Elizabeth Holmes and the Culture of Corruption

  • Here’s where Elizabeth Holmes went off the rails
  • How Harvard Business School wrecked the world
  • The fuzzy line between “55% confidence”... and fraud
  • The real reason the Feds went after Holmes
  • How can you invest with confidence?

1Here’s Where Elizabeth Holmes Went off the Rails

In the pandemic spring of 2020… when we were feeling reflective as “15 days to flatten the curve” had turned into two months and counting… we labeled Elizabeth Holmes “the poster child for the demented decade gone by.”

Little did we suspect that Sam Bankman-Fried of FTX fame would later say, “Hold my beer.”

But even after SBF’s conviction last week on seven felony counts, it’s Holmes’ case we find more interesting.

It was around this time a year ago that Holmes, the founder of Theranos Inc., was sentenced to just over 11 years in federal prison — a term she began serving last May.

Perhaps you recall the broad outlines of the story: Holmes, a Stanford dropout, came out of nowhere to develop a blood-testing machine that was supposed to detect dozens of diseases with just a finger-prick. She reeled in not only celebrity investors like Rupert Murdoch and Henry Kissinger… but renowned Silicon Valley venture-capital types like Marc Andreessen.

Alas, the machine didn’t work as advertised. Not even close. Prosecutors said her investors were out $804 million.

From the first time we discussed Holmes and Theranos in 2016, we wondered how she convinced so many supposedly knowledgeable people to throw money her way. And was it really “fraud” as you and I would understand the term?

It seemed there were three possibilities…

  1. She was lying through her teeth and she knew it.
  2. She believed her own BS.
  3. She partially believed her own BS and then it snowballed from there.

From the beginning, we suspected the answer was No. 3.


Holmes in her Jobs-ian black turtleneck, the face of the demented 2010s[Photo by Flickr user Max Morse for TechCrunch, posted at Wikimedia Commons]

And while we didn’t follow every twist and turn of the trial last year, all the coverage we did see suggests we were right.

But how could she only partially believe her own BS?

2How Harvard Business School Wrecked the World

Well, it’s all about the culture of not only Silicon Valley but much of present-day corporate America.

As The Wall Street Journal put it a year ago, “Her sentence is a remarkable outcome for a startup executive buoyed by Silicon Valley’s fake-it-until-you-make-it culture, in which a founder’s vision and bravado are often the biggest draws of attention and money. Over the years, some have defended Ms. Holmes as no different from her startup founder peers who make the occasional exaggerated sales pitch.”

True enough. But it’s not just Silicon Valley. That’s just the most extreme expression of the business world’s modern-day mores.

As we’ve said before — especially with the fall from grace of Facebook exec Sheryl Sandberg — there’s a culture of rot that originated at Harvard Business School and oozed out to the rest of the land.

Some years ago in her book Quiet: The Power of Introverts in a World That Can’t Stop Talking, author Susan Cain described an information session for prospective HBS students: “Speak with conviction,” was the message she came away with. “Even if you believe something only 55%, say it as if you believe it 100%.” [Emphasis ours]

HBS students “look like people who expect to be in charge,” she wrote. “I have the feeling that if you asked one of them for driving directions, he’d greet you with a can-do smile and throw himself into the task of helping you to your destination — whether or not he knew the way.”

“Our society once routinely called people ‘bull**** artists’ if they spoke with total certainty without any basis for such certainty so as to persuade others and get attention for themselves,” wrote the clinical psychologist Bruce Levine — reacting specifically to Cain’s description.

“Nowadays, bull**** training is called ‘leadership training’ and unashamedly taught at ‘elite institutions’ and at expensive leadership seminars.”

“Harvard Business School, like much of the MBA universe,” wrote Duff McDonald in a 2018 Vanity Fair piece, “has always cared less about moral leadership than career advancement and financial performance.”

We’ve long lamented the MBA-ization of America. By one estimate, American universities were cranking out fewer than 5,000 MBAs a year during the 1950s. By 2005, the number had exploded to 142,000 — and swelled further to 185,200 by 2015.

And is American business any better run or more competitive for all the sheepskin that’s been issued? The question answers itself. (As colleague Sean Ring quips, MBA stands for “Mediocre But Ambitious.”)

3The Fuzzy Line Between “55% Confidence”... and Fraud

All this bull**** artistry raises a troubling question: Where does 55% confidence end and fraud begin?

Perusing the WSJ’s sentencing coverage a year ago, it appears the most damning thing to come out of the trial — the most persuasive evidence of outright fraud — was an attempt to whitewash Holmes’ 55% bravado.

“Jurors learned during the trial that Ms. Holmes forged reports provided to some investors and partners such as Walgreens Boots Alliance Inc.’s U.S. drugstore unit by adding logos of Pfizer Inc. and other major drug companies without permission from the companies. Prosecutors showed in court how text had been deleted and added to the documents, which some investors said in testimony made them appear to them to be complimentary validation reports, which they weren’t.”

In other words, having expressed 100% confidence in something she believed only 55%... and then later turned out to be approaching 0%... Holmes realized she was in too deep and she had to resort to fraudulent acts if her creation were to survive. (Shades of FTX, right?)

Brings to mind the saying made famous by Watergate: “It’s not the crime, it’s the cover-up.”

An even more troubling question: How many other Elizabeth Holmeses are out there and we just don’t know about it because, for the time being, they’re getting away with it?

Or worse: How many Elizabeth Holmeses were already outed as frauds but never faced the consequences?

The WSJ’s story about Holmes’ sentencing includes this remarkable paragraph citing an “outside expert” for analysis.

“‘The fact that she was prosecuted, taken to trial and convicted goes a long way of sending a message to Silicon Valley about the line between puffery and sales pitches on the one hand, and material misrepresentations on the other,’ said Amanda Kramer, a former federal prosecutor in New York and attorney with Covington & Burling LLP.”

