Reading the recent courtroom news about the blood test scam company reminded me of this bit from a few years ago:
I’d just assumed Theranos was using a new technology entirely, maybe something with gene sequencing or microproteins or some other idea I’d never heard of. No, not at all. What they actually had was an opaque box containing several little assay setups, with a mechanical robot arm to grab and squeeze the pipette to pass around the blood. Unsurprisingly, the machine broke down all the time. But even if it worked perfectly, it was a stupid hack. Or, I should say, stupid from the standpoint of measuring blood; not so stupid from the standpoint of conning investors.
You’ve heard about that faked moon landing, right? Well, Theranos really was the fake moon landing. They got billions of dollars for, basically, nothing.
It would be as if Stan couldn’t really fit any models, as if what we called “Stan” was just an empty program that scanned in models, ran them in Bugs, and then made up values of R-hat in order to mimic convergence. Some key differences between Stan and Theranos: (a) we didn’t do that, (b) Stan is open source so anyone could check that we didn’t do that by running models themselves, and (c) nobody gave us a billion dollars. Unfortunately, (c) may be in part a consequence of (a) and (b): Theranos built a unicorn, and we just built a better horse. You can get more money for a unicorn, even though—or especially because—unicorns don’t exist.
Indeed, there’s something weird about the whole “unicorns” thing, just as it’s weird when people refer to some idea they’re promoting as being “magic.” I get that expressions such as “unicorns” and “magic” are supposed to be metaphors, but all so often they come uncomfortably close to the truth in that they’re describing stories that are not, in fact, real.
Those damn lawyers
The other thing from the Theranos story which I don’t think has been emphasized enough in the news media and social media is that, all along, lots of people were skeptical of Theranos. But Holmes/Balwani/Boies managed to control the information flow and intimidate whistleblowers for a long time. It bothers me that Boies is getting away with it. Representing an iffy client is one thing. Harassing whistleblowers, that seems to be a bit more of an ethical problem. Theranos’s claims could possibly have been real, if they really had new technology. But they didn’t have new technology, and this was known by many Theranos employees and former employees. So, to keep the scam going, Theranos had to control the information flow. Hence the intimidation by the legal team was a key part of what made the fraud work; it was not just an incidental part of the game.
Holmes seems to have been an out-of-control liar, and it sounds like Balwani watched Glengarry Glen Ross a few too many times. But what really got me angry were their lawyers, as they seemed to know exactly what they were doing, and seemed to have no problem playing the role of hired guns when harassing whistleblowers. I wonder if they came home from work every night, satisfied with what they’d been doing. Or if they feel bad about it. I have a horrible feeling that they felt good about it, because it’s my sense that the legal system is presented as a kind of sporting event where the goal is not justice but victory, a world in which lawyers almost have an ethical obligation to bend the rules in order to maximize their clients’ utilities.
Of the three ringleaders of Theranos, Boies seems to have gotten off the hook, which I guess makes sense because the legal system seems to be designed for the benefit of lawyers. A principal-agent problem, I guess: we as a society hire the lawyers to run the legal system, so they run it to serve themselves.
P.S. The newspaper had a front-page article on Theranos that . . . still doesn’t get the point. They write:
Ms. Holmes’s resolve was so forceful, and fit so neatly into the Silicon Valley cliché of achieving the impossible by refusing to admit it was impossible, that it inspired belief right up to the moment on Monday when a jury officially convicted her of four counts of fraud. . . . For a decade, Ms. Holmes fooled savvy investors, hundreds of smart employees, an all-star board and a media eager to anoint a new star even, or especially, if she had no qualifications. . . .
Whenever anyone — a regulator, an investor, a reporter — wanted to know a little more about exactly how the Theranos machines functioned, the company cried “trade secrets.” The real secret, of course, was that Theranos didn’t have any trade secrets because its machines didn’t work. But her answer worked for a long time. . . .
That’s all true, but what’s missing is that lots of people saw the problems right from the beginning, and what kept the scam afloat was that Holmes/Balwani/Boies managed to control the information flow and intimidate whistleblowers for a long time.
Yes, there were a lot of suckers, but I feel that a focus on “Silicon Valley’s world” is letting the baddies off the hook a bit. Yes, they were con artists, but that wasn’t all they were. They were con artists who were willing and able to control the information flow and intimidate whistleblowers. And one of the reasons, I guess, is that harassing people is basically legal, at least if a lawyer is doing it. Kinda like how cops are pretty much allowed to drive dangerously, beat people up, etc., lawyers have some sort of state-sponsored authority to harass.
