Did Elizabeth Holmes get the correct sentence?
As we should already know, now-disgraced and convicted CEO Elizabeth Holmes operated Theranos. Theranos was to offer the world a fantastical new way of testing people’s health concerns for all manner of blood diagnostics all with the tiniest drop of blood. It’s fantastical because Elizabeth Holmes’s Theranos was never able to make this testing technology actually work (the entire basis for the fraud). Ms. Holmes has now been convicted of wire fraud and defrauding investors, a federal crime. More than this, Ms. Holmes has now been sentenced to serve 11 years in a federal prison.
NBC News Opinion
One NBC opinion piece, written by a former federal prosecutor and current attorney, Andrey Spektor, contends that Elizabeth Holmes’s 11 year sentence is too harsh. This author does not agree. Why? Because of the nature of and, more importantly, the real dangers posed by the device she failed to create.
Andrey’s contention is:
But that calculation was the least important component of determining Holmes’ sentence because the judge ultimately disagreed with the probation estimate and, anyway, no rational judge would have sentenced her to anything approaching life in prison. Among other things, she is a first-time, nonviolent offender whose crime did not lead to anyone’s death.
I contend that this highlighted statement is, at best, inaccurate and is, at its worst, false. There may actually have been illness and death as a result of Theranos’s deception, when the Theranos “Edison miniLab” machine (pictured)
, did not work as purported and likely impacted medical treatments needed (or weren’t needed, as the case may be) for medical patients. For Andrey to contend that no one died (or by extension, weren’t injured or hurt), that’s incredibly wrong thinking.
Ms. Holmes’s deception impacted many people’s health; health which relied on accurate testing results from Theranos’s Edison miniLab machine. Without accurate testing results, the wrong medications could have been prescribed, the wrong treatment plans could be implemented, up to and including not prescribing medications which could save people’s lives… or indeed the opposite may have occurred; the wrong prescription may have been prescribed causing injury or potentially death. Claiming her fraudulent testing equipment couldn’t cause harm is fallacious and disingenuous. Worse, according to the whistleblowers, Ms. Holmes knew that her miniLab testing equipment didn’t work!
Dangers to Society
The fact that the Edison’s machine’s deception was “caught early” is of no consolation to those who received inaccurate test results from Theranos’s intentional equipment deception. In other words, you can’t just play “god” with people’s lives and health and expect to get away with it.
To claim that her defrauding and misleading and intentional deception about her alleged testing methodology, which clearly did not work properly (or at all), didn’t impact people’s health and lives is insulting to those who could have lost their lives to Theranos’s medical fraud. Even still, some still could lose their lives early because of Theranos.
That the fraud was caught early because of two conscientious whistleblowers within Theranos employee ranks is more a testament to those two individual’s forthright and upstanding conscience than of Elizabeth Holmes coming clean about the dangers the Theranos Edison ultimately posed to society. Elizabeth Holmes would likely have continued to play this dangerous game if those two whistleblowers hadn’t come forward. It wasn’t Elizabeth Holmes who “came clean” on the wrongness of her equipment. It was those two Theranos whistleblowers who put their careers in jeopardy to save the lives of others.
11 Year Sentence
For all of these reasons above, I vehemently disagree with Andrey Spektor’s opinion. Elizabeth Holmes’s 11 year sentence is not at all inappropriate or too long. In fact, I’d say her sentence was downright lenient considering the danger she, Theranos and her fraudulent testing equipment posed to society as a whole. If her equipment’s fraud had not been found early, we could have gone perhaps a year or two or longer without knowing how many people might have been misdiagnosed, given the wrong medical treatments or, indeed, given no treatments at all for preventable, but fatal illnesses if left untreated. In short, Elizabeth Holmes (and her fake testing equipment) was (and is) a danger to society.
I contend that 11 years is way too lenient for that level of danger and risk that she and Theranos posed to the world. She doesn’t deserve leniency for having committed this level of medical malfeasance against the public at large. While one can try and argue that the trial wasn’t about her medical malfeasance specifically, the fraud fully stemmed from that malfeasance. Thus, any malfeasance must be considered as part of the sentencing. It can’t be “distanced” or “separated” as though it didn’t exist. That malfeasance was the entire reason Elizabeth Holmes’s machine was found to have caused the defrauding of investors. Eye on the ball, people.
While a trial for the affected patients was not allowed to move forward, that doesn’t preclude the absolute sheer negligence and willful malfeasance Holmes performed against an unsuspecting public. Elizabeth Holmes knew her machine didn’t work. Yet she STILL went ahead with placing it into Walgreens knowing its problems. That’s not innocent happenstance; that’s willful malfeasance and, at worst, malevolence. Conscientious people don’t put other people in harm’s way intentionally. Elizabeth Holmes put people in harm’s way. One might want to call that blind ambition. Call it what you will. Blind ambition can still result in someone doing the wrong things for the wrong reasons, even knowing that the outcome might cause harm to others. That can’t be dismissed with an 18 month sentence (as Ms. Holmes has requested), a mere slap on the wrist.
