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Theranos Sued for Alleged Fraud by Robertson Stephens Co-Founder Colman

118 points by pinewurst 10y ago

JustSomeNobody 10y ago
It's going to be mighty interesting to see what all comes of Theranos and these suits.
- neom 10y ago
  Indeed, early 2015 year a couple VC friends warned me that Theranos was a bunch of crock and everyone knew it, and that it was going to be the company that would send rippled through the venture market in 2016. Well 2016 was sure a cold year for venture. When I think about Elizabeth as an entrepreneur, on one hand I respect her for trying something so audacious, and sticking with it for so long. However, the one thing that the valley doesn't teach you (in fact quite the opposite) is that there are actually almost no short cuts in startup, get capital and deploy it building a strong and resilient product and business around it, then take it to market. Elizabeth got really caught up in taking absolutely nothing feasible to market, and that's a damn shame.
  - throwawaymsft 10y ago
    It's not just about "trying something audacious" or "sticking with it". Do that with your social photo sharing site. People's medical diagnoses and health is on the line here. The cavalier attitude of "getting caught up in taking nothing feasible to market" makes me sick.
    - neom 10y ago
      I agree, I think I sounded softer than I actually feel about it. She should probably go to jail, I just do think she tried something hard, and tried something hard for a long time (she started in 2003), and failed. She should have realized when she failed though.
  - ben_jones 10y ago
    At a certain point you have to ask yourself if "she got caught up" or if she was aware of the full implications of her company for years and merely covered it up. I hold zero sympathy for the latter because it wasted years of the lives of hundreds of employees. Not to mention money, that guy who killed himself, societal implications, etc.
    - neom 10y ago
      100% agree - Personally, like to air on the side of humans being good. While I certainly don't think she acted in a good way, I want to believe she isn't malicious, although it's hard to see how she wasn't. She certainly isn't a very good CEO. I guess I was just saying resilience isn't as easy as people think (she founded in 2003), and as someone who battles it myself, I (emotionally) find persistence to be inspiring. Maybe I shouldn't. :)
  - forgetsusername 10y ago
    >When I think about Elizabeth as an entrepreneur, on one hand I respect her for trying something so audacious, and sticking with it for so long. Audacious like...mass fraud (potentially)? If you say so. >Elizabeth got really caught up in taking absolutely nothing feasible to market, and that's a damn shame. What is shameful about it? She was a well-connected person who leveraged contacts to raise money. The fewer people we have like that in the startup world, the better.
    - neom 10y ago
      Do you believe that when she started out founding the company she was planning to commit fraud? Regarding shameful, how do you feel about the word intent?
brilliantcode 10y ago
I think this exposes a great deal of how money and wealth concentrated at the top is flowing to people not based on merits but by their socioeconomic lineage. Imagine that $15 million dollar invested in $50k USD increments into 300 startup ideas, the jobs that will be created, increased human capital and impact on their respective local economies, that are not there because of risk adversity (it still amazes me VCs would shun risk but still throw around "venture") towards people of lower class then them. For example, somebody coming straight out of university vs. the daughter of a CEO at a large company who also attends the same country_club/religious functions, suddenly looks like a safer bet. It looks like a pretty hopeless situation for Theranos but it also exposes the crony capitalism that you'd find in other parts of the world with ease, with heavy hitters like Henry Kissinger (wtf) sitting on the board. He will most likely never see that money again because he thought he was mitigating risk by piggybacking behind a powerful individual with powerful connections that's accessible by blood. It's hard to feel any sympathy.
- jpeg_hero 10y ago
  Great point. Presumably a good number of these "back room deals" work out and people never hear of them. This one blows up and then, to a certain extent, it exposes the cozy interconnections of "socioeconomic lineage"
- neom 10y ago
  To be fair, Theranos likely needed a large capital investment to bring its (described complex) product to market. The model you suggest is simply another/different model, but investing large amounts of money in a startup that in theory will need large amounts of money is a very smart thing to do if you believe the market you're addressing is long, and wide enough to one day sustain the returns needed.
  - sigmar 10y ago
    If you reread his comment, it is clear his point is not that there shouldn't be large investments. His point was that this was a bad investment chosen due to who the CEO was, and that so much more good could have potentially been done with that money if it didn't flow "to people not based on merits but by their socioeconomic lineage."
Naritai 10y ago
So there have been several suits from investors / lenders at this point. I read earlier an interesting point that these suits are essentially Theranos' investors & bondholders for priority in the inevitable bankruptcy. Because in a bankruptcy judgments are given priority over debt, if you holding Theranos' debt you can try to jump to the front of the line by suing for fraud (etc), in the hopes that you can get a judgement in your favor. So the real takeaway is, it seems all these companies have concluded that bankruptcy is inevitable.
- revelation 10y ago
  It's either that or the investor feels they have been defrauded.
  - Naritai 10y ago
    True! But they're filing the suits in the full knowledge that the existence of the suit itself will reduce the value of their holdings. So they must not be very optimistic about the future value of their investment.
    - erikpukinskis 10y ago
      No, it just means they think the suit will decrease the value of their investment less than they stand to win.
- jpeg_hero 10y ago
  I think not bankruptcy... It's been reported that Theranos still has $400M in cash. And the founder has majority control. So this is a very rare condition, where there is still assets in the company (so a judgement can be paid) but the company has no business plan. So you have a founder who's best play now is sit around for the next 10 years spending down that $400M on new business plans to see if something hits.
  - dekhn 10y ago
    It seems unlikely Ms. Holmes is going to have the opportunity to pursue that strategy. She has been personally banned from running a diagnostic facility, her company is being sued for fraud, and pretty much all their claims have vanished in smoke. Who would buy a product with a company with a history like that?
arcaster 10y ago
The Theranos story seems to get darker by the week...
rezashirazian 10y ago
Is there a reason as to why this company is not dead yet?
- Waterluvian 10y ago
  I get a sense that Holmes has surrounded herself by the kind of people who will stand by her crazy side to pretty much the end. I'm not going to armchair psychologist and suggest a diagnosis... but she's gotta be something...
thinkcomp 10y ago
Theranos Litigation Profile: http://www.plainsite.org/profiles/theranos-inc/ http://www.plainsite.org/profiles/theranos-inc/ Colman et al v. Theranos, Inc. Docket: http://www.plainsite.org/dockets/3350guyw8/california-northern-district-court/colman-et-al-v-theranos-inc-et-al/ http://www.plainsite.org/dockets/3350guyw8/california-northe...
nafizh 10y ago
I hate these links to articles that are behind a pay wall. If people cannot read it, what's the point?
- grzm 10y ago
  The "web" link beneath the submission title will bring you to a search page with a link to the actual article, which should get you around the paywall.
return0 10y ago
Theranos keeps providing its steady output of schadenfreundian porn ; not that i complain. Is this series of events unprecedented or is it standard practices after a typical fraudster collapses?