Yes, “this is a credulous age.” But this credulity does not occur in a vacuum. What’s stunning is the way in which frauds can stay afloat even after they’ve been exposed. Not that this is new. That Chariots of the Gods guy kept selling books even after it was common knowledge that it was all bogus. I just think we need to keep more of an eye on the active efforts that people take, not just to promote crap, but to attack those who point out the problems.
I agree that Boies’ scorched earth tactics were horrible. But it wasn’t just work for hire at an hourly wage.
“Mr. Boies’s relationship with Theranos founder Elizabeth Holmes also deteriorated as the company suffered regulatory setbacks”
“The law firm was paid in Theranos stock for its work on the patent case, according to a person familiar with the matter. Boies Schiller was granted more than 300,000 shares valued at $4.5 million, based on a valuation of $15 a share at the time, this person said.”
https://www.wsj.com/articles/theranos-and-david-boies-cut-legal-ties-1479514351
Boies view: “A lawyer can choose what clients to represent. A lawyer does not have the choice of how to represent a client. A lawyer is duty- and honor-bound to represent a client effectively and aggressively, within the bounds of the system itself. And once a lawyer takes on a client, you do not have the right to abandon that client under fire, except in extraordinary circumstances.”
https://www.nytimes.com/2018/09/21/business/david-boies-pleads-not-guilty.html
My view: In this situation, as in so many others, the problems we face stem not so much from people doing things that are legal but from what the law actually allows, or even encourage or require. The situation is made even worse by the concurrent decline of social forces of restraint other than the law.
Arggh. I meant “not so much from people doing things that are *illegal*…
Jonathan:
“Within the bounds of the system” is a funny expression in that it’s not clear what “the system” is. There’s a twisted argument to be made that perpetuating fraud, harassing whistleblowers, etc., is evidently “part of the system,” given that lawyers do these things all the time and don’t get prosecuted for it. It’s a problem.
I’m not sure that argument is twisted. I think it’s accurate. (I agree it’s a problem.)
But I think you have a sample selection problem here. The sharp-elbowed lawyering you *hear* about isn’t really representative. And I think it’s really hard to make rules that cover all the edge cases…. just ask Lakatos.
Of course, the problem is made worse by what side you’re sitting on. As the linked article from the Times above makes clear, Boies-like tactics are what clients (and the public) wants when they’re on Boies’ side. People want their lawyer to be an asshole, or at least enough do to ensure there is an ample supply of pit bulls.,
Jonathan:
Sure, if you’re in trouble and you hire a lawyer, you might want him to do whatever it takes. And if you’re in a taxi to the airport and you’re late for your flight, you might want the cabbie to speed, go through red lights, the works. But if you ask the cabbie to do this, he can reply that this is illegal and he doesn’t want to get caught and get his taxi license taken away. Similarly, if you expect your lawyer to participate in fraud, harass whistleblower, etc., he should be able to reply that this is illegal and he doesn’t want his law license to be taken away. Having some standards can allow lawyers to push back against expectations that they’ll do unethical things on behalf of clients. And, yeah, sure, some lawyers will still break the rules, just like some cabbies drive dangerously, but I think it would be better for there to at least be the opportunity for them to push back against such demands. Right now, though, we have the opposite, with leaders of the profession such as Boies making the active argument that lawyers have the duty to behave unethically. Which would be like some big-time taxi driving authority arguing that a taxi driver who doesn’t drive dangerously isn’t really doing his job.
Nice analogy. And there *are* ethical standards for lawyers. And in the most egregious cases, cf Michael Avenatti, they will get in real trouble. But lawyers will be easy on lawyers, just as a tribunal of taxi drivers (if there were such a thing) would probably be lenient with taxi drivers: (“Five mph over the limit? Stopping for ten seconds in the crosswalk? Give the guy a break!”)
One of the core principles of American law is that the truth comes out from an adversarial dialectic of two sides earnestly trying as hard as they can to persuade. From a purist perspective, indeed, the problem is that the rules of the game should be engineered such that smart play brings us closer to the truth, and an individual lawyer choosing not to play intelligently is the subversion of the system’s honesty.
While this perspective has a certain intellectual appeal, I think engineering such an optimal systems, where the only rules are inked on page and nobody needs be honor-bound, is impossible. Over time, people will always find ways to subvert the spirit of the game within the bounds of a static ruleset. Take a look at the history of any competitive game–boxing, wrestling, basketball, blitz chess, bicycle sprints, collegiate debate, super smash brothers.