No, the 11 year sentence by federal sentencing Judge Edward Davilla was definitely of a sufficient length as to give her pause AND send her a solid message for what Theranos and she had done to the public… even if not specifically stated by judge Davilla; this judge knew the stakes.
Babies as Shields?
One thing Elizabeth Holmes appears to also be shrewd at is trying to get out of her 11 year sentence. She’s now attempting this by getting pregnant. There’s absolutely nothing wrong with starting a family… but on the heels of beginning an 11 year federal criminal sentence? I get that her biological clock is ticking, but it primarily says she’s using an infant as a shield. That’s not a good look and it fully supports the above malfeasance. She’s putting her baby in harm’s way to protect herself from going to prison, or at least so she hopes. It’s a crude and crass way to begin prison… and it leaves her kids in the lurch without a parent for 11 years.
She knew she had been convicted, yet she chose to get pregnant anyway? A judge should have held her in contempt of court over that. When Holmes’s first child was born, her trial had not yet begun. Thus, there was no way to know which way her trial might go. Her second child, however, is simply being used as a pawn against incarceration. That’s both a nasty and very vile reason to have a child. It doesn’t show compassion for the child, it shows self-preservation by Holmes. It’s an incredibly uncaring and self-centered tactic, especially for a baby that’s now caught in her manipulative crossfire. As I said, distasteful.
She’s now delivered her second child, but it’s almost certain she’s working hard to conceive a third as yet another shield. Enough’s enough here. If she pops up pregnant again, cite her for contempt of court, let her carry that child to term in prison and give birth to that child behind bars. The sentence was issued and it must be carried out. Having a baby shouldn’t become a “get out of jail free” card… not for her, not for anyone. Worse, babies should never be used as incarceration blockers.
Judges should make it perfectly clear to any convicted felon who decides to conceive a baby after conviction means possible contempt of court and that neither the pregnancy nor the birth will stop the incarceration from occurring. Playing these games with the court should always mean contempt of court and possible longer incarceration time.
Did Elizabeth Holmes get the correct sentence?
No, but not for the reasons Andrey Spektor proposed. In fact, Ms. Holmes got a far more lenient sentence than she should have been given considering the real medical dangers both she and her testing machine imposed on society. Ms. Holmes should count herself lucky at receiving only 11 years. Let’s hope that when she gets out of prison, she doesn’t try to start yet another dangerous “medical testing” company.
As for those 11 years Ms. Holmes faces? This amount of incarceration also sends a clear message to other would-be CEOs not to play with people’s lives using untested medical technologies in the goal of gaining personal fame, wealth or for any other reason.
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Elizabeth Holmes: Why aren’t more CEOs in prison?
On the heels of Elizabeth Holmes’s conviction for four counts of fraud, the question begs… Why aren’t more startup CEOs in prison for fraud? Before we get into the answer, let’s explore a little about Elizabeth Holmes.
Theranos
Theranos was a technological biomedical startup, not unlike so many tech startup companies before it. Like many startups, Theranos began based out of Palo Alto, California… what some might consider the heart of Silicon Valley. Most startups that begin their life in or around Palo Alto seem able to rope in a lot of tech investors and tech money. Theranos was no different.
Let’s step back to understand who was at the helm of Theranos before we get into what technology this startup purported to offer the world. Theranos was helmed by none other than Elizabeth Holmes. Holmes founded Theranos in 2003 at the age of 19, after she had dropped out of Stanford University. In 2002 prior to founding Theranos, Elizabeth Holmes was an engineering student studying chemical engineering. No, she was not a medical student nor did she have any medical training.
Clearly, by 2003, she had envisioned grandiose ideas about how to make her way in the world… and it didn’t seem to involve actually completing her degree at Stanford. Thus, Theranos was born after having she had gotten her dean, but not medical experts at the school, to sign off on her blood testing idea.
Medical Technology
What was her medical idea? Holmes’s idea involved gathering vast amounts of data from a few drops of blood. Unfortunately, not everyone agreed that her idea had merit, particularly medical professors at Stanford. However, she was able to get some people to buy into her idea and, thus, Theranos was born.
From the drawing board to creating a device that actually does what Holmes claimed would pose the ultimate challenge, one that would see her convicted of fraud.
Software Technology
Most startup products in Silicon Valley involve software innovation with that occasional product which also requires a specialty hardware device to support the software. Such hardware and software examples include the Apple iPhone, the Fitbit and even the now defunct Pebble.
Software only solutions include such notables as Adobe Photoshop, Microsoft Office and even operating systems like Microsoft Windows. Even video games fall under such possible startups, like Pokémon Go. Yes, these standalone softwares do require separate hardware, but using already existing products that consumers either own or can easily purchase. These software startups don’t need to build any specialty hardware.
