Martin Shkreli was the most hated man in America, and Elizabeth Holmes was its golden girl. Maybe that explains why he’s heading to seven years in jail and a $7.4 million fine when he lost investors almost nothing, and she will pay only $500,000 when she lost them hundreds of millions of dollars. Holmes has also relinquished voting control of her company (along with 18.9 million shares of near-worthless stock) and is barred from heading another public company for 10 years.
The lesson most people online have drawn from the discrepancy between these fallen financiers’ respective crimes and punishments is a simple one: Don’t be a jerk. But there’s a bit more to it than just that.
Shkreli, a former hedge fund manager, entered into infamy in 2015 when his pharmaceutical company raised the price of a lifesaving drug for AIDS patients from about $13.50 to $750 a pill. Then it turned out he’d committed securities fraud, too. He responded by smirking and photoshopping his head onto the shoulders of a female journalist’s husband on Twitter.
Silicon Valley oohed and aahed over Holmes around the same time Shkreli came onto the scene, when it looked like her start-up’s blood-testing technology would transform medicine forever. But soon enough someone whistleblew it all away, and everyone found out Holmes’s magic machine wasn’t really magic. Theranos was defrauding investors on a larger scale than Shkreli could have dreamed. Holmes responded by issuing somber and defensive statements and keeping her black-turtlenecked head held high.
Shkreli was, in many ways, a caricature of the capitalist villain. When he first got flak for his price-gouging, he acknowledged he’d erred. “I would have raised prices higher,” he said. “That’s my duty.” His shareholders, his argument was, expected him to maximize profits. That was pharmaceuticals. That was the system, and he’d learned its ins and outs over the years as he made his way from Brooklyn, where he was born to Albanian immigrants with janitorial jobs, to the tippy top of the Manhattan trading scene.
Shkreli started out with a shoddy hand, but now he was the dealer. Of course he was going to do whatever he could when he had control of the deck.
Holmes, on the other hand, was a Silicon Valley darling. She was the youngest self-made female billionaire. That was new. She had dropped out of Stanford at 19 to build an edgy company that no one really understood. That was new, too. “The next Steve Jobs,” blared Inc. “This CEO is out for blood,” broadcast Fortune. “Queen Elizabeth,” the San Francisco Business Times called her: “Mystique of Theranos founder grows with Forbes’ richest ranking.”
Shkreli essentially told everyone what he was up to: getting rich any cost. Holmes, on the other hand, obscured her scheming under a guise of goodness. She mixed vague descriptions of her company’s vision with the usual motivational platitudes: “We see a world … in which no one ever has to say, ‘If only I’d known sooner,’ a world in which no one ever has to say goodbye too soon.” “What matters is how well we do in trying to make people’s lives better.” “You have to believe in yourself.” “Big waves come and go, but you’re there for a reason.”
Not even the world’s biggest sucker would have bought this stuff from Shkreli. Suckers of all sizes fell for it from Holmes.
Why? Part of it was her persona. But part of it was her industry. As Wired put it in a 2016 headline, “Theranos is under investigation for fraud, which is weird for a private company.” Spot on. It was weird, because Silicon Valley is weird, and it is secretive, and if an innovation really is innovative, chances are we’ll have trouble understanding how it works. Add to that our innate desire to trust in technological progress, especially when it promises to improve our lives, and you have a recipe for credulity.
Shkreli was Wall Street sleaze in one small, sweatshirted package. He was playing a game many had played before, and though his insistence in keeping all eyes trained on him may have made his loss spectacular, it was only a flashier version of the Ponzi scheming we’d already seen. But in Holmes’s case, never before had a Valley vanguard hero in the mold of Steve Jobs turned out to be a $9 billion scam artist.
After Holmes agreed to a settlement on Wednesday, one quote made the rounds through the media. “The Theranos story is an important lesson for Silicon Valley,” said Jina Choi, director of the SEC’s San Francisco regional office. “Innovators … must tell investors the truth about what their technology can do today, not just what they hope it might do someday.” In simpler words, chances are Silicon Valley is full of just as many con men, and con women, as any other industry. Better learn how to spot them.
