Every criminal trial is unique, and in general it is a mistake to read too much into a verdict. Still, the law professor in me can't help but notice the oddly mixed message delivered by the jury in the Elizabeth Holmes trial.
The disgraced founder of Theranos was acquitted on four counts of the indictment, including those related to the supposed misleading of patients. The jury reached no verdict on three counts, and she was found guilty on four counts — three involving her communications with investors, and one of conspiracy.
The odd part is that Holmes seems to have been convicted of fraud only against investors who asked few questions. The jury appears to have accepted the defense's argument that investors who sought and were denied more data should have known better.
This result might mirror existing law, but it creates incentives that are, to say the least, peculiar. One might read the verdict as suggesting that the less curiosity an investor displays before buying, the greater the protection extended by law.
From the start of the trial, observers noted that her best chance for acquittal would be a jury that understood the language entrepreneurs must speak if they want to attract investors. In this sense, the very culture of Silicon Valley was on trial — that is, the culture of puffing your invention to the Moon and back.
To be clear, entrepreneurs hyping their prospects beyond what they know for sure is a practice as old as entrepreneurship. Certainly it's part of the culture of Silicon Valley. Years ago, an investor told me that every tech pitch concludes with something like this: "I need your answer now, because a mutual friend is setting up a meeting with Peter Thiel tomorrow."
The investor was speaking half in jest, but the tendency isn't any secret. A couple of decades ago, the humorist P.J. O'Rourke was inspired by California's search for alternative energy sources to pen this bit of acerbity: "With all the puffery from Silicon Valley dot.com start-ups, wind farms wouldn't be a problem."
Courts have long understood these nuances of Silicon Valley culture. In 2015, a federal court in California dismissed most of a civil lawsuit alleging that defendant had falsely asserted that its technology was a "proven concept"; that the technology had been "vetted" by an unnamed biotech company; and that "publicly-traded pharmaceutical companies" wanted to license it. The court ruled that the assertions were sufficiently vague that they were merely predictions or hopes, and did not become actionable simply because they never panned out.
Drawing the distinction can be a challenge. Courts in criminal fraud prosecutions like to quote the old and delightfully convoluted rule that a hope or prediction about the company's future becomes fraud when it involves "expression of an opinion not honestly entertained." Such an inquiry is complex, because it requires the jury to determine what was in the defendant's head when she made a statement to an investor. That's why trial judges have traditionally been generous in permitting prosecutors to introduce circumstantial evidence of what the defendant actually believed.
The Holmes jury, after two weeks of working its way through this thicket, apparently decided not to punish her for supposedly false claims she made to those who pressed for more information. One wonders, then, exactly how cautious the jury believes investors should be. Is it better to ask questions or not?
No doubt Holmes will raise this paradox on appeal. She will remind the appellate courts of the adage that the law of fraud does not "attribute to investors a childlike simplicity." She will also surely raise once more the claim that every investor knows that Silicon Valley is a veritable hotbed of hype.
Don't get me wrong. I'm not arguing that Holmes is innocent. We should always, as a first approximation, trust that juries have done their work correctly. I won't be surprised if the verdict is upheld on appeal.
But even if Holmes has to spend some time behind bars, one suspects that things will work out for her. Fairly or not, she's captured a corner of the zeitgeist, and is likely to retain a degree of celebrity — or perhaps notoriety — for years to come. Fans attended the trial in replicas of her iconic "plain black suit." Jennifer Lawrence has agreed to portray her in the movie.
And because this is Silicon Valley, it's appropriate to close with what might be the strangest coda to the Holmes story: Venture capitalist Marc Ostrofsky, an early Theranos investor whose stake was at one point valued at $22 million, is auctioning a non-fungible token of his stock certificate, good for 500,000 preferred shares in Theranos. As of this writing, there are no offers.
Stephen L. Carter is a Bloomberg Opinion columnist. He is a professor of law at Yale University and was a clerk to U.S. Supreme Court Justice Thurgood Marshall.