Somebody:
Yes, I agree that there are no pure rules, and the system is always changing. There are some standards, though. Every once in awhile lawyers are disbarred and even prosecuted. I think it’s too bad that nobody even seems to be considering this for the Theranos lawyers, as I feel this sends the message that their behavior of promulgating fraud and harassing whistleblowers is acceptable or even appropriate.
I guess it’s just not that clear to me that what he did was against the rules as written. It also seems likely that a skilled litigator like Boies would make sure he’s technically in the clear. Nonetheless, it does look like his reputation among his fellow lawyers has taken a hit.
https://abovethelaw.com/2018/09/david-boiess-fall-from-grace/
I do think that what he did is immoral, if not formally punishable. More generally, if you think something should be against the rules and the world would be better if you don’t do it, even if it isn’t actually against the rules, you shouldn’t do it.
“Acts of goodness are not always wise, and acts of evil are not always foolish. But regardless, we shall always strive to be good.”
if a remember correctly from the book on Theranos, Boies was not the only lawyer heavily involved. One of the worst not only will get off scot free , but as the book pointed out, was promoted for their work for Theranos.
As I said at the time, I found the book very hard to read. Not because it was poorly written, but because of the endless account of lives that were destroyed. When you take all that in consideration, Holmes (and the rest of them) got off easy.
I do apologize for focusing on unicorns themselves rather than on the Theranos issue (or for introducing a unicorn in the room). If you consider this is inadequate, please ignore the message or delete it.
Two years ago we wrote a paper on the genetics of circadian rythms of unicorns, intended to be published in the BMJ Christmas issue (they rejected it). In brief, (1) we created a herd of unicorns in silico. (2) For each unicorn, we generated a circadian rythm using the method described by Cole in 1957*. (3) By random, we assigned them genetics data from a true GWAS with real patients. (4) Then, we follow the whole garden of forking paths to identify genetics factors associated with circadian rythms. (Well, perchance it was a forest of forking paths). And (5) We really found our herd had two subpopulations with different circadian rythms and some genetics factors associated!
I do want to reactivate this paper, but I can’t find a journal serious enough to be worthy and freaky enough to publish it. Would any of you have a suitable suggestion?
* Cole LC. Biological clock of the unicorn. Science 1957;125:874-876.
Prof. Gelman, in a previous career I used to do M & A due diligence, the idea that a target company (of investment or acquisition) would keep their technology a black box “because its so special” is laughable, and raises more red flags than a communist rally.
Not surprisingly, none of the major tech VCs fell for it, Theranos’ investor list is a who’s who of the DC establishment who fell for the Stanford dropout genius in black turtleneck shtick of Holmes. This has all the hallmarks of a classic affinity fraud that rippled through these DC networks of the technically less sophisticated, but wealthy and well-connected investors who depended on social proof instead of due diligence to make choices.
My understanding is she was only found guilty of defrauding investors, defrauding patients seems to not be a crime.
Surely there are class-action lawsuits in the works?
Sure, defrauded DC insider investors should go through the same civil suit process as the patients.
Matt Levine at Bloomberg has a good piece on this.
https://www.bloomberg.com/opinion/articles/2022-01-04/slaying-the-blood-unicorn
Theranos raised a lot of money from investors who did not do too much due diligence, because the world was awash in money and investors got careless; that is much, much, much, much more true now, and Theranos looks a little quaint.
. . .
Yeah I dunno if you make 10 investments like that and one of them turns out to be a total fraud I think you say “hey that went pretty well”? Again, this was all sort of an exciting novelty in the early 2010s but is old hat now.
.. . .
If the lesson you learned from Theranos’s fall in 2015, or 2018, was “I am not going to invest in any tech companies with charismatic founders and vague promises unless I’ve done thorough rigorous diligence, and if those founders object to that then they are not getting my money,” then you have missed a lot of good deals and the founders have not missed your money.[1] Betsy DeVos is still rich despite blowing $100 million on Theranos, and lots of people who have casually rushed into fundraising rounds or SPACs or crypto Ponzis or NFT drops or whatever in the last few years have done quite well.
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Levine also notes what many stories more or less ignore — that the criminal and civil trials will focus on how the investors got scammed. No attention or compensation will be paid to the ordinary people who got false information from these blood tests and may have acted on that false information.
I find the lack of simple technical messaging frustrating. The original idea was to take a slew of pin-prick microfluidic tests, covering standard test panel(s) doctor’s use, and combine them on a single strip or card that is processed by a Lab-on-a-Chip similar to a blood glucose monitor many of us are familiar with. Theranos failed to combine the microfluidics on a strip (I think) and pivoted to an automated robot. We should have known about the technical failures long before the pivot.
