In Silicon Valley, Felony Prosecutors See No Evil


“Silicon Valley is much cleaner today than at the beginning of the dot-com bubble in the 1990s,” said Reed Kathrein, a lawyer from San Francisco who successfully sued Ms. Holmes and Theranos in 2016 on behalf of investors. “Everyone throws money on these startups. Everyone thinks they will win the lottery. It’s easier to be honest. “

Reforms sparked by the collapse of WorldCom, a long distance phone company, and Enron, an energy company, in the early 2000s also had an impact.

“Some of the legislative changes, such as the Sarbanes-Oxley Act, have turned the accountants on their heads,” said Kathrein. “You have to do your job now.”

Thirty years ago, the technology industry was as famous for physical products as it was for software. In fact, software used to be a physical product. When sales didn’t go well, there was an opportunity for deception.

MiniScribe, a hard-times hard-drive Colorado disk storage company, was acquired in 1984 by prominent Silicon Valley financiers, Hambrecht & Quist. The investment firm pumped in money and installed its own management. In 1988, MiniScribe managers packed 26,000 stones in MiniScribe boxes and shipped them to Singapore to keep the number up. When the plan was exposed, the company went bankrupt and the manager went to jail.

In this sense, stated Mr. Kathrein, the case of Mrs. Holmes was a setback. She was charged with making false and misleading statements to investors that Theranos’ proprietary analyzer called Edison was a medical miracle that could run a whole range of clinical tests. It couldn’t.

“She shipped bricks,” he said. A lawyer for Ms. Holmes declined to comment.

The conclusions of Mr. Kathrein are not generally accepted. When asked if tech people had gotten more honest over the decades, Margaret O’Mara, a Silicon Valley historian, burst out laughing.