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Opinion What the Elizabeth Holmes jury got right

Former Theranos CEO Elizabeth Holmes walks into the Robert F. Peckham Federal Building and U.S. Courthouse for her trial in San Jose on Dec. 21, 2021. (Tony Avelar/AP)

If Elizabeth Holmes was convicted of anything, you’d think it would be for the dodgy lab results provided to patients who needed a pregnancy test or a potassium scan and were drawn to her promise of minimally invasive bloodwork.

So, it was a bit shocking that the Holmes jury came back with a guilty verdict on four counts of defrauding investors, and no counts of defrauding patients. (The jury deadlocked on three other charges relating to specific investors.)

Legally, this makes sense: Rather than panicking when Theranos blood tests falsely indicated HIV, or a miscarriage, doctors sensibly ordered follow-up blood tests from more reputable lab operators, which limited the actual damage to people’s lives that prosecutors were able to prove.

Prosecutors, on the other hand, could much more easily point to the buckets of money investors showered on Holmes, and the documents she’d doctored to elicit the funds.

But morally, there’s no question about which was worse, and it seems vaguely scandalous that the verdict doesn’t reflect that. Still, we can take comfort in a few things.

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First, the jury was scrupulous, only finding Holmes guilty on four of the 11 counts where everyone was convinced beyond a reasonable doubt. This is how the jury system is supposed to work, even if we’re sometimes uncomfortable with the results.

Second, Holmes is still probably going to jail for a good long time. Her time in prison will offer justice for those she wronged, send a somber warning for any future entrepreneurs tempted by such deceptions and provide an opportunity for Holmes to rethink her appalling life choices.

And third, while she might not have been convicted of health-care fraud, the fact that she ran a health-care business best explains why she’s going to prison.

Meghan Kruger: What my Theranos blood test experience reveals about Silicon Valley and Elizabeth Holmes

There is a lively debate over whether Holmes represents everything that is wrong with Silicon Valley, such as: the arrogance of the founder class (why did a 19-year-old Stanford dropout with no obvious qualifications think she could launch a health-care start-up?); the investing strategies of venture capitalists that border on compulsive gambling (why did anyone give this 19-year-old that kind of money?); and most important, the fake-it-until-you-make-it culture of so many start-ups.

Stephanie Hinds, a U.S. attorney, said on Jan. 3 that the guilty verdicts reflected Elizabeth Holmes’s "culpability in this large scale investor fraud." (Video: AP)

Holmes likely understood that she was misleading patients and investors about the company’s questionable operations. But like so many start-up founders before her, she might have sincerely believed she was conveying a greater truth about her firm’s supposedly incredible potential. It’s certainly telling that right up to the end, Holmes never sold her stock, even though it would have been normal to sell at least a small amount and realize some cash.

But fake-it-until-you-make-it doesn’t work with a health-care start-up. Morally, overselling someone on your buggy electronics or overhyped subscription service is very different from administering a lab test you know to be unreliable. Even assuming you are the sort of sociopath who just doesn’t care about the risks you’re taking with patients’ lives, trying to fake a diagnostics company still looks completely daft.

If, after much hype, you produce a software product that is not as good as existing technology, there’s no law that says you can’t claim it is the best thing around. No matter how delusional this claim might be, it’s hard to conclusively prove you don’t believe your own nonsense.

Megan McArdle: The jury gave Rittenhouse the benefit of the doubt. That’s what advocates of criminal justice reform should have wanted.

But both patients and their doctors demand a base level of reliability from lab tests before we rely on them. If your lab equipment doesn’t produce consistent results, it doesn’t work, and that can be objectively determined. If it can run only a few tests, rather than the hundreds you claim, you’re misleading people. If you try to make up for these deficiencies by using machines from other companies, some of which you have doctored to run on less blood than the manufacturers specify, then your obvious deception cannot be glossed over by calling it a “trade secret.”

The objective nature of these deficiencies didn’t just make it easier to get caught; at some point, it arguably required Holmes to commit fraud if she just wanted to keep going. Theranos needed more money, and more time, and it’s hard to put an optimistic, investor-reassuring spin on “this machine cannot reliably perform all the lab tests we’ve promised.”

It would be stupid to try to get away with this in any business, but Holmes was operating at the crossroads of health care’s multiple overlapping federal regulatory agencies. True, Theranos managed to survive for far too long by exploiting an odd lacuna in the Food and Drug Administration’s regulatory authority over lab tests. But after the Wall Street Journal raised questions about Theranos, regulators invaded her facilities, definitively exploding the hype, and generating evidence that would be used at Holmes’s trial.

In a different business, Holmes might have ended up like Adam Neumann of WeWork: a neophyte real estate hype-master who somehow torched billions of investor funds legally — and walked away with millions.

Instead, she is a convicted fraudster facing years in jail. That might not be as satisfying as convicting her of conspiring to harm patients. But it will do in a pinch.