Where is the basic technical analysis of this still very good idea? The test panel forms are available in doctor offices with handy checkboxes. How many tests are now available as a microfluidic? How many have been combined on a strip/card? Does the regulator have plans to validate tests with pin-prick volumes of blood? Unicorn schmunicorn; publish a simple CSV file representing the progress of the microfluidics technology and save us from the reams of useless rhetoric written about Theranos.
“If the lesson you learned from Theranos’s fall in 2015, or 2018, was “I am not going to invest in any tech companies with charismatic founders and vague promises unless I’ve done thorough rigorous diligence, and if those founders object to that then they are not getting my money,” then you have missed a lot of good deals and the founders have not missed your money.[1] Betsy DeVos is still rich despite blowing $100 million on Theranos, and lots of people who have casually rushed into fundraising rounds or SPACs or crypto Ponzis or NFT drops or whatever in the last few years have done quite well. ”
To me that suggests that there is something deeply pathological about our economy.
It is called the Cantillon effect.
> To me that suggests that there is something deeply pathological about our economy.
I’ve been saying this since… 1999 or so, and I was right every time… Dot Com boom, Housing boom, housing bust, tech 2 boom, we’ve had 25 years of foot-on-the-gas money supply inflation that’s been siphoning effort away from “real” wealth and towards fantasyland money-wanking.
I’m not the only one though. read it from a retired Federal Reserve Banker https://www.politico.com/news/magazine/2021/12/28/inflation-interest-rates-thomas-hoenig-federal-reserve-526177
Andrew writes, “Of the three ringleaders of Theranos, Boies seems to have gotten off the hook, which I guess makes sense because the legal system seems to be designed for the benefit of lawyers. A principal-agent problem, I guess: we as a society hire the lawyers to run the legal system, so they run it to serve themselves.”
I do not see how Boies is a ring leader. He had a client. One man’s whistle blower is another man’s thief, stealing the company’s trade secrets. There are hedge funds out there that short a company’s stock, and then try to generate bad press on the company to make a profit. They might pay a “whistle blower” for inside information. There are also whistle blowers who are full of sh*t, thinking that they have uncover some deep conspiracy, but really are just made that they got fired. I’m just not sure how a lawyer is suppose to know that. His client told him to write cease and desist letters. We cannot imput Holmes’ knowledge to him. If Holmes told him that a former employee was disparaging her, and she wanted him to write a letter threatening a suit, I don’t really understand what Boies is suppose to do. He can terminate the attorney-client relationship, but if he doesn’t, he has to write the letter. Maybe Boies did something that I am unaware of, but it looks to me like he just acted like a lawyer. His client lied to him. He followed her instructions, as he must, not knowing it was a lie. I am not sure how lawyers could fashion a “system” where this would not occur.
Steve:
1. Yes, the fact that Theranos was faking its tests and lying to investors was a secret, but it was not a “trade secret” in any reasonable sense of the term.
2. You can read Bad Blood to see all sorts of bad things that Boies did.
Andrew:
It doesn’t matter if the employees were being accused by Theranos of absconding with trade secrets, merely confidential info, or just defaming the company. Theranos was accusing them of something wrong. So, it had it’s lawyer send them letters. It’s lawyer also hired a private detective to follow them. None of that is illegal or unethical. Certainly, Holmes knew that there was no legitimate purpose in investigating these individuals. But, Boies didn’t. It is perfectly legal to have people followed by an investigator. Carreyrou seems to think that it is somehow wrong and unusual. It is neither. If the former employees turned out to be lying for some nefarious purpose, investigating them may have revealed that. Then, would you condemn the methods? Again, I assume Boies has hired an investigator to follow Maxwell around, figure out where she is hiding money or other assets. Is that okay? His currect clients want their rights vindicated. Of course, we like his current clients. They are victims of sexual assault and the evidence shows that they are telling the truth. But, Boies didn’t know that when he took their case. He had to assume they were telling the truth, and investigate. I don’t see the difference. Sometimes lawyers represent bad people and so they are fighting for the “wrong side.” But, that cannot be a principled reason to condemn their methods.
Steve:
But . . . why should Theranos accuse the workers of doing something wrong? They did nothing wrong. You say, “If the former employees turned out to be lying for some nefarious purpose . . .”—but the Theranos people knew the workers weren’t lying.
