Elizabeth Holmes is facing decades in prison for defrauding investors in her bogus blood-testing firm Theranos. But the Silicon Valley founder should never have faced a criminal trial in the first place, says Stanford Law School professor David Mills in the Los Angeles Times. That Holmes “outright lied” to her investors is not in question, and she certainly deserves bankruptcy for her “misdeeds”. But a contractor who fibs to customers isn’t a criminal case. It’s a civil one.
It would have been different had Holmes been leading a public company; public companies are subject to very strict reviews by federal agencies. But when a private company raises funds privately – as Theranos did – there are no such rules. So when a group of ultra-rich backers, including Bill Gates and Henry Kissinger, took a chance on Holmes, it was up to them to do their due diligence. If they didn’t bother, they “made the choice not to protect themselves”. Federal prosecutors should have stayed out of it. Holmes’s conviction won’t dissuade others from puffing up their companies – “the potential benefits are too high” and the chances of getting collared too slim. And misusing criminal law like this undermines the legitimacy of our criminal sanctions. That risks damaging much more than the “rich and sophisticated investors” who are taken in by “charming founders”.