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Monday, October 25, 2021

Lifestyles of the Rich and Gullible: Theranos and Ozy Edition

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Not long ago, we lived vicariously through the 1 percent by watching “Lifestyles of the Rich and Famous” or “Cribs.” Now, we obsess over the details of how they were duped. In San Jose, Calif., where Ms. Holmes’s trial has been happening for the past month, multiple book clubs that read “Bad Blood,” which chronicles the downfall of Theranos, have made pilgrimages to catch a glimpse of her in the courtroom. One eager attendee told me she was “a fan of white-collar crime.”

The bubbling zeal for grift mirrors the rise of the “murderinos,” or fans of true murder stories. We feel relief that we’re not the victim. Few among us are likely to lose millions — or hundreds of millions — on a shady start-up bet.

“Psychological distance enables us to laugh at things that, if they happened to us, we would be ashamed, embarrassed or hurt by,” said Peter Atwater, an adjunct professor at the College of William & Mary who researches confidence in decision making. “Finally, some of the rich have been as deceived as we, the poor.”

For so-called fans of white-collar crime, the start-up scam cannon offers a growing bounty to feast on. There is the recent revelation that an Ozy executive impersonated a representative from YouTube on a call with Goldman Sachs to try to secure an investment. There are the doctored invoices that Manish Lachwani used to inflate revenues of HeadSpin, the software company he founded, in order to obtain $60 million in funding, according to a recent criminal indictment. (HeadSpin said it returned funds and has cooperated with investigators.) There’s the fraudulent insurance reimbursement requests at uBiome, the poop testing start-up whose founders, officials said, misled investors about their business in order to raise $65 million, leading prosecutors to charge them with more than 40 counts of fraud in February. There are the private investigators and legal bullying tactics that Theranos used to intimidate whistle-blowers, according to recent court testimony.

They follow a formula as old as “The Music Man.” A charismatic founder paints themselves as a visionary disrupter. Ms. Holmes said Theranos’s blood analysis machines could deliver hundreds of medical tests quickly and cheaply from a single drop of blood. That promise appealed to people like General James Mattis, who testified that he saw the potential to save lives on the battlefield, or Steve Burd, the former chief executive of Safeway who testified that putting the machines in stores would open up an exciting new line of business for the grocery chain.

Once one wealthy person buys in, the founder can use that benefactor’s credibility to collect a stable of ever-powerful supporters. In Theranos’s case, George Shultz, the former secretary of state, introduced Ms. Holmes to his friends at the Hoover Institution, including Henry Kissinger and Mr. Mattis. Everyone assumes the first investor asked all the hard questions. Further probing is brushed off as a trade secret.

The claims can be flimsy. Theranos projected $990 million in revenue in 2015. The reality, it was revealed in court, was closer to zero. Ozy Media claimed it had written the first stories on influential people like Trevor Noah and Alexandria Ocasio-Cortez. It had not. Jessica Richman, a co-founder of uBiome, told reporters she qualified for “under 30” and “under 40” lists. She was over 40, according to the indictment. Mr. Neumann promised that by 2018, WeLive, WeWork’s apartment side project, would have $600 million in revenue, according to “The Cult of We,” a book on the company. It never expanded beyond two buildings with a few hundred units.



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