Covington & Burling?!

It’s Covington & Burling — whose clients include most of the big banks — that literally kept an empty corner office waiting for Eric Holder before he returned from his stint as Barack Obama’s first attorney general.

It’s Eric Holder who sheepishly acknowledged to Congress in 2013 that he didn’t want to prosecute the big banks for their misdeeds in the 2008 financial crisis because “if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”

In other words, “too big to jail” was official policy.

When “too big to jail” is official policy… and when “55% confidence” is good enough to hawk your wares… well, is there any hope for a culture that corrupt?

Contra Ms. Kramer, the ex-prosecutor now cashing in at a white-shoe law firm, the feds’ pursuit of Holmes was not about “sending a message to Silicon Valley.”

It was about identifying a sacrificial lamb… making her an example… and assuring the masses that the system still works the way they were taught in elementary-school civics.

Go back to sleep. Move along, nothing to see here.

4The Real Reason the Feds Went After Holmes

The whole point of Holmes’ prosecution was to lend a patina of legitimacy to an utterly illegitimate system in which there’s no accountability.

It’s a system in which Jamie Dimon is still the CEO of JPMorgan Chase despite the firm admitting to an unprecedented five criminal counts between 2014-2020.

It’s a system in which Boeing’s punishment for the 737 Max fiasco — two crashes, 346 dead — was a $2.5 billion settlement, or just over 2% of its market cap. Like the banks, Boeing is too big to jail — given its role as a linchpin of the military-industrial complex.

It’s a system in which there’s no accountability for the broken promises that mRNA vaccines would prevent both infection and transmission of COVID-19. (And we’re not even alleging fraud in the clinical trials, although the evidence is mounting. Again, it’s that frustratingly fuzzy line between “55% confidence” and fraud.)

In the end, it appears Holmes’ ego made her an easy target for the feds, looking for someone to make an example.

At age 18, Holmes approached one of her Stanford professors about a concept she had for a skin patch that would constantly scan the wearer for infections and even release antibiotics if needed.

Told it wouldn’t work, Holmes “just stared through me,” Phyllis Gardner tells the BBC. “And she just seemed absolutely confident of her own brilliance. She wasn’t interested in my expertise.”

Sure, lots of brash entrepreneurs hope to show up the experts as being wrong. It’s how much of human progress is made.

But there was more to it than that, according to one of her early investors — who affirms our conjecture that Holmes did not set out to commit fraud.

“If she wasn’t on those [magazine] covers, she’d probably still be raising money and building her company,” Marc Ostrofsky tells The Wall Street Journal.

Like Willy Loman in Death of a Salesman, Elizabeth Holmes was “way out there in the blue, riding on a smile and a shoeshine.

“And when they start not smiling back — that’s an earthquake.”

5How Can You Invest With Confidence?

For you, the retail investor, this is mighty depressing stuff.

How can you possibly invest with confidence if the system is shot through with corruption?

Especially now that Sam Bankman-Fried makes Elizabeth Holmes look like a piker?

Long before SBF’s trial, the known facts of the case emerging at this time a year ago were damning enough: Customer funds on deposit at FTX were “loaned” to its sister company Alameda Research and used for speculation on high-risk leveraged trades.

Worse, SBF’s case gives the feds a pretext to crack down on genuine innovations in crypto and decentralized finance “for the good of the consumer.” Uh-huh…

LOGO — Well, unless you’ve already amassed your fortune, you don’t have much choice. You can’t really “opt out” of the system.

Fortunately you’ve already made an outstanding choice to ally yourself with people who are likewise fed up with the system.

Many of the editors at Paradigm Press are refugees from Wall Street — people who’ve seen the system inside-out.

They’ve found renewed purpose in life by helping folks like you reach your financial goals — without all the conflicts of interest that come from answering to clients or advertisers or a board of directors.

They answer only to you, the reader. And if you feel they’re not coming through for you, they’re well aware you’ll snap your wallet shut come renewal time.

Even if the system is nothing like you were taught in grade-school civics, you can still make a better life and a better future for yourself and your family. Thanks for allowing the Paradigm Press team to help you in that endeavor.

Best regards,

Dave Gonigam





Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets

P.S. With our team’s commitment in mind, Jim Rickards wishes to alert you to a grave situation the corporate media won’t tell you about.

“According to my research,” he says, “if things come to play out as I expect, America could be just 17 days from complete and utter catastrophe.

“Imagine waiting in lines miles long to fill up your gas tank (if there’s even any gas left). Imagine grocery stores completely ransacked with empty shelves. Imagine $1,000 energy bills decimating savings accounts across the country.”

This has nothing to do with the BRICS or the currency wars or anything else Jim’s been warning about recently — and it’s raced to the top of his priority list.

For that reason he’s convening a LIVE briefing tomorrow night at 7:00 p.m. EST.

No need to sign up for this one in advance — but you can go to this website for more details. There, you can also submit questions in advance. More tomorrow…

P.P.S. Briefly, the markets are quiet as a new week begins — all the major U.S. stock indexes marginally in the green, with the S&P 500 at 4,366. After the run-up late last week, a breather is certainly in order.

Precious metals are losing ground — gold at $1,981 and silver clinging to $23.

Crude is up more than a buck to $81.66 after Saudi Arabia and Russia said they’d stick to their planned production cuts. But again, as we alluded moments ago, Jim Rickards is warning of a huge rupture to America’s energy security should events in the Middle East spiral out of control. “I believe that the decisions you make in the next few days could be what make or break your financial future for years to come.”

Again, Jim is convening a LIVE emergency warning tomorrow night at 7:00 p.m. EST. Details at this link.

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