A Contractor and a Crook by William H. Janeway

For years, prosecutors have avoided criminal charges against financial manipulators, and loose financial conditions have led to a desperate search for positive real returns. The situation was perfect for entrepreneurs like Elizabeth Holmes to raise funds for implausible ideas.

CAMBRIDGE — The conviction of Elizabeth Holmes for fraud perpetrated as founder and CEO of Theranos has sparked intense debate about what this episode means for the innovation economy.

Has Holmes, aggressively implementing the Silicon Valley “fake it until you make it” credo, simply run out of track? Is Theranos venture capitalist and investor Tim Draper right to fear that his sentencing will reduce the “willingness to bet on” the kind of entrepreneurs who “have made Silicon Valley the innovation engine of the world ” ?

Or is the situation more complicated? In fact, the trial and conviction of Holmes illuminates two trends at the heart of American political and financial economy. The first is the broad decline in the prosecution of financial manipulators as criminals, a development evident since the jailing of top Enron and WorldCom executives after the dotcom bust of 1998-2000.

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