Software solutions can solve problems for many differing industries including the financial industry, the medical industry, the fast food industry and the law enforcement industry and even solve problems for home consumers.
There are so many differing ideas that can make life much simpler, some ideas are well worth exploring. However, like Theranos, some aren’t.
Theranos vs Silicon Valley
Elizabeth Holmes’s idea that a few drops of blood could reveal a lot of information was a radical idea that didn’t, at her young age of 19, have a solution. This is what Elizabeth Holmes sought to create with Theranos.
Many Silicon Valley startups must craft a way to solve the problem they envision. Whether that be accessing data faster or more reliably to creating a queuing system for restaurants using an iPhone app.
It’s not so much the idea, but the execution of it. That’s where the CEO comes into play. The CEO must assemble a team capable of realizing and executing the idea they have in their head. For example, is it possible to create a device to extract mountains of data from a few drops of blood? That’s what Elizabeth Holmes was hoping she could create. It was the entire basis for the creation of Theranos.
Investors
To create that software and device, it takes money and time. Time to develop and money to design and build necessary devices using R&D. A startup must also hire experts in various fields who can step into the role and determine what is and isn’t possible.
In other words, a CEO’s plan is “fake it until you make it”. That saying goes for every single startup CEO who’s ever attempted to build a company. Investors see to it that there’s sufficient capital to make sure a company can succeed, or at least give it a very good shot. Early investors include seed and angel investors, where the money may have few if any strings and later stage investors such as Venture Capitalists, where there are heavy strings tied to the money in the form of exchanging company ownership in exchange for money.
Later stage investors are usually much more hands-on than many angel or seed investors. In fact, sometimes late stage investors can be so hands-on as to cause the company to pivot a company in unwanted directions and away from the original vision. This article isn’t intended to become a lesson for how VC’s work, but suffice it to say that they can become quite important in directing a company’s vision.
In Theranos case, however, Elizabeth Holmes locked out investors by creating a …
Black Box
One thing that Silicon Valley investors don’t like are black boxes. What is a black box? It’s a metaphor for a wall that’s erected between a company’s product and any investors involved. A black box company is one that refuses to share how a startup company’s technology actually works. Many investors won’t invest in such “black box” companies. Investors want to know how their money is being spent and how a company’s technology is progressing. Black boxes don’t allow for that information flow.
Theranos employed such a black box approach to its blood analyzer device. It’s actually a wonder Theranos got as much investor support as it did, particularly for a CEO that young and, obviously, inexperienced when insisting on a black box approach. That situation is ripe for abuse. At 19, how effective could Elizabeth Holmes be as a CEO? How trustworthy and responsible could a 19 year old be with millions of dollars of funding? How many 19 year olds would you entrust with millions of dollars, after they had dropped out of college? For investors, this should have been a huge red flag.
There’s something to be said for the possibility of a wunderkind in Elizabeth Holmes, except she hadn’t proven herself to be a prodigy while attending Stanford. Even the medical experts she had consulted about her idea clearly didn’t think she had the necessary skills to make her far-fetched idea a reality. A chemical engineering student hopping into the biotech field with the creation of small, almost portable blood analysis machine at a time when commercial blood analysis machines where orders of magnitudes bigger and required much more blood volume? Holmes’s idea was fantastical, yet clearly unrealistic.
However, Theranos’s black box, dubbed the Edison or miniLab, was a small piece of equipment about half the size of a standard tower computer case and included a touch screen display and blood insertion port.
Unfortunately, this black box was truly a black box in all senses of the word, including its actual case coloring. Not only was the Edison’s innards kept a strict company secret, its testing methodologies were also kept secret, even from employees. In other words, no one knew exactly how the Edison truly worked. No, not even the engineers that Theranos hired to try to actually make Holmes’s vision a reality.
Theranos and Walgreens
By 2016, Theranos had secured a contract with Walgreens for Walgreens to use Theranos’s Edison machine to test blood samples by medical patients. Unfortunately, what came to pass from those tests was less than stellar. It’s also what led to the downfall of Theranos and ultimately Elizabeth Holmes and her business partner, Sunny Balwani.
The engineers that Theranos hired knew that the Edison didn’t work, even though they hadn’t been privy to all of its inner workings. Instead, what they saw was those tiny vials of blood trying to run samples on larger blood testing machines like the Siemens Advia 1800.
When the engineers, Erika Cheung and Tyler Shultz, confronted Holmes and Balwani about the Edison machine’s lack of functionality and about being asked to falsify test results, they were given the cold shoulder. Both Cheung and Tyler decided to blow the whistle on Theranos’s fraud. Cheung and Schultz both left Theranos after whistleblowing to start their own companies.
Ultimately, Theranos had been using alternative medical diagnostic technology in lieu of its own Edison machine, which the Edison clearly didn’t function properly and neither did the third party systems with the amount of blood that Holmes stated that it required.