I think the question is if Boies knew that Theranos was defrauding people. If he knew, and he harassed former employees with investigators and nasty letters **so as to suppress their legitimate whistleblowing activities** then it’s at least unethical and might be illegal under some whistleblowing type laws.
If on the other hand he was unaware that his client was using him to commit fraud… then his actions were those of a normal lawyer. It all comes down to how much he knew about the fraud.
Also, Boies did take a hit because of his involvement with Weinstein and Theranos. His biggest client, The New York TImes, fired him.
I would also add that he is representing some of the women victimized by Epstein. He is probably doing the same thing for them. Threatening to bring lawsuits, gathering intelligence, etc. Is he “harrasing” Epstein’s estate or “harrasing” Maxwell? If no, what is the principled difference? If yes, then how are people who have had their legal rights infringed on, suppose to get compensated.
Come on Andrew, you are too smart for this. I am defending Boies not Holmes. You know my point is that a lawyer in our system has a duty to defend anyone they agree to represent. Holmes knew what she was asking Boies to do was wrong, but he couldn’t know that. He was just doing normal lawyer things. Finding out where people lived so that you could serve them with legal process, for example.
Steve:
I’m fine with the lawyer defending his client; I agree with you that this is how the system is supposed to work. But “defend” does not have to imply taking active steps to intimidate whistleblowers. You can call this “normal lawyer things” but I think these “normal lawyer things” are a big problem; indeed they seem to have been a big part of what kept the fraud afloat for so long.
To put it another way, I feel like in your comment you’re implying the following sequence:
1. Theranos does suspicious behavior.
2. Theranos is prosecuted.
3. Lawyers defend Theranos.
But, according to Carreyrou’s book (whose claims of fact I don’t think are in dispute), what really happened was something like this:
1. Theranos does suspicious behavior.
2. Former Theranos employees start telling people what was going on.
3. Lawyers engage in active intimidation process against these employees.
My point is that the lawyers weren’t being hired to “defend” Theranos; they were hired to intimidate and attack other people as a way of furthering Theranos’s business plans. Later on, when it must have been clear to Boies that Theranos was a fraud, he also attacked the press.
Lawyers are frequently hired in anticipation of litigation. Your second sequence is fine.
1. Client comes in and says I have former employees disparaging the company, what can we do.
2. Lawyer says, we can send them a letter telling them to stop. And, we should get a private investigator to find them, so that we can sue them if we need to and find out if they have some motivate for engaging in the defamation.
3. Lawyer also says, you need to investigate their allegations to see if they have any basis in fact.
Carreyrou seems to think that this is usual, when it is in fact routine. Boies was hired in anticipation of litigation and that includes sending letters to tell people to stop their behavior. That is routine. In this case, the whistle blowers were telling the truth. You can call that pattern “intimidation”, and I can certainly understand that people might be intimidated getting a cease and deceast letter from a lawyer. But, if they are telling the truth, they really don’t need to be worried.
Steve –
What do you think about the ethics of him being on the board?
Seems to me, when mixed with the questions you’re discussing re “intimidation” versus business as usual, that becomes relevant.
It’s not just Silicon Valley though. Basically the same procedure is can be used and is often used for building up a theory associated with one’s name in many fields. Replace “trade secret” with data associated with the published paper that has been “lost” or “misplaced”. Weak to no evidence, counter-evidence buried in file drawers, but strong conclusions confidently delivered. Whistleblowers are the people who try to publish replications, find nothing, and are then not allowed to publish.
The money only comes in in building careers and salaries I guess, so it’s not anything at the scale at which this happened with Theranos. But still, the similarities are striking, and the procedure is still the best practice today in some quarters. Most importantly, this method generally works.
From Canada here is a researcher whose claims about their background that provided extra support are being disputed and as part of their defense they are claiming their work has been “flawless.” and that they have earned their professional status and merit through hard work, self-funding and sheer determination. https://www.cbc.ca/news/canada/saskatchewan/team-bourassa-statement-defending-career-built-on-merit-1.6238669
Keith:
Wow. That’s an interesting letter because it does not seem to contest any of the points being made that she’d lied about her background. Kind of like the Iran-Contra defendants: once they were caught, they shifted ground to claim that their actions were justified for political reasons.
Another strange thing that stands out is that yet again there is a South Asian involved (Balwani). Maybe it’s an availability bias on my part but I see South Asians’ names associated with a disproportionate number of fraud cases. Sami Anwar’s story in Wired (entitled “Blood, Lies, …”; can’t link to it as it seems to be aggressively paywalled) is another recent story I read.