Nov 24, 2021 • 7M

🗞️ Elizabeth Holmes Says She Never Intentionally Misled Investors

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This week: Elizabeth Holmes finally takes to the stand, A clash of Wall Street titans, and McKinsey is fined by the SEC. Plus, lawyers for voting rights, and possible Supreme Court term limits.

🩸 Is Elizabeth Holmes The Victim Here?

The trial of United States v. Elizabeth Holmes might as well be a prestige drama on HBO for all the twists and intrigue that has rapt our attention. In the latest surprise, Elizabeth Holmes herself was called to the witness stand much earlier than expected. For three days now, the former Theranos CEO has testified that she did not defraud investors, but rather had the best of intentions that were simply misrepresented.

  • Federal prosecutors have charged 11 counts of fraud against Holmes. This week, the 37-year-old who was once the darling of Silicon Valley, made the case to jurors that she never intentionally misled investors about Theranos’s technology, notes the New York Times.

  • But it’s a risky strategy having Holmes testify as prosecutors are chomping at the bit to question her under oath.

Building The Case

According to NPR, several witnesses (including two former Theranos lab directors) have already testified to warning Holmes repeatedly that the company’s technology was “wildly unreliable”—a narrative that directly contradicts Holmes’s testimony. Moreover, Holmes projected revenues of $140 million in 2014 and $990 million in 2015, while tax records show losses of $585 million, which, again, makes a strong case that Holmes knowingly defrauded and misrepresented investors. Ellen Kreitzberg, a law professor at Santa Clara University who has been attending the trial, told NPR that she believes federal prosecutors have made a very strong case.

The Verdict

The Theranos case remains one of the most closely watched Silicon Valley trials in years. Why? The techniques (tricks?) Holmes used to sell her company and vision are not uncommon, even if she took them a little farther than most.

🔌 JPMorgan Wishes It Could Pull The Plug On Its Tesla Relationship

It’s a clash of the titans: Jamie Dimon, billionaire CEO of Wall Street behemoth JPMorgan, versus Elon Musk, billionaire CEO of Tesla. The two worked together as JPMorgan helped Tesla with its 2010 IPO, but relations have soured since. Now, the bank is suing Tesla for $162 million over a breach of contract action.

  • The federal suit was filed in a Manhattan court and centers on a 2018 tweet by Musk about “taking Tesla private at $420” a share, reports The Guardian. JPMorgan claims Musk manipulated the stock price unfairly with the tweet, and is suing for what it believes is the difference in price the Wall Street bank should have made before the ticker value plunged.

  • This latest lawsuit is “an opportunistic attempt to take advantage of changes in volatility in Tesla’s stock” said Tesla, but the company did not challenge the $162 million sum.

  • According to the Wall Street Journal, conversations between the two companies over the years “have often upset one side or the other.”

The Musk Effect

This is not the first time Musk is facing repercussions from his infamous tweet. The SEC charged the CEO with fraud in 2018 regarding his comments, and then settled with Tesla on an agreement that company lawyers would review Musk’s tweets before they’re published.

The Verdict

A $162 million spat may not mean much for the two mega-companies worth many billions of dollars each, but for Musk to be alienating someone as powerful as Dimon (someone who could potentially help Musk when he needs it) is a much more consequential development.

💵 McKinsey In Hot Water With The SEC

Call it a case of double-dipping: the SEC has fined a McKinsey affiliate that manages money for the consulting firm’s employees citing improper use of information. The SEC claims that the McKinsey Investment Office (or MIO) invested in companies McKinsey partners were advising, and then made investment decisions based on privileged knowledge from those partners. The SEC doesn’t outright claim insider trading, but is fining MIO $18 million for compliance violations.

  • McKinsey claims it and MIO “are operationally separate and follow strict policies to limit information sharing,” reports Bloomberg Law. While MIO stated it has strengthened its protocols to be “squarely in line with best practices in the industry.”

  • As NBC News notes, its unusual for McKinsey to have an in-house retirement fund manager. Other consulting firms, for example, use third-party money managers to oversee their retirement funds.

Past Violations

This is not the first time McKinsey has gotten into trouble with the SEC, or even the first time it has done so because it has skirted insider trading rules. According to Bloomberg Law, McKinsey’s former global head was convicted in 2012 for being part of an insider-trading ring. Then, in 2019, the company settled with the regulatory agency for $15 million following claims it didn’t properly disclose investment actions during bankruptcy cases it advised.

The Verdict

An $18 million fine is a regulatory slap on the wrist for McKinsey/MIO, and just another one in a string of anemic actions on the SEC’s part. Is the SEC avoiding the term “insider trading” here for technical reasons, or for fear of something else?

📤What Else We're Forwarding

Fighting For Democracy: A prominent lawyer with firm Perkins Coie is leaving to help expanding voting rights, says the ABA Journal. The move is part of a growing coalition of attorneys sounding the alarm about attacks on the right to vote around the country.

Supreme Cut?: A commission tasked with studying reforms to the US Supreme Court has found bipartisan support for Justice term limits, according to the ABA Journal. One proposal would stagger term limits so that a seat opens up on the high court every 2 years.

🎧 Music we’re working to

Today we’re listening to Mary Lattimore, an American harpist based in Los Angeles. This collection of 9 curated pieces is sure to evoke a wave of emotions in the listener. Our favorite, “For Scott Kelly, Returned to Earth”, is a creative and beautiful composition with delicate plucking and flows in sync with the rest of the album. Most tracks combine light with dark, allowing both to unfold through intricate details and elegant melodies.

Collected Pieces: 2015-2020 - Mary Lattimore (70m, no vocals)
Spotify / Apple Music / Amazon Music / Bandcamp

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✌🏽 Raad