This left patients at Walgreens with false test results, requiring many patients to retest with another lab to confirm the validity of Theranos’s results.
Elizabeth Holmes Fate?
In January of 2022, Elizabeth Holmes was found guilty of 4 counts of fraud. However, the jury acquitted her of all counts involving patient fraud… the patients were, in fact, hurt the most by Theranos’s fraud. The jury awarded monetary rewards to the investors, not to the patients who may have been irreparably harmed by her machine’s failure to function.
Why aren’t more CEOs in prison for fraud?
While the Theranos and Elizabeth Holmes case is somewhat unique among Silicon Valley startups, it is not completely unique. Defrauding investors is a slippery slope for Silicon Valley. Once one company is found perpetrating fraud on investors, it actually opens the door up to many more such cases.
Taking money from investors to attempt to bring a dream to life is exactly what CEOs do. However, Theranos (and Elizabeth Holmes) between 2003 and 2016 couldn’t produce a functional machine.
Most CEOs, given enough time and, of course money, can likely produce a functional product in some form. Whether that product resembles the original idea that founded the company remains to be seen. Some CEOs pivot a year or two in and change directions. They either realize their initial idea wasn’t unique enough or that there would be significant problems bringing it to market. They then change direction and come up with a new idea that may be more easily marketable.
Startups that Bankrupt
In the case of Theranos, other startups that go bankrupt could signal the possibility that CEOs may now be held accountable to fraud charges, just like Ms. Holmes. The Elizabeth Holmes case has now set that precedent. Taking investor money may no longer be without legal peril directly to company executives. If you agree to bring a product to market and are given investor capital to do it… and then you fail and the company folds, you may find yourself in court up on fraud charges.
Silicon Valley investors do understand that the odds of a successful startup is relatively low… which is why they typically invest in many at once. The one that succeeds typically more than makes up for the others that fail. If more than one succeeds, even better. It’s called, “playing the odds”. The more you bet, the better chances you have of winning. However, playing the odds won’t stop investors from wanting to recoup losses for money given to failed startups.
The Elizabeth Holmes case may very well be chilling for startups. It’s ultimately chilling to would-be CEOs who see dollar signs in their eyes, but then months later that startup is out of cash and closing down in failure.
CEOs and Prison Time
Elizabeth Holmes should be considered a cautionary tale for all would-be CEOs looking for some quick cash to get their idea off the ground. If you do manage to secure funding, you should be cautious with how you use that cash. Also always and I mean ALWAYS make sure the progress in building your idea is shown to your investors regularly. Let them know how their investor money is being used. When software is available for demonstrations, show it off. Don’t hide it inside of a black box.
Black boxes have no place in startup investing. As with Elizabeth Holmes, she’s facing up to 20 years in prison. However, her sentence has yet to be handed down, but is expected to be no less than 20 years. Though, it’s possible she may be given the possibility of parole and the possibility of a reduced sentence for good behavior… all of which is up to the sentencing judge.
Elizabeth Holmes opened this door for startup CEOs. It’s only a matter of time before investors begin using this precedent to hold CEO founders to account should an investment in a startup fail.
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Rant Time: MagicJack – Scam or Legit?
The magicJack company offers a voice over IP phone service. You can use it with an app on your phone or by a device plugged into an actual landline-type phone. It does require Internet to function. Either way you go, it’s VoIP and they have very questionable and deceptive billing practices. Let’s explore.
Internet Phone Service Choices
If you’re in need of phone services on a device that only has access to WiFi, then a voice over IP service (VoIP) is what you need. There are many different VoIP services available on the Internet. You can even make audio and video calls via Facetime on iOS, via Skype on pretty much any mobile or desktop computer or even via Google Hangouts. For this reason, magicJack is yet another VoIP phone service in a sea of choices.
Why would you want to choose magicJack? Initially, they were one of the lowest priced VoIP phone services. They also offered a tiny computer dongle that made it easy to plug in a standard home phone. That was then. Today, mobile devices make this a different story. Lately, this company has raised their prices dramatically and they’re performing some quite deceptive and questionable billing practices.
911 Service
As with any phone service that offers the ability to use 911, the service must tack on charges to the bill by the municipality. You’d think that part of the invoice that magicJack is already collecting in payment of services would also cover for those 911 services. I certainly did. Instead, magicJack isn’t willing to part with any of their service revenue to actually cover services that, you know, they provide as part of your phone service… like any other phone company does.
MagicJack seems to think they can simply pass on said charges right to you in an email invoice and have you pay them separately. Here’s where magicJack gets firmly into scam and deceptive billing territory.