118 points by pinewurst 10y ago

JustSomeNobody 10y ago

It's going to be mighty interesting to see what all comes of Theranos and these suits.

neom 10y ago
Indeed, early 2015 year a couple VC friends warned me that Theranos was a bunch of crock and everyone knew it, and that it was going to be the company that would send rippled through the venture market in 2016. Well 2016 was sure a cold year for venture. When I think about Elizabeth as an entrepreneur, on one hand I respect her for trying something so audacious, and sticking with it for so long. However, the one thing that the valley doesn't teach you (in fact quite the opposite) is that there are actually almost no short cuts in startup, get capital and deploy it building a strong and resilient product and business around it, then take it to market. Elizabeth got really caught up in taking absolutely nothing feasible to market, and that's a damn shame.
- throwawaymsft 10y ago
  It's not just about "trying something audacious" or "sticking with it". Do that with your social photo sharing site. People's medical diagnoses and health is on the line here. The cavalier attitude of "getting caught up in taking nothing feasible to market" makes me sick.
  - neom 10y ago
    I agree, I think I sounded softer than I actually feel about it. She should probably go to jail, I just do think she tried something hard, and tried something hard for a long time (she started in 2003), and failed. She should have realized when she failed though.
- ben_jones 10y ago
  At a certain point you have to ask yourself if "she got caught up" or if she was aware of the full implications of her company for years and merely covered it up. I hold zero sympathy for the latter because it wasted years of the lives of hundreds of employees. Not to mention money, that guy who killed himself, societal implications, etc.
  - neom 10y ago
    100% agree - Personally, like to air on the side of humans being good. While I certainly don't think she acted in a good way, I want to believe she isn't malicious, although it's hard to see how she wasn't. She certainly isn't a very good CEO. I guess I was just saying resilience isn't as easy as people think (she founded in 2003), and as someone who battles it myself, I (emotionally) find persistence to be inspiring. Maybe I shouldn't. :)
- forgetsusername 10y ago
  >When I think about Elizabeth as an entrepreneur, on one hand I respect her for trying something so audacious, and sticking with it for so long. Audacious like...mass fraud (potentially)? If you say so. >Elizabeth got really caught up in taking absolutely nothing feasible to market, and that's a damn shame. What is shameful about it? She was a well-connected person who leveraged contacts to raise money. The fewer people we have like that in the startup world, the better.
  - neom 10y ago
    Do you believe that when she started out founding the company she was planning to commit fraud? Regarding shameful, how do you feel about the word intent?

