Elizabeth Holmes Conviction – Is this a Golden Era of Fraud?

[300 H and H]

15:10 min.


Patrick Boyle

278K subscribers

On Monday we saw the fraud conviction of Theranos founder Elizabeth Holmes. This conviction we are told in the press has split Silicon Valley. Supporters worry that the spirit of entrepreneurship has been put in ‘jeopardy’ while others say she overstepped boundaries. Tim Draper, a venture capitalist and family friend of Holmes who provided early funding to Theranos, told the New York Times that the outcome made him “concerned that the spirit of entrepreneurship in America is in jeopardy”. He went on to say “I still believe in what she was trying to do, If this scrutiny happened to every entrepreneur as they tried to make this world a better place, we would have no automobile, no smartphone, no antibiotics and no automation, and our world would be less for it.” We have more corporate fraud trials in the pipeline. Former Nikola CEO Trevor Milton is scheduled to go on trial for criminal fraud shortly. He has pled not guilty to lying to investors about the electric truck company’s technology. Nikola Motors went public through a SPAC merger under Milton’s leadership.

 

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Related and telling:

How pervasive is corporate fraud? - Review of Accounting Studies

We provide a lower-bound estimate of the undetected share of corporate fraud. To identify the hidden part of the “iceberg,” we exploit Arthur Andersen’s demise, which triggered added scrutiny on Arthur Andersen’s former clients and thereby increased the detection likelihood of preexisting...

link.springer.com

6 Conclusion​

In this paper, we use the natural experiment provided by the sudden demise of a major auditing firm, Arthur Andersen, to infer the fraction of corporate fraud that goes undetected. This detection likelihood is essential to quantify the pervasiveness of corporate fraud in the United States and to assess the costs that this fraud imposes on investors. We find that two out of three corporate frauds go undetected, implying that, pre Sox, 41% of large public firms were misreporting their financial accounts in a material way and 10% of the firms were committing securities fraud, imposing an annual cost of $254 billion on investors.
These figures project a dismal picture of the effectiveness of financial auditing pre SOX. Whether SOX reduced or eliminated the problem, our paper is unable to answer. Yet, the magnitude of the problem suggests that some action was warranted. Based on our estimates, we can also infer that if the new regulation reduced by 10% the probability of starting a fraud, its cost would be fully justified.

 

[chowderman]

I did consulting work for many years. the task is (usually) to identify 'the problem' - quantify 'the effect / costs' - then develop 'solutions'
what I learned over the years . . .
#1 - the 'problem' is rarely what 'the management' thinks it is
#2 - most of 'the real problem' is self-inflicted / self-created by stupid management
#3 - when one finds out and documents 'the truth' - one is likely be dismissed, because management does not want to hear it....
#4 - all books are cooked. when one starts doing math on the 'real' numbers, that becomes a problem.

 

[chowderman]

substitute "bit coin" for "blood tests" and it's the same fraud.
nothing more than old style 'boiler room' touts pumping up a stock, to cash out.
the real crime in Theranos is the people who ran the tests _knew_ is was fraud - but their efforts at blowing the whistle were met by the same kind of people who covered up Hunter's laptop.
the FDA did not check, nothing was peer reviewed, it all hinged on greed motivated "experts" ala Fauci telling investors 'it is true'

the "quack whistle blowers" have proven the same for companies testing hair/urine and declaring what kind of "purge" you needed....
different sample submitted from different people - returned with letter for letter identical results - including one urine sample from the family dog . . .

the stars had nothing to do with it.... she ran into a batch of highly greed-motivated people who knew how to manipulate the money markets - and they all got rich. and they'll all stay rich - just like Madoff's wife - who was permitted to keep multi-millions of his ill gotten gains.