I’m sorry magicJack, but you’re forcing the 911 service when we don’t really need it or want it on that magicJack VoIP phone line. If you’re going to force this service as part of the overall service, then damned well you need to suck it up and pay the expenses from what we pay you. There is no way in hell I’m going to pay an ‘extra’ bill simply because you are unwilling to use the collected service fees to pay for those bills, like any other carrier on the planet. It’s not my problem that you choose not to do this.
You, magicJack, need to pay those bills to the 911 service. It’s your service, you forced 911 onto my line and now you must pay the piper. If you can’t do this, then you need to go out of business. This means, you need to collect the 911 service fees at the time you collect the payment for your services. And you know what, you already collected well enough money from me to cover those 911 service fees many times over. So, hop to it and pay that bill. This is not my bill to pay, it’s yours.
MagicJack Services
Should I consider magicJack services as an option when choosing a VoIP phone service? Not only no, but hell no. This service doesn’t deserve any business from anyone! This is especially true considering how many alternatives exist for making phone calls in apps today. Skip the stupidly deceptive billing hassles and choose a service that will bill you properly for ALL services rendered at the time of payment.
MagicJack is entirely misinformed if they think they can randomly send extra bills for whatever things that they deem are appropriate. Worse, magicJack is collecting payments for that 911 service, but you have no idea if that money will actually make it to the 911 municipal services in your area. That money might not even make it there and you may still receive a bill. In fact, if the municipality does send you a bill, you need to contact them and tell them to resend their bill to magicJack and collect their fees owed from magicJack, which has already been collected in the funds to cover any and all phone services. If magicJack claims otherwise, they are lying. If you are currently using magicJack’s services, you should cancel now (even if you have credit remaining).
Is magicJack a scam? Yes, considering these types of unethical and dubious billing practices. Even though their VoIP service works, it’s not without many perils dealing with this company. As with any service you buy into, Caveat Emptor.
MagicJack Headquarters
Here is the absolute biggest red flag of this scam company. MagicJack claims their corporate headquarters address is located here:
PO BOX 6785
West Palm Beach, FL 33405
Uh, no. Your headquarters cannot be inside of a PO Box.
Yelp claims that magicJack’s US address is here:
5700 Georgia Ave
West Palm Beach, FL 33405
Better, but still not accurate. This is not their corporate headquarters. This is simply a US office address. Who knows how many people actually work there? We all should know by 2018 just how many scams originate from Florida.
When you visit magicJack’s web site, no where on any of the pages does it show their actual physical headquarters address. This is a HUGE red flag. Where is magicJack’s actual headquarters?
magicJack Vocaltev Ltd (opens Google Maps)
Ha-Omanut Street 12
Netanya, Israel
As a point of consumer caution, you should always be extra careful when purchasing utility and fundamental services from any Israeli (or other middle east) companies. Worse, when companies cannot even be honest about where their corporate headquarters are on their own web site, that says SCAM in big red letters.
Class Action Lawsuit
Here’s another situation where this company needs to be in a class action lawsuit. I’m quite certain there are a number of folks who have been tricked into this scammy outfit and are now paying the price for their unethical and scammy business practices. However, because they are located in Israel, setting up a class action lawsuit against this company may be practically impossible. Better, just avoid the company and buy your phone services from U.S. based (or other local) companies where they are required to follow all local laws.
Rating: 1 star out of 10
Phone Service: 5 out of 10 (too many restrictions, limits call length)
Customer Service: 1 star out of 10
Billing: 0 stars out of 10
Overall: Scam outfit, cannot recommend.
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How not to run a business (Part 10.2) — Case Study: Trust
A business is as good as the trust it practices. Trust is a crucial element in gaining new business. If prospects cannot trust you or what you offer, trust that your business is genuinely there to help your customer, trust that you will provide a high quality service, your business will not succeed. Trust is mission critical to business success. Let’s explore.
Kickstarter
Recently, you may have heard about the H+ Holus project on Kickstarter. Its premise is to create a display device that can provide a wide variety of viewing angles. Some words used to describe the device include ‘holographic’, ‘holographic experience’ and ‘3D’. From the link above, the description states,
Holus provides a blend between the digital and real world by converting any digital content into a 3D holographic experience
To visually get the point across, H+ uploaded some CG representations of what the finished product might look like… including this video….
By Day 3 of this Kickstarter project, the project had already been funded the amount of $200k CAD. So here’s where things get a little dicey with both this project and Kickstarter when complaints begin to roll in. At the end, the Holus project raised $297,790 CAD. Some sites are already asking if the Holus is the most expensive scam in Kickstarter history. Reddit readers state these grievances of the Holus device.
Kickstarter’s rules are clear on misrepresentation. In the above video, it is clearly shown that as the camera moves, so does the 3D of the imagery. With Pepper’s Ghost and a flat screen, this is not possible which misrepresents the capabilities of this device. In other words, Kickstarter doesn’t allow realistic 3D rendered concept photos or videos as part of the project. Including photos of the prototype or drawings of the concept is perfectly fine. However, 3D realistic images depicting a concept are not acceptable and Kickstarter’s rules prohibit the use of such imagery.
