Former Theranos Founder Elizabeth Holmes Found Guilty of Fraud. Were you forwarded this email? [Sign-up to Rude Awakening here.]( [Unsubscribe]( [The Rude Awakening] Why Character Matters - Elizabeth Holmes was convicted of four counts of fraud.
- Her deceit fuels criticism of entrepreneurship, capitalism, and medical science.
- We must police our own. Recommended Link [Blood-curdling SCREEEAAAAAMMMMM!!!!]( Your future just ended. And whether you realize it yet or not⦠Everything you have from the money in the bank, to the stocks sitting in your 401k⦠Are all being given to you on loan. Because if the [information]( former advisor to the CIA and Pentagon]( just revealed live on camera is correct. These markets have already crashed, and itâs only a matter of weeks (maybe even days) before everyone catches on. The markets just let out a blood-curdling SCREEEAAAAMMMMM⦠And you donât have long to act. All of your wealth could be in danger... [Click Here To See Why]( Sean Ring Editor, Rude Awakening tâs a beautiful hump day here in Cebu. Weâre prepping to ship out in March, and the going is a bit slow. But at least the lights are on. I read with great interest in the Journal that Elizabeth Holmes was found guilty on four charges of fraud for her stunning duplicity in running Theranos. Each charge carries a 20-year prison sentence. While Iâm pretty sure she wonât get 80 years, sheâll get some robust prison term⦠I hope. I wonât go into the caseâs specifics too much, but Iâll instead use it as a basis for my arguments that character matters more than expertise in running a business. London, Autumn 2001 âMate, my companyâs shares are trading at $2. I think itâs a bargain.â âDude, your company is about to declare bankruptcy. Itâs over. Save your cash.â I remember that conversation like it was yesterday. The sequence of events that led up to it still makes me giggle. So here we go. When I moved to London in 1999, I immediately befriended a work colleague, AA. He was Australian, handsome, and loved pints of beer as much as I did. He had a beautiful wife and several beautiful girlfriends. But as I got promoted onto a trading desk, he was still stuck in operations. He was desperate to get out, as I was only 12 months before. As is the time-honored strategy to get on a trading desk, operations people sidle up as best they can. And sometimes, they overstep the mark. I was sitting on my desk one day, and the dealer board lit up. I picked up the phone. âHey, mate.â âHey.â I heard the swirling, gale-force wind that hits Canary Wharf in London, where our offices were. âWhere are you?â âIâm outside. I just got sacked.â Later that afternoon, I found out AA had sent a âdubiousâ email to his trader buddy, and the guy reported him to Human Resources. I was indignant on his behalf, as I didnât think - and still donât - people should get fired for sending joke emails⦠even if thereâs objectionable stuff in them. Call me old-fashioned. Anyway, the question was what his next steps were. AA didnât have a finance degree or anything like that. He was just a smart, handsome Aussie dude. The kind of man British Human Resources professionals take a chance with. No idea why. (Wink, wink.) About a month later, he buzzed me on my old Nokia. âMatey, Iâm so lucky. Things happen for a reason. Iâm so glad I got sacked. I just landed the job of my dreams!â âAwesome. Iâm so happy for you. Thatâs great. Who are you working for?â âEnron.â This was September 2001, I hasten to add. "We are the good guys. We are on the side of angels". Ah, Jeffrey Skilling. Remember that bastard? He was the CEO of Enron, formerly the seventh-largest company in the United States. What was scary about the Enron scandal was that the top 3 people running the company perpetrated the fraud. Chairman Kenneth Lay, CFO Andrew Fastow, and CEO Skilling were the guys who were found guilty. Lay had the good sense to die before he went to prison. But Skilling served 14 years in federal prison, and Fastow served six. Fastow cut a deal with the prosecutors. So impressed were they with his performance - that is, skewering his former colleagues - the prosecutors lobbied for a lower sentence. We still talk about that case in my graduate classes. Though the kids I teach were toddlers around the time the scandal broke, âEnronâ has become a byword for fraud. And thatâs exactly as it should be. Richard Mayberry gets this right in his Uncle Eric books. âDo all you have agreed to do, and do not encroach on other persons or their property.â This directive covers everything, really. Uphold contracts and donât rob people. Of course, my friend AA didnât benefit from working for people like that at his new company. He was looking for a new job a mere three months later. Heck, Enron used to stage their trading floor for CNBC interviews. That is, theyâd pack it with people who werenât traders just to make it look like a bank trading floor. Awful. Recommended Link [Donât Buy Any Crypto Until You Read This New Book!]( [Click here for more...]( Do not⦠I repeat⦠[Do NOT buy a single cryptocurrency until you read this new book.]( This could be the biggest opportunity of your life, but only if you act now. [Click Here Now To Claim Your Copy]( And there was the issue of Skilling calling a fund manager an âassholeâ for having the audacity to ask him where Enronâs balance sheet was. This is what Skilling said about it: The specific fellow that I was not real happy with is a short-seller in the market. I don't think it is fair to our shareholders to give someone a platform like that they are using for some personal vested interest related to their stock position. I get a little exasperated with that sort of thing, and I want people to know I am exasperated. When in reality, he resorted to namecalling to cover up his fraud. I was positively thrilled when Skilling and Fastow went to prison. This wasnât a so-called âvictimless crime.â Enron workers lost their houses betting on Enron stock because they thought Enronâs Big 3 guys were the be-all and end-all of business. Sure, you can call them âco-conspirators,â but did they really know what was going on? Heck, Arthur Andersen, Enronâs auditors, didnât call them out. (Auditorsâ incentives are another topic entirely.) Investors lost billions of dollars. Character and Trust Character is who you are, and reputation is what everyone thinks of you. Both are important, but character is controllable. Itâs upgradable. As a father, I tell my son every day, to tell the truth. Heâs at that stage where he tries to wiggle out of everything. Good character leads to trust. And trust is critical to free markets. [Lipton Matthews]( wrote a great article on this. Hereâs a quote: Trust makes it easier to do business by lowering transaction costs. When entrepreneurs trust each other, they are likely to collaborate and reap the fruits of innovation. In a trusting environment, businesspeople form lucrative deals before signing a contract, knowing that both parties will comply with the agreement. For instance, Macauley (1963) argues that entrepreneurs rarely depend on legal enforcement to solve disputes and in many cases actually fail to create contracts stipulating conditions with customers. Trust greases the wheels of our economy. It genuinely makes the world a better place. Of course, there will always be the odd Enron scandal. Thatâs why itâs essential to prosecute these criminals as vigorously as possible. They genuinely stain the world we live in. And thatâs why Iâm thrilled Elizabeth Holmes got smacked in the mouth, legally speaking, of course. We canât have this sort of behavior go unpunished. Luckily, Theranos wasnât publicly traded, and most of the evaporated wealth was paper. But it couldâve been much worse. May she spend a good decade or so behind bars. Until tomorrow. All the best, Sean Ring
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