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Theranos CEO found guilty of wire fraud, and why small tech companies care

A jury found Elizabeth Holmes, the founder and CEO of Theranos, guilty of three counts of wire fraud after deliberately misleading investors about the company’s blood-testing technology capabilities.      She is also guilty of conspiracy to defraud investors with her co-defendant, Sunny Balwani.

The case was highly tracked in Silicon Valley as a litmus test around the culture of “fake it until you make it” within investment circles.

Why do we care?

Society will address clear outliers.   There are laws around misrepresentation and protections against specific extreme actions.

I’m covering this case in light of a much lesser, not-news-worthy kerfuffle on social media about a vendor’s offer of a ninety-nine-dollar penetration test.  Much of the MSP world is aflutter over the use of “penetration test,” and the response is “it’s not really a pen test.”    This misses the point, but we’ll get to that.

Why the link to the Theranos case?  Because misrepresentation can be handled not just by the market but also by the legal system.     Marketing stops being marketing when it crosses certain lines.    Holmes pretended to have a technology that didn’t exist.  This noise from MSPs is different.         Is this vendor defrauding anyone?  Or just exploiting customer confusion?   This offer clearly won’t pass certification requirements, such as CMMC.      Think you can’t do anything about it?   You can report it to the government if it’s crossing that threshold.  

This vendor is trying to address the actual market need.    The vast majority of the market does need a tool that scans all your stuff and configuration and tells you if you’re mostly there.   

I say this repeatedly — as a business owner and NOT a dedicated IT, guy, there is no tool I can run that scans my accounts and tells me that MFA is set up everywhere.   There’s not something automated to keep an eye on the basics.    Every security guy hems and haws about how it needs to be complete, and it’s hard, and it’s all custom… but as the owner, it would be a huge relief to know that 80% of the basics are done right, which is hard enough on its own.

The first group that gets across the line with a $99 offer that’s “enough” will make a ton of money while the experts stare at their navel, saying, “oh, you know, it’s just not good enough” and will be the ones NOT sitting on a pile of money.

And that’s answering a market need, which is very different from fraud.     Now, I don’t think this solution IS the answer to that need, but I understand their business choices even if I disagree.  That’s capitalism – and you decide if it’s crossed the line into crime.