3D Displays
We all know what these are. They’re basically your flat screen TV with shutter glasses. They’re cumbersome to use, give you headaches and, in general, are mostly a novelty. Yet, this is the state of 3D displays in 2015. No, we do not yet have floating displays such as what’s shown in Minority Report or Avatar. These displays, if even possible, are years away from becoming reality. Yet, here we are on Kickstarter with a small company claiming they’re about to produce a 3D Holographic display. Frankly, it’s not possible. What Holus offers is no better than Pepper’s Ghost.
Pepper’s Ghost is a technology that dates back to 1862 and is named after John Henry Pepper who discovered the illusion. A Pepper’s Ghost display has no relationship to holograms or holography, further misrepresenting the display. What Holus offers is a flat screen reflected off of a transparent surface. Because the screen located in the roof of the cabinet is flat, it’s definitely not 3D (without using glasses). Worse, there are already devices like this available on Amazon right now for the iPhone for $10.99. Visit Amazon and compare.
Holus Deception
Whether the H+ folks intended to deceive or were naïve about what they could show on Kickstarter, it doesn’t really matter from a fraud management perspective. The listing violated Kickstarter’s rules. Yet, Kickstarter did nothing to stop or prevent this listing from continuing. In fact, it seems that Kickstarter even awarded the Holus Kickstarter Project as a staff pick at some point. When this listing was brought to Kickstarter’s attention for misrepresentation, they ignored the warnings and allowed the project to fund anyway.
Trust
As a CEO, it is important to maintain trust with all of your customers. If you don’t attempt to maintain that trust, your business is hopelessly lost. Case in point… Kickstarter CEO Yancey Strickler leaves a comment on Joanie Lemercier’s ‘covering up a scam’ blog article after she and several others unsuccessfully attempt to bring this misrepresented project to the attention of Kickstarter. Strickler’s comment is defensive and deflecting. Here’s what Strickler has to say (full comment below):
Hi Joanie —
Yancey from Kickstarter here.
I’m responding, in part, to thank you for the attention you’ve paid to the Holus project. We’ve seen a lot of debate and strong feelings around the project, and we’ve heard a lot of questions about our policies and how we enforce them. I’d love to clear up a few things about how we did so in this case.
Part of the issue we’ve seen with this project revolves around words like “hologram,” “holographic,” and “holographic experience,” which people have come to use in so many different colloquial ways. Some of our most-discussed “holograms” — Tupac Shakur’s appearance at Coachella, CNN’s election-night guests — aren’t holograms at all. Even Microsoft bills its HoloLens as a holographic product. There’s an odd lack of clarity involved in what many people mean and understand when they say the words.
So in this case, our approach was to focus in on how Holus actually worked. We asked the Holus team to post an update that demonstrated, clearly and openly, exactly what they were working on. They responded with a public update that outlined the technique they use. That update was emailed to backers of the project, to help make sure everyone involved was fully clear on what they were supporting and what they could expect.
Then there’s the question of our rules for hardware projects. First, we require creators to show prototypes of their work. Second, we prohibit them from using photorealistic renderings.
Holus satisfied the first rule, posting a number of demo videos and documentation showing working prototypes. But when the project originally launched, it included CGI renderings. We informed them that this was strictly prohibited; they promptly removed the material. They also emailed backers to clarify their process, including a video demonstrating their iterative prototypes.
And last, there’s the question of the staff pick. Holus was originally selected as one, until we spotted and received reports about CGI renderings. We immediately removed the staff pick status, and asked the Holus team to remove the badge they’d added to their project image. (Staff pick badges aren’t a part of our system; we don’t create them or provide them. Actually, we strongly advise creators not to use them at all.) They promptly did so.
In other words, the project conformed to our stated rules, added more information on request, and made a transparent, good-faith effort to thoroughly inform backers about the nature of their work. Based on that, we continued to monitor it, but allowed it to remain on the site. The question then became: were people interested in backing it?
And this is the part where you — and the broader Kickstarter community watching these projects — become invaluable. One of the reasons Kickstarter uses all-or-nothing funding is because it gives everyone involved in a project time to really research what the creators are doing, discuss it with others, and come to a collective decision about whether it’s still worth supporting. Ultimately, it’s backers who decide what gets funding, not us.
That’s why we’re always grateful to anyone who joins in the public debate about projects, asks tough questions about the claims they’re hearing, and shares their expertise with other backers. That kind of discussion is crucial, especially when it comes to new technology. It helps our Integrity team monitor projects for problems or violations of our rules — as we did throughout the Holus campaign. It helps backers vet ideas and make the most informed decisions possible. It holds creators to a high standard, and helps them build stronger communities. It does all these things no matter what action Kickstarter winds up needing to take, and whether projects succeed or fail.
