A long-time reader of Lab Soft News, Barry Portugal, submitted a comment in response to my recent note about the legal problems of Elizabeth Holmes, founder of Theranos (see: Elizabeth Holmes, Founder of Theranos, Charged by SEC with Massive Fraud). Below is his comment:
Holmes' and her CEO's monetary penalty and prohibition from sitting on a corporate board amount to little more than a slap on the wrist. The significant danger of inaccurate testing techniques and fraudulent business activities deserve jail time and much larger penalties.
I think that most of us will agree that, like Barry, her penalty for fraud was a a bit of a joke (see: Theranos chief executive Elizabeth Holmes charged with massive fraud). However, and according to a recent article in Forbes, Holmes could still spend time in prison (see: Lawyers: Elizabeth Holmes Could Still Serve Time In Prison). Here is the "money quote" from this article:
“She could very well serve time,” said ...[an attorney]. “She is subject to criminal charges because she outright lied.”....The SEC complaint alleges that 34-year-old Holmes misrepresented Theranos’ revenue, the capabilities of its blood-testing machines, their need for FDA approval....The SEC charges themselves are not criminal but civil, and the SEC can't give jail time. But the U.S. Attorney’s Office of the Department of Justice may take a look at the case and decide to bring criminal charges, said...[a noted law professor]. "If you have a large fraud that deceives the public, then certainly that would be a kind of factor that might suggest that criminal charges are forthcoming," ....However, she noted that for a criminal case the burden of proof is higher and prosecutors will need to determine whether Holmes was acting recklessly or if she had intent to deceive her investors.
We are all familiar with the case of "Pharma Bro" Martin Shkreli who was recently sentenced to seven years in prison for securities fraud (see: 'Pharma bro' Martin Shkreli sentenced to 7 years in prison — says, 'This is my fault'). Although his case appears to be similar to that of Holmes, he is perhaps a less sympathetic figure, at least in some circles. However, her case differs from that of Shkreli in one key aspect. Under her direction, Theranos reportedly and knowingly reported incorrect test results to tens of thousands of patients (see: Red alert). I suspect that the DOJ may now be checking to determine the extent to which these incorrect tests results caused bodily or mental harm to patients. In my world, a reference lab CEO is acting recklessly when her company reports test results without total confidence in their accuracy. It will be interesting to see if any of her board members in May, 2016, such as William Foege, former director CDC, or Fabrizio Bonanni, former executive vice president of Amgen, rush to her defense (see: Theranos).