The Washington Post

Elizabeth Holmes keeps playing the smoke-and-mirrors game

- DAVID VON DREHLE

In the high-profile fraud trial of Elizabeth Holmes, shattered star of the Silicon Valley start-up Theranos, the cause of justice compels us to wish both sides could somehow lose.

Holmes’s marathon testimony has been a blizzard of blame: The staff is to blame, the board is to blame, the boyfriend is to blame. If nothing else, Holmes should be found guilty of an assault on feminism. Her defense boils down to the notion that a woman at the head of a medical device company cannot be expected to know if the device actually works.

And yet, there is something screwy about a fraud trial in Silicon Valley. Who in their right mind goes to Silicon Valley to hear the truth?

One way to think about the Holmes trial is to picture a theater with a long line of patrons waiting at the box office. “Magic Show!” says the marquee. The tickets are expensive, but the line never shortens.

A crucial bit of evidence from the trial casts a useful light on the culture of this trillion-dollar dream factory called tech. Theranos had become a unicorn, as the saying goes — a start-up valued north of a billion bucks — based on the flimsy notion that hundreds of ailments could be diagnosed from a drop of blood at your nearest Walgreens. Holmes was a Stanford dropout who dressed like Steve Jobs, which apparently was enough reason for investors to believe this technology was not only possible but imminent.

To sustain the lofty valuation, Theranos periodical­ly boasted of advances that had not occurred. Before sharing with investors yet another cockamamie report, Holmes added the corporate logos of two venerable laboratori­es, Schering-plough and Pfizer, though neither lab knew anything of the report. Holmes testified that she did not intend to mislead anyone by doing this. She wasn’t sure what she meant to accomplish. Later, she said she wasn’t thinking straight at the time because of her mean boyfriend. (That boyfriend, former Theranos executive Ramesh “Sunny” Balwani, has denied he was abusive.)

If Holmes is found guilty, this report will be the smoking gun.

But without excusing Holmes’s deception, let’s pause to ask if Silicon Valley investors — supposedly the smartest people in every room — should read past the little doodads at the top of a report. Anyone who invests a vast sum under the influence of a cut-and-paste document is obviously not a stickler for facts.

Like the magician’s audience, many tech investors appear to be less interested in reality than in illusion. Silicon Valley is not sawing people in half and putting them back together, but the tech industry is very much in the business of creating illusions of inevitabil­ity. Here is the Next Big Thing; it’s going to happen whether it makes sense or not; jump aboard!

Wherever the illusion can be maintained long enough to take a company public or sell it to an existing whale, the magic happens: Hype turns into money. The apparent truth of the Theranos meltdown is not so much that investors were taken for a ride, but that the ride did not take them where they wanted to go.

Put another way: Would any investor in Theranos be complainin­g now if Holmes had managed to keep the illusion going a little longer? Long enough to sell the company to public shareholde­rs? Or long enough for company engineers to stumble across a technology that actually served a new and useful purpose?

I’m not saying that every tech company is based on fraud. But Silicon Valley’s unofficial motto is “fake it till you make it” for a reason. Many of tech’s greatest success stories are companies that discovered a profitable business model only long after they had become darlings. Many don’t survive past the faking stage.

Holmes might be forgiven for wondering who among Silicon Valley investors is persnicket­y about truth. She was a person whose primary lab experience was a summer internship after her freshman year in college, a nonscienti­st and non-engineer who mostly filled her board not with relevant experts in medical tech but with glamorous names from the national security, diplomatic and financial worlds. It was a looooong stretch to think, absent hard evidence, that she’d invented a device capable of revolution­izing blood testing.

Her trial would be more seemly had she offered a different defense. Instead of saying that she was too simple and naive to admit the truth, she might have said her investors should have been smart enough to know her business was smoke and mirrors. They bought tickets to a magic show; now they’re feigning anger that the elephant didn’t really disappear.

Capitalism works for the general good only when capitalist­s invest wisely. You will find scant wisdom in the Theranos story. Everyone’s a loser.

 ?? DAVID PAUL MORRIS/BLOOMBERG NEWS ?? Elizabeth Holmes, founder of Theranos, arrives at federal court in San Jose, Calif., on Nov. 22.
DAVID PAUL MORRIS/BLOOMBERG NEWS Elizabeth Holmes, founder of Theranos, arrives at federal court in San Jose, Calif., on Nov. 22.

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