“Somebody's Going to Emergency, Somebody's Going to Jail"
It’s Friday, November 18, 2022, 8:00 PM. A couple of hours ago, a federal judge in California sentenced fraudster Elizabeth Holmes to 11 years in jail for pretending to have a company based on a silly idea, which she then sold shares of to rich but excruciatingly gullible dimwits.
My reaction: shock. Absolute shock. I did not see 11 years, or anything close, as a possibility.
For those who are not familiar, or who have forgotten, or who never cared in the first place, or who have spent the last two years on Tik-Tok, Elizabeth Holmes is the founder of the now defunct company Theranos. Theranos was going to revolutionize the blood testing world by reducing the amount of blood required from vials and vials drawn through a needle in the arm, to a drop or two from a finger prick.
Long story short: It didn’t work. Spectacularly so. Not even close. In fact, if you accidentally fell and scraped your knee and then let your dog lick the blood off the wound, your dog would have a better shot at analyzing and reporting your hematocrit level than a Theranos machine.
But Elizabeth Holmes lied about it all, raised a billion dollars from some pretty dumb money and then the whole thing flamed out.
She was tried for fraud in federal court and was found guilty on four counts. Today, she was sentenced to 11 years.
As I said, this is shocking. No doubt she deserved some punishment. This was not a victimless crime, even though the victims were rich investors who were trying to get richer.
But 11 years? Wow. She’s a mother of a toddler with another on the way. She doesn’t have to report to prison until April 2023, presumably so that her next child is not born in “C Block” at Terminal Island.
(Let me pause to say that her willingness to conceive a child while under federal indictment, and another while awaiting sentencing, knowing full well that she could go to prison strikes me as… ill-advised. And if I were cynical, I would say the kids were nothing more than pawns in a full hail-Mary strategy to gain sympathy from jury and judge. But, I am not that cynical, so we’ll just assume that at age 36, when she got pregnant the first time, she wanted kids before it was too late.)
In a previous post, I predicted that she would get 2-5 years, out in 18 months for good behavior. Missed that one by a mile (and is another good example of why nothing I say in this newsletter matters or is even based on any sort of knowledge of anything.)
Elizabeth Holmes is a criminal. She fleeced people to the tune of $1 billion. But when reminded that pretty much not one person went to jail from the 2008-2009 financial crisis that destroyed Lehman Brothers, Bear Stearns and nearly annihilated the economy of the entire world, it’s hard to figure how our justice system works. Or doesn’t work.
Holmes will no doubt appeal, but she’ll be running her appeal from a prison cell.
Eleven years is a long time. Will it be enough to deter future fraudsters? I doubt it. The Enron and WorldCom guys went to prison. Bernie Madoff died in prison. But that doesn’t stop today’s crop of crypto scumbags from peddling their bullshit coins to unsuspecting buyers while selling stock in their crypto companies to gullible investors.
And I am not saying that Sam Bankman-Fried is a crook. But, he did manage to vaporize billions in less than a week, so you do the math. Every new piece of news coming out about SBF and FTX looks worse than the previous piece so, I am guessing there might be a federal prosecutor or two (or 500) looking into this. Stay tuned.
Lesson (and it’s an oldie but a goodie): Generally speaking, when something looks too good to be true - be it a magical blood testing machine that defies decades of established science, or a magical digital coin that was created out of thin air – it’s probably wise to defer any investment decisions, hide that money in a mattress and take the dog for a walk.
And if you trip and fall, listen to his (the dog’s) medical advice before consulting with Silicon Valley college dropout criminals.
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[November 19, 2022 update/clarification: Thanks to my old and very smart friend Bill D. who pointed out that the federal prison system does not offer very much time off for good behavior. Currently, a federal prisoner can earn up to 54 days off per year for good behavior. That means someone serving an 11-year term could earn as much as 594 days, or about 1.5 years off their sentence. So, when Holmes goes to prison and assuming she loses any appeal, and assuming maximum good behavior credits, she will serve about 9.5 years. In my assumption of, say a three-year sentence, she could have earned a credit of 162 days, or about 5.5 months off her sentence. Source.
Also, she can appeal both her verdict and her sentence. One would assume she is going to appeal both, in due course.]