Elizabeth Holmes Theranos Defense Hinges On Fine Line Between Legal Puffery And Intentional Fraud

As the jury debates the case against disgraced Theranos blood testing company founder Elizabeth Holmes who has been charged with wire fraud and conspiracy to commit wire fraud many are wondering why the jury still can’t decide whether she is a fraudster who intentionally misled investors or an ambitious startup executive who merely stretched the truth believing her dubious statements about the company would eventually become true.  

Fraud is complicated and far more commonplace in business dealings than you might imagine. Further, the more complicated the fraud, the less likely the perpetrator will be successfully prosecuted.  As I explain in my recent book, How To Steal A Lot of Money—Legally, a plausible argument can be made for any far-fetched investment by the right velvet-throated huckster.

Would-be scammers often follow what I call the Non-KISS principle. You probably have heard of the KISS principle which is an acronym for “keep it simple stupid,” a design imperative supposedly originated by the US Navy in 1960. The KISS principle states that simplicity should be a key goal in design, and unnecessary complexity should be avoided. In scamming, the non-KISS approach involves devising intentionally overly-complex schemes—schemes which can even be painstakingly disclosed in marketing materials—but which neither investors nor regulators/law enforcement (or juries) will be able to understand. More on disclosure later.

So, how commonplace is fraud?

While forensic and fraud accounting experts estimate that the cost of fraud globally amounts to trillions annually, the true figure is exponentially greater. The overwhelming majority of investment scamming is not included in global estimates because fraud experts with accounting backgrounds are not trained to identify the myriad forms of scamming and aren’t looking for it.

For example, the forms of harm to investors I focus upon in my forensic investigations are not generally factored in the overall damage calculations by accountants focused upon numbers alone.

My estimate—based upon decades of experience—is that well over half of all investing involves scamming of one sort or another.


Lying, cheating and stealing are so commonplace in life generally, and in the world of investing especially, that they are not the exceptions. Scamming mercilessly overwhelms any so-called rules and devours those who play by them. So, learning “rules” without learning the even greater larcenous “exceptions” makes no sense—it’s reckless. Schools and professors who teach the “rules” alone are negligent, in my opinion and put students, at a minimum, at a competitive disadvantage, or, worse still, in harm’s way.

In How To Steal A Lot of Money—Legally, I observe that would-be scammers can easily disclose all important or what regulators call “material” information to investors. Disclosures can be negative or positive in nature but generally the more the scammer discloses the negatives, the less likely he’ll be sued when the investment fails to perform well.

Fortunately for scammers, disclosure statements are always written by lawyers to protect the sellers of the bogus products and are intentionally worded to be incomprehensible to the average reader. Lawyers use “boilerplate” clauses that are verbose and written in awkward legalese. Disclosures are often printed in small type (aka “micro-print”) because they are so lengthy, which makes it all-the-more likely they will never be read by the investor. In short, industry-wide practices and disclosures are so reprehensible that candid awful disclosures by scammers—hucksters focused exclusively upon abusing clients—can be indistinguishable from industry norms.

Just say and do what the big Wall Street firms say and do. Do not hesitate to disclose what a dirty rotten scoundrel you are. No alarms will go off in investors’ minds.

In short, there never is any excuse for a scammer to conceal any potential bad behavior from victims.

Why would he? There is no such thing as disclosure so bad that it will kill a sale.

So, if you’re a scammer, disclose your very worst behavior and be confident that no one will read, comprehend, or be deterred from giving you their money—as long as you choose your words carefully.      

Finally, as I have observed witnessing thousands of corporate pension failures, there has never been a pension that failed that didn’t have a roomful of hired experts opining that it wouldn’t. So, would-be scammers who surround themselves with handsomely paid experts—consultants, accountants, and lawyers—who dutifully opine all is kosher, will likely end up in Vail, not jail.

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