brilliantcode 10y ago

I think this exposes a great deal of how money and wealth concentrated at the top is flowing to people not based on merits but by their socioeconomic lineage. Imagine that $15 million dollar invested in $50k USD increments into 300 startup ideas, the jobs that will be created, increased human capital and impact on their respective local economies, that are not there because of risk adversity (it still amazes me VCs would shun risk but still throw around "venture") towards people of lower class then them. For example, somebody coming straight out of university vs. the daughter of a CEO at a large company who also attends the same country_club/religious functions, suddenly looks like a safer bet. It looks like a pretty hopeless situation for Theranos but it also exposes the crony capitalism that you'd find in other parts of the world with ease, with heavy hitters like Henry Kissinger (wtf) sitting on the board. He will most likely never see that money again because he thought he was mitigating risk by piggybacking behind a powerful individual with powerful connections that's accessible by blood. It's hard to feel any sympathy.

jpeg_hero 10y ago
Great point. Presumably a good number of these "back room deals" work out and people never hear of them. This one blows up and then, to a certain extent, it exposes the cozy interconnections of "socioeconomic lineage"
neom 10y ago
To be fair, Theranos likely needed a large capital investment to bring its (described complex) product to market. The model you suggest is simply another/different model, but investing large amounts of money in a startup that in theory will need large amounts of money is a very smart thing to do if you believe the market you're addressing is long, and wide enough to one day sustain the returns needed.
- sigmar 10y ago
  If you reread his comment, it is clear his point is not that there shouldn't be large investments. His point was that this was a bad investment chosen due to who the CEO was, and that so much more good could have potentially been done with that money if it didn't flow "to people not based on merits but by their socioeconomic lineage."

Naritai 10y ago

So there have been several suits from investors / lenders at this point. I read earlier an interesting point that these suits are essentially Theranos' investors & bondholders for priority in the inevitable bankruptcy. Because in a bankruptcy judgments are given priority over debt, if you holding Theranos' debt you can try to jump to the front of the line by suing for fraud (etc), in the hopes that you can get a judgement in your favor. So the real takeaway is, it seems all these companies have concluded that bankruptcy is inevitable.

revelation 10y ago
It's either that or the investor feels they have been defrauded.
- Naritai 10y ago
  True! But they're filing the suits in the full knowledge that the existence of the suit itself will reduce the value of their holdings. So they must not be very optimistic about the future value of their investment.
  - erikpukinskis 10y ago
    No, it just means they think the suit will decrease the value of their investment less than they stand to win.
jpeg_hero 10y ago
I think not bankruptcy... It's been reported that Theranos still has $400M in cash. And the founder has majority control. So this is a very rare condition, where there is still assets in the company (so a judgement can be paid) but the company has no business plan. So you have a founder who's best play now is sit around for the next 10 years spending down that $400M on new business plans to see if something hits.
- dekhn 10y ago
  It seems unlikely Ms. Holmes is going to have the opportunity to pursue that strategy. She has been personally banned from running a diagnostic facility, her company is being sued for fraud, and pretty much all their claims have vanished in smoke. Who would buy a product with a company with a history like that?

arcaster 10y ago

The Theranos story seems to get darker by the week...

rezashirazian 10y ago

Is there a reason as to why this company is not dead yet?

Waterluvian 10y ago
I get a sense that Holmes has surrounded herself by the kind of people who will stand by her crazy side to pretty much the end. I'm not going to armchair psychologist and suggest a diagnosis... but she's gotta be something...

thinkcomp 10y ago

Theranos Litigation Profile: http://www.plainsite.org/profiles/theranos-inc/ http://www.plainsite.org/profiles/theranos-inc/ Colman et al v. Theranos, Inc. Docket: http://www.plainsite.org/dockets/3350guyw8/california-northern-district-court/colman-et-al-v-theranos-inc-et-al/ http://www.plainsite.org/dockets/3350guyw8/california-northe...

nafizh 10y ago

I hate these links to articles that are behind a pay wall. If people cannot read it, what's the point?

grzm 10y ago
The "web" link beneath the submission title will bring you to a search page with a link to the actual article, which should get you around the paywall.

return0 10y ago

Theranos keeps providing its steady output of schadenfreundian porn ; not that i complain. Is this series of events unprecedented or is it standard practices after a typical fraudster collapses?