the American business sector with the sharpest drop in trust over the past five years is tech.

The world needs smart minds working on innovations that will solve our biggest problems. But Silicon Valley won’t keep attracting the brightest entrepreneurs from around the world unless it gets its house in order.

Let’s be clear. Failure on game-changing technology isn’t a crime. But hoodwinking investors out of $1 billion is.

Holmes dropped out of Stanford University at age 19 to develop her idea for a machine that could conduct all the tests of a major lab with just a few drops of blood from a finger stick. But, despite her false and misleading claims to her own board of directors and investors, Theranos was never able to deliver on that dream.

It didn’t matter that she persuaded luminaries such as former Secretary of State George Shultz, former Defense Secretary Jim Mattis, former Secretary of State Henry Kissinger, former Defense Secretary William Perry and former Wells Fargo CEO Richard Kovacevich to serve as Theranos directors. Nor that she had raised hundreds of millions of dollars from investors including Rupert Murdoch, Larry Ellison, Walmart’s Walton family and the family of former Secretary of Education Betsy DeVos.

At its peak, in 2014, Theranos reached a value of $9 billion, and Holmes was seen as one of the Valley’s brightest stars. But it was all premised on a lie — a lie Holmes tried to perpetuate by claiming trade secrets barred her from answering probing questions about the technology and the company’s finances.

It was the Wall Street Journal’s John Carreyrou who exposed in 2015 and 2016 that Theranos’ technology didn’t work. He reported on how Theranos tried to cover up its failures and how patients’ health was jeopardized. That was the beginning of the end. The company dissolved in 2018.

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