And that’s why I’d like to thank you — and to say that, if you’ve chosen not to get involved in any more projects, we’re sad to hear it. The role you played in this one is incredibly important. Members like you are welcome in this community any time: you make things better for everyone involved.
Cheers
Yancey
This is not the type of diatribe I expect to hear from a CEO. CEO’s are the top agent of the company. They are the person who investigates wrongdoing and the person who puts a stop to it. No where above did Yancey even mention investigation, taking the strictest action or in doing anything to prevent such an occurrence in the future. Sure, they requested the prohibited content removal, but only after the project was already mostly funded. Kickstarter also didn’t apparently require full disclosure of this content removal to the backers.
Instead, he defends the project and states that it is the backer’s responsibility to post meaningful discussions, debate the project and then choose or not choose to back based on these comments. That’s all well and good until Joanie points out in a later blog post that in among other behaviors by Kickstarter to ignore the project and let it proceed, Kickstarter also
…DELETED the embarrassing questions asked in the project comments (see screenshots).
When Kickstarter deletes comments that could help backers make informed decisions, that ultimately means that Kickstarter no longer respects the backers and is in it to make sure the project succeeds whether it’s a real project or not. This also means that Kickstarter is in it for the money they will get from the project rather than protecting backers from fraud. This is a serious breach of trust and one that should resonate to every backer who has ever backed a project at Kickstarter.
In fact, Joanie points out all of the trust related issues around this Kickstarter project:
– YOU DID NOT REPLY to the official ‘reports’ made from day 1 (except email auto-replies).
– YOU DID NOT LISTEN to the experts: Jason Sapan has been making real holograms in NYC for over 40 years, he warned you about the fraud.
– YOU DIDN’T CARE TO COMMENT the 3 in-depth articles (1 – 2 – 3) written by Raphaël de Courville about his investigations on the scam.
– YOU DELETED the embarrassing questions asked in the project comments (see screenshots).
– YOU DID NOT MODERATE messages from suspicious accounts (1 – 2) and Holus partner comments (1) who broke another rule.
– BACKERS WERE NEVER INFORMED about the replacement of prohibited CGI and removal of staff pick status.
There were probably even more behaviors not documented here, but these are enough to show that even though Kickstarter was made aware of the project early in its life, Kickstarter ignored it all and even colluded in making sure the project appeared to be legitimate.
Even Yancey’s comment to Joanie attempts to justify the above actions in an obtuse fashion.
Business Don’t — Don’t allow fraud on your service
This is probably one of the biggest business don’ts I’ve ever documented in this series. You don’t do what Kickstarter did. If you establish rules by which the community must follow, then you need to ensure they are enforced regardless of outcome. Even if you stand to lose 20% of that 200k or whatever Kickstarter’s commission is, that is chump change compared to the trust you’ve lost from your community and the possible legal ramifications you face (which I guarantee will cost you more money than any commission you’d make from the fraud). Your community keeps you in business. For this reason, this trust case is worth studying. It’s worth realizing what not to do when running your business.
In Kickstarter’s case, the appropriate action would have been to delist and refund all backers before the project closed. Then, request the project owner to relist the project using drawings or other imagery that doesn’t violate Kickstarter’s terms… instead of silently requesting the images be removed without letting the existing backers know… instead of removing key discussions from the project to inform backers of what this project really is… instead of ignoring emails ultimately saying that the project is fraudulent.
Fraud is a very real possibility anywhere and everywhere, especially with crowdfunded projects. Fraud is intentional misrepresentation of something. It’s against the law in the US and the US government investigates and takes legal action against those who commit fraud against buyers. Allowing fraud to exist on your own web service and then doing nothing about it once you become aware is collusion and makes your business as much liable as the person who set up the fraudulent listing in the first place. The one thing you cannot know is intent and intent is the difference between innocent misrepresentation and outright fraud. However, to the government, intent doesn’t matter, only the outcome. As a business, you must error on the side of caution and assume the intent is intentional misrepresentation, which means taking the strictest action possible and forcibly removing the offensive content from your site. If your business cannot protect its own customer, then no one will and you’ve lost your customer’s trust. They trust you to be their advocate against thieves, scams and fraud when they are using your service. When you fail at protecting your customer from fraud, your company has failed.
Were someone to bring legal action against Kickstarter and H+ for the alleged fraud of this project, there is definitely enough evidence that Kickstarter could be held liable and culpable in this activity.
Enforcing Business Rules
Once you establish business rules by which your clients must abide, you need to absolutely enforce those rules by the strictest of actions in every case. If you allow even one client to slide by the rules, your business could end up in court. If you are on the other end of a Kickstarter project and you choose not to deliver on your backer rewards, the US Government will come after you. Fraud is a federal crime and can lead your business into a lot of federal legal problems. Ed Nash found this out the hard way when his company, Altius Management, failed to deliver the $25k Kickstarted funded Asylum card game in 2012.
