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Elizabeth Holmes’s fraud conviction adds another chapter to the history of white-collar crime

From Enron to the financial crisis, a look at some past high-profile financial scandals

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)

Blood-testing start-up founder Elizabeth Holmes’s guilty conviction on four of the 11 fraud charges leveled against her has given some resolution to one of the highest-profile white-collar crime cases to get public attention in years.

Her rapid rise and reputation as the future of Silicon Valley was boosted by the tech press and her roster of famous investors and advisers. Her fall from favor was just as swift, with her company eventually going bankrupt and most of her investors renouncing their ties to her when it became clear that Theranos’s machines couldn’t perform the number and quality of blood tests from finger pricks that the company had been striving to develop for several years.

The more than three-month-long trial, which centered on whether Holmes purposely misled investors and patients about how effective her company’s blood-testing machines were, was swamped by reporters and curious onlookers, in much the same way other big white-collar criminal trials had been in the past.

After seven days of deliberation, the jury found Holmes guilty of one count of conspiracy to commit wire fraud and three counts of wire fraud against specific investors. She was found not guilty on four other counts including defrauding patients. The jury deadlocked on three more charges of defrauding specific investors.

Theranos founder Elizabeth Holmes found guilty

The United States has a history of building up its business leaders and tearing them down just as quickly when they’re accused of wrongdoing. Here’s are some of the biggest white-collar scandals of the last few decades, including some that went to trial and others that didn’t.

Enron

The oil and gas trading company’s implosion in 2001 led to several high-profile trials and a handful of convictions.

For much of the 1990s, Enron had been a Wall Street favorite, aggressively expanding beyond its core business into Internet services and electricity plants, and racking up larger and larger profits. Enron’s dizzyingly complicated financial structure included hundreds of shell companies and controversial accounting practices that were difficult for even top Wall Street analysts to comprehend.

Some journalists and investors had raised red flags about the company, but it wasn’t until its chief executive Jeffrey Skilling abruptly stepped down in August 2001 after cashing in millions in stock that the broader world really began to take notice. In a few short months, the company went from being worth more than $60 billion to filing for bankruptcy, wiping out the investments of thousands of employees and outside investors. By the time it went into bankruptcy, very few companies were willing to do business with Enron and its sprawling network of subsidiaries. It eventually sold all its assets.

The magazine story that made Elizabeth Holmes famous could now help send her to prison

Skilling, Enron founder Kenneth Lay and Chief Financial Officer Andrew Fastow were among a handful of top executives charged with fraud. Top leaders had sold their own stock during the summer of 2001 while telling investors and the public to buy more. Fastow pleaded guilty and testified against Lay and Skilling, both of whom pleaded not guilty. All three were convicted of various financial crimes, though Lay died of a heart attack before his sentencing. Skilling and Fastow have since been released from prison. They did not return requests for comment.

A court also found Enron’s accounting firm, Arthur Andersen, then one of the largest in the world, guilty of being complicit in the company’s crimes. The Supreme Court later reversed the decision but not before Arthur Andersen had given up its accounting license and essentially ceased to exist. In the months and years after Enron collapsed, numerous other major accounting scandals came to light, including telecom company WorldCom, whose $100 billion bankruptcy in 2002 surpassed Enron’s in size.

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Martha Stewart’s insider trading case

Martha Stewart built a publishing and home products empire in the 1980s and 1990s, becoming a household name around the world and go-to tastemaker for millions of home cooks and decorators. When her company went public in 1999, she became a self-made billionaire, a title that Holmes would also attain before Theranos’s collapse.

In 2001, Stewart became embroiled in an insider trading scandal when the Securities and Exchange Commission alleged that she sold shares in drug company ImClone on inside information obtained from her broker, just before the Food and Drug Administration withheld approval for one of the company’s products.

Stewart was indicted in 2003 for fraud and obstruction of justice. She maintained her innocence throughout her trial, but a jury found her guilty. She was sentenced to five months in prison. After her release, Stewart made a major comeback, eventually regaining her position as chair of her company in 2011.

Since then, she has starred in several shows, including one that ran for three years with rapper Snoop Dogg called “Martha and Snoop’s Potluck Dinner Party.” She became a special adviser to Canadian marijuana producer Canopy Growth in 2021.

