Deception. It’s A Matter Of Choice.

The Seven Deadly Sins: Lust, Gluttony, Greed, Sloth, Wrath, Envy and Pride, any one of which can contribute to someone’s downfall. Not surprising then that three or four of them used against an individual is the key tool for those that work in the ‘art of the con’.

History may not repeat itself – but it sure does rhyme.

Attributed To Mark Twain

… click-through that link, if you want the real truth because if there is one takeaway from this article, it is that the time has come to stop ‘blindly’ accepting things. Triangulate information. Question everything, because nothing is as it seems and if it sounds too good to be true – it probably is.

The Early 1900s – Wichita Falls

At the turn of the century, Wichita Falls was a small town, (with a population at a little over 100,000 it still is). Back then, Wichita Falls was experiencing massive growth with the discovery of oil changing everything. And because oil was changing everything, everyone was trying to work out how to get rich on the back of it. (Kind of like where Silicon Valley got to around 10 to 15 years ago.)

One of those people was one J.D McMahon who, according to Wikipedia, was “a petroleum land-man and structural engineer from Philadelphia”.

I think he must have taken a leaf out of the non-existent book; ‘How To Get Rich From Gold’, written in the 1850s by people like Charlie Crocker, Leland Stanford, Mark Hopkins, Levi Strauss, Henry Wells, William Fargo, John Studebaker et al … the premise being that in a ‘gold rush’ … you get rich not by mining for gold but by providing the necessary infrastructure and tools needed to mine.

Not to draw out the analogy – and without any supporting facts, (because in 2018 you are allowed to make claims with zero validation), in Silicon Valley, the 2018 ratio of really rich VCs (the infrastructure people), to really rich entrepreneurs, (the miners) is at least 10:1 … if not 100:1.

In 1919 J.D. had the idea he would build a ‘skyscraper’ in Wichita Falls right across the street from the St. James Hotel. This was to be a solution to the newly wealthy city’s urgent need for office space. Seeing a great ‘get rich quick’ opportunity, many investors were eager to invest. And invest they did. J.D. raised $200,000 for the project. To provide perspective that is equivalent to $2,900,000 in ‘2018 money’.

And so, the building was built. We know, because it is still standing … all four stories of it. Forty feet high. No elevator. No stairs … you needed a ladder to get to the higher floors.

Turns out the whole thing was a con … and of course, J.D. McMahon was sued by the investors. The investors lost. Why? Because the judge ruled that the real estate and construction deal was legally binding since McMahon had built exactly according to the blueprints they all had approved, so there was no legal recourse for the ‘deceived’ investors.

’Deceived’ in inverted commas … because of course, they weren’t. All the plans and blueprints that they had signed off on clearly declared that the building was to be four stories and forty feet high.

They either trusted J.D. or couldn’t be bothered to read or misread the contract. Whatever it was he got away with it because [see Footnote 1] the truth was in full open view – and still it was missed? Ignored? Probably because of greed and sloth they saw what they wanted to see. And it was their pride that made them take him to court, still seemingly not reading the contracts that they signed.

The early 2000s – Silicon Valley

I visited the world’s littlest skyscraper on the same day I was listening to this podcast about Elizabeth Holmes and Theranos – a person and company I have commented on before, such as here. The podcast featured an extended interview with John Carreyrou, author of the book ‘Bad Blood: Secrets and Lies in a Silicon Valley Startup’  It really is well worth a listen and the book is well worth a read.

Bottom line, Theranos according to most – if not all – accounts was a con from beginning to end. (Actually – maybe not all accounts … 3rd Generation VC Tim Draper for example on Steve Jobs wannabe Elizabeth Holmes – founder and CEO of Theranos.

She got bullied into submission.

She created an incredible opportunity.

It was a great vision, it was a great technology.

I think it was a great mission, and she did a great job.

Alrighty then. Leaving aside that Holmes was a neighbor of Draper’s and friends with his daughter, he did only lose $500,000 … a drop in the bucket for the billionaire who expects only 1 in 10 of his investments to work anyway. But the losses for others included;

• The Walton family losing $150 million.
• Rupert Murdoch losing $125 million.
• Betsy DeVos losing $100 million.

So maybe they had a bigger gripe?

And I wouldn’t blame you if you thought that such losses couldn’t really have happened to ‘nicer people’. But. when you add in the reputations of people like George Schultz, Henry Kissinger, and James Mattis who all recommended her, even served on her board … if this had been made up fiction, it would have been reviewed as ‘unbelievable’. But it happened … and continues playing out as you read this.

Putting The ‘Con’ In The Conclusion

Two stories of fraud separated by over 100 years, intersecting as I listened to a digital podcast about a ‘con of magnificent scale’ (at peak Theranos was ‘valued’ [see Footnote 2] at $9Billion) outside a real building that only exists because of a con.

As I listened and looked at ‘The World’s Littlest Skyscraper’ I wondered again, about people’s greed. Why people with so much money, still think they need more and constantly take short cuts to get it. J.D.’s investors not reading the plans that they signed off on is pretty much the same as Holmes’ investors accepting her story and never really questioning the technology or something like the Walgreen’s deal (which wouldn’t be hard to question – if you asked.)

The Walgreen’s Deal in itself is worth an entire article …. (the quote is real – my bold)

As the roll-out with “Pharmacy A” [see Footnote 3] neared, according to the SEC, Holmes told the company’s engineers to modify standard blood-testing machines to run Theranos tests.

She hid that change from the pharmacy executives, conducting demonstrations using Theranos machines and leading them on company lab tours without revealing the company was using third-party technology.

The pharmacy gave Theranos a $100 million “innovation fee” to help with the expansion.

With all the shenanigans behind the scenes essentially covering up what was going on … Holmes continued to knowingly talk to investors openly and freely about how Theranos products were ‘in trial at Walgreens’. This clearly wasn’t the case.

If you want to read one article, by one reporter about the problems at Walgreen’s … look no further than this piece from NPR.

Bottom line, the fraud was based on how much Holmes could convince Murdoch, Devos, Shultz et al to trust her. The more they trusted her, the less they questioned, and the more exposed they became, because they saw what they wanted to see. Greed, Sloth and Pride all contributing to their vision.

That all said, one aspect of the story I did like centered on Rupert Murdoch, one of the  biggest investors in Theranos at a cool $125 million.

When Holmes learned that Carreyrou was investigating Theranos, she turned to Murdoch, whose media empire includes the journalist’s employer, The Wall Street Journal. Carreyrou writes that Holmes tried to get Murdoch to kill the story, telling the billionaire “the information I had gathered was false and would do great damage to Theranos if it was published. Murdoch demurred, saying he trusted the paper’s editors to handle the matter fairly.

Tom Huddleston Jr. (CNBC)

Now that I did not see coming. You see there’s always light, even in the darkest places. Somewhere. You just have to find it. Truth. Someone doing the right thing. Something in Murdoch did not allow his pride to get in the way.

Footnotes

1. Is ‘got away with it’ a reasonable expression?
2. I use the word ‘value’ loosely – let’s say that the last people to drop money into the Theranos coffers were agreeing that they thought Theranos was valued at $9 billion. But then – we now know that their judgement was flawed to say the least.
3. ‘Pharmacy A’ was Walgreens