Failure to provide the necessary level of trust through enforcement of your rules could lead your business into bankruptcy. In this case, Kickstarter’s woes are just starting. How this all ends for Kickstarter is yet to be known, but it’s probably not going to end well. How this ends for H+ and the Holus device is yet to be seen, but delivering a Pepper’s Ghost to backers will likely lead to outrage.
← Part 10 | Chapter Index | Part 11 →
America’s Recession: loans and scams
Economic Downturn & The Fed
Unless you’ve been hiding in a cave, you’re probably aware that we’re going through a fairly deep recession. Recessions are cyclical, but in this case it probably could have been either avoided or lessened IF the banks and lenders had not been offering creative financing techniques. It also could likely have been avoided if our current pro-business govt. administration hadn’t chosen to look the other way while bad mortgages were being doled out. The problem with all of the creative financing is that it tended to lead some people into believing they could afford a mortgage they could not afford. When the loan reset after the promotional period, the realization quickly set in. Worse, the situation was compounded by property investors who sank huge amounts of loaned money into properties that would eventually become valued less than the loan.
It’s not as if the handwriting wasn’t on the wall several years ago when the fed dropped the rate to 1 percent. Now, we are back in this exact situation again with the fed dropping the rate to an unprecedented 1/2 percent. The feds are, again, trying to spur the economy like they did 2-3 years ago. But, this time, the banks don’t have money to lend. So, the 1/2 percent may not trickle down into the mortgage market like it did several years ago.
But, our economy is still likely being set up for yet another financial failure. The banks that do have money to lend are still advertising on the radio claiming extremely low interest rates. The problem isn’t the rate, but the loan you’ll be getting. If it’s a standard fixed rate loan, that’s fine. But, it’s the fine print you need to read. Don’t get locked into an adjustable rate mortgage or a limited time interest only loan. Once these creative loans reset in a couple of years, you may end up deep under water.
The Fed, therefore, needs to be extra careful when cutting the rates this low again to avoid the same mortgage problems all over again.
Scams in a down economy
With the economy being so depressed, it’s also a good idea to watch your money closely. As money gets tighter and tighter, the scammers will come out of the woodwork (and they already are). I’ve already noticed a drastic increase in spam and phishing emails since the economy has taken a turn. It’s going to get worse before it gets better.
There are many scams out there from the Nigerian 419 scam that claims to give you a ton of money only to rip you off of thousands of dollars before you realize it, to sending you what look like official invoices that only turn out to be scams in themselves. Don’t fall for them. The easiest way to avoid scams is to not give out any personal information to anyone who approaches you claiming to be from a legit company. This means, if you receive a call asking you to make a payment and they request for you to give a credit card over the phone, don’t. Make sure you know who this company is first and make sure you are a customer. Then, tell the company that you will call them back through their official channels and make a payment that way. As long as you are the person making the call to the official number, you should be safe. With incoming calls, you have no idea who is really calling you no matter what the CallerID says. Always, always call companies back from official numbers located on a trusted bill or from the back of your credit card.
TV advertisements that offer products or services usually employ people who are not paid very well. So, be wary when you give your credit card number out to TV commercial based purchases. Not only are some of these companies impossible to get refunds, your card number could be enrolled in a club or, worse, stolen by one of the telephone operators in an independent scam. You should always Google the product you are thinking of purchasing to 1) find out if you can find it cheaper online and 2) find out if people have had issues with either the product or the companies refund polices.
Get rich schemes are basically another form of scam. Yes, they do make someone rich… the person who created the scheme, but not you. Get rich schemes are usually designed to part you from your money. So, in a down economy, you should avoid get rich schemes (placing classified ads, setting up ecommerce sites that sell Amway products, or Multi Level Marketing – MLM schemes). Note that MLMs only make the top most people money. If you’re anywhere near the bottom, you will be parted from your money.
Craigslist and even eBay are a haven for scammers. Be careful when you work with people selling or renting things. Never buy or rent anything sight unseen and never give money out as a ‘deposit’ or to ‘hold’ something unless you truly trust the individual. Chances are, if the person you are thinking of doing business is presently outside of the US, you should immediately stop the transaction unless you know for sure that what they are selling/renting is legit.
If you are selling a car or renting out an apartment, watch out for scams here too. There are some people who are outside of the US who will claim to give you an excessive sum of money in the form of a check. They may even send you what looks like an official check.. the problem is that it will bounce causing you fees and other associated problems (and may let them get access to your account number). Don’t cash any checks like this.
The bottom line is that in this weak economy, you should be extra careful with your money as there are lots of desperate unemployed people willing to do anything to make a buck (or a thousand). Always make sure to do your homework before buying anything or giving out personal information to someone you don’t know. If you suspect a scam, you should alert your bank or credit card company immediately.
Random Thoughts - Randocity! 
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