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Libor

Investigations in the mid-2010s showed that some of the biggest banks in the world had been conspiring to fix an important financial benchmark interest rate, the London Interbank Offered Rate, or Libor.

Libor was used by various industries to set other interest rates, meaning manipulated Libor rates resulted in a huge knock-on effect, potentially costing municipalities, student loan holders and mortgage payers billions of dollars. Banks allegedly manipulated the rate to benefit investments they had made and to give the impression that they were more optimistic about the state of financial markets than they were.

The scandal led to years of investigations in the United States and Europe, as well as parliamentary and congressional hearings in several countries. In the aftermath, banks including Deutsche Bank, the Royal Bank of Scotland and UBS paid billions in fines, and the chief executive of Barclays stepped down.

Four traders were sent to prison in Britain, while in the United States, two bankers had their convictions overturned and two others had their sentences reduced to six and nine months, respectively, of home confinement. The presiding judge said U.S. prosecutors had tried to pin the wrongdoing of a larger system of actors on the individual men.

Elizabeth Holmes’s trial spotlights Silicon Valley’s thin line between hype and deceit

Bre-X

Canadian mining company Bre-X was trading as a penny stock when it announced it had found a massive gold deposit in Indonesia. As the firm announced increasingly optimistic projections for their future mine, investors, including pension funds representing thousands of Canadian public sector workers, jumped in and pushed up the company’s valuation to $4.4 billion by 1997, or about $7.1 billion in today’s dollars.

But just a year later, the company collapsed into bankruptcy when investigators found the mining samples Bre-X’s geologists had touted were full of gold shaved off of jewelry. One geologist allegedly died by jumping or falling out of a helicopter in the Indonesian jungle, though investigative journalists have suggested that the death was faked. Hundreds of thousands of investors lost money, but the Royal Canadian Mounted Police closed its investigation in 1999 without charging anyone.

It took until 2007 for a white-collar insider trading case against Bre-X geologist John Felderhof to wind its way through the courts, resulting in an acquittal. Felderhof died in 2019. The case inspired a Matthew McConaughey movie and resulted in a raft of new regulations on the Canadian mining industry, but no one ever went to prison for the scheme.

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2008 financial crisis

After the Great Recession, the world’s biggest banks paid massive multibillion-dollar fines for their role in pushing the risky investment products that helped create the financial crisis that led to worldwide economic pain for millions of people. But very few high-profile executives went to jail or were even tried.

Famously, just one banker in the United States went to jail: Kareem Serageldin, a former mid-level executive at Credit Suisse, who was convicted in 2012 for inflating the value of bonds that were structured out of subprime mortgage loans. Serageldin could not be reached for comment.

Other countries were more aggressive, with Spain, Iceland and Ireland sentencing a few dozen executives from local banks for their roles in the crisis, according to an analysis from the Financial Times. A U.S. Senate committee did recommend that the Justice Department investigate whether Goldman Sachs misled investors in the lead-up to the crisis, but the government closed its investigation soon after.

In 2013, then-Attorney General Eric H. Holder told Congress that the sheer size of the banks involved made prosecutors hesitant to go after them, out of concern that investigations could disrupt the U.S. and global economies. “It has an inhibiting influence, impact on our ability to bring resolutions that I think would be more appropriate,” Holder said.

Nikola

This Arizona start-up has been working on building hydrogen- and electricity-powered transport trucks since 2014, feeding off the same hype that has helped drive the valuation of Elon Musk’s electric car company. Both companies are named for legendary Croatian inventor Nikola Tesla. But the company Nikola became embroiled in accusations of fraud after an investment firm accused founder Trevor Milton of making public claims about his trucks that weren’t true. Milton had taken Nikola public and seen its share price soar to make it more valuable than Ford.

Just months later, short seller Hindenburg Research accused the company of faking a video showing their truck driving under its own power by rolling it down a hill. Hindenburg also said Nikola used parts purchased from other companies, rather than ones it designed on its own, echoing the charge against Theranos that it used more established blood-testing companies’ machines in place of its own.

Milton stepped down, and federal prosecutors began investigating, eventually charging him with defrauding investors by exaggerating and lying about his truck’s capabilities. Milton pleaded not guilty to the charges. The company itself has not been charged and is continuing its work to build electric trucks, the first of which it delivered to customers in December.

Milton is out on bail while he awaits his trial, scheduled for April.

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