The convicts of Silicon Valley, 2023 edition
Silicon Valley can be a place of great power and riches, but the smallest thing can bring it crashing down. From deepfaked phone calls with bankers on the line to mountains of lies that grew out of control, these once-darlings of Silicon Valley were no match for the law.
Here's a look back at the tech executives who were convicted this year.
Nikola founder Trevor Milton sentenced to four years for securities fraud
Trevor Milton used his outsized personality to market an ambitious idea: disrupting freight with fleets of hydrogen electric semi trucks via his company, Nikola. His gravitas attracted partners and investors, including automaker GM. But it was when Nikola went public via a merger with a special purpose acquisition company that Milton’s star (and the company’s stock) rocketed into the stratosphere.
It would be short-lived. Within months of riding the highs of meme stock status, Milton was accused of fraud and federal investigations were launched. He would soon resign as founder and CEO, and his troubles didn’t fade with his departure. Instead, Milton was charged, tried and found guilty of defrauding investors. This month, Milton was sentenced to four years in prison, although it's doubtful his saga will end here. Milton is expected to appeal. — Kirsten Korosec.
Theranos founder Elizabeth Holmes reports to jail
Almost 10 years after her startup Theranos promised to upend the healthcare industry and achieved a valuation of some $10 billion, more than five years after the company was dissolved following revelations that it was all smoke and mirrors, and one year after a brutal four-month trial, Elizabeth Holmes is finally, actually in prison.
It seemed like at one point everyone in the world was rooting for Holmes. She was on the cover of every magazine and speaking on every stage — including ours, let’s be honest. But once the lies caught up with her, the scale of her fraud overcame even her staunchest backers. It seems unlikely any of her “Holmies” will remain when she finishes her 11-year sentence. — Devin Coldewey.
How a phone call with bankers led to startup Ozy Media's downfall
It started with a phone call that pricked the ears of bankers in the most unusual way. On a call with Goldman Sachs investors who were primed to close on a $40 million deal to fund the media startup Ozy Media, one of its executives made a catastrophic error that months later would unravel the company. A strange voice on the conference call purported to be a YouTube executive who showered Ozy with praise. But the investors grew suspicious and contacted the executive directly, who told them that the person on the call must have been an impersonator as the executive had never before spoken with the Goldman Sachs investors. Ozy's CEO Carlos Watson apologized to the bankers, and blamed the incident on an Ozy executive's alleged mental health crisis, but the damage was already done.
Samir Rao, who prosecutors accuse of faking the YouTube executive's voice on the now-infamous Goldman Sachs call, alongside Ozy's former chief of staff Suzee Han, pleaded guilty to their roles in the scheme to defraud investors, according to the Justice Department. Prosecutors indicted Watson with conspiracy fraud charges a month later, to which Watson pleaded not guilty. — Zack Whittaker.
Binance CEO pleads guilty to federal charges
Binance is the world’s largest crypto exchange and has held that title since 180 days after it launched in June 2017. But behind that prestige was a lot of deceit as the company and its founder, Changpeng Zhao, also known as “CZ,” pleaded guilty to a number of violations brought by the Department of Justice and other U.S. agencies.
The exchange and founder has made headlines this past year for a number of reasons, including CZ’s comments contributing to the collapse of FTX (more on that below), as well as his attitude toward previous U.S. lawsuits against his company, which he often shrugged off as “FUD,” an acronym for "fear, uncertainty and doubt."
But that all came to a head in late November as both Binance and CZ both put their hands up. And their pleas are costing a hefty dollar amount. The crypto exchange plans to pay about $4.3 billion to resolve the DOJ’s investigation and has reached agreements with other agencies, too. CZ has to pay a $150 million fine to the Commodity Futures Trading Commission and agreed not to make statements “contradicting his acceptance of responsibility.”
After all this unraveled, CZ now remains in the U.S. and can’t leave due to his “enormous wealth” and lack of ties to the states, a judge ruled earlier this month. CZ’s fate will be decided in late February at his sentencing in a Seattle federal court where he could face up to 18 months in prison. — Jacquelyn Melinek.
Allergy test startup CEO Mark Schena convicted of defrauding the government
Fool us once, shame on you. Fool us twice, and... straight to prison. That's the short story of Mark Schena, a former executive at California-based Arrayit Corporation, who lied to investors about the company's allergy and COVID-19 testing ability and is paying the price. In October, Schena was sentenced to eight years in prison and ordered to pay $24 million in restitution to victims. Schena's sentencing came just months after the disgraced Theranos founder Elizabeth Holmes was ordered to prison for a similar deception, and prosecutors were not taking a second health-related fraud lightly.
Much like the Theranos case, Schena made bold claims about his company's testing ability, but went further by defrauding the federal government after billing Medicare $77 million for fraudulent COVID-19 and allergy tests, per the Associated Press. The lies didn't stop there. Schena lied about being on a shortlist for the Nobel Prize and claimed Arrayit was worth more than $4 billion when it wasn't. Prosecutors accused Schena of putting "profit over public safety" by using the COVID-19 pandemic to "fuel a kickback scheme and a massive fraud upon investors and people searching for better health care during a time of great uncertainty." — Zack Whittaker.
FTX's SBF convicted of massive crypto fraud
Once upon a time, Sam Bankman-Fried was seen as the savior of the crypto world, the one who could bring stability and respectability to web3. His cryptocurrency exchange FTX was founded in 2019 as a complement to his trading firm Alameda Research, and soon he had billions in capital and had “achieved the status of legend,” according to a now infamous puff piece by investor Sequoia.
Unfortunately, SBF wasn’t the cure to web3 shenanigans — he was one of its biggest perpetrators. A report in late 2022 revealed its balance sheet to be overvalued and faulty; the whole operation collapsed and SBF himself was extradited and arrested a month later. He soon would be defying common sense by loquaciously addressing his ostensibly naïve but obviously fraudulent financial practices, and evidence emerged of shocking misuse of funds. Other FTX leaders pled guilty; SBF tried and failed to avoid conviction.
He has yet to be sentenced, but faces a maximum of 115 years in prison. — Devin Coldewey.
Mike Rothenberg, once a Silicon Valley darling, now convicted fraudster
Mike Rothenberg burst onto the scene in Silicon Valley roughly a decade ago as something of a maverick. A self-described former math Olympian who attended Stanford before getting an MBA from Harvard Business School, Rothenberg was set up for a traditional career in finance or venture capital. Instead, he struck out on his own, setting up a small venture fund with big ambitions.
But Rothenberg was too impatient. Instead of growing the firm steadily, he embraced a splashier approach, organizing expensive events for founders for the deal flow and marketing benefits, from parties to box seats at Golden State Warriors games. A cost-intensive “annual” event held two years in a row at the ballpark where the San Francisco Giants play even inspired an episode of the HBO show “Silicon Valley.”
Alas, it all came crashing down soon after, and following more than five years spent battling back both the SEC and the DOJ, which came after him for overcharging investors for personal projects, Rothenberg was last month convicted on 21 counts, including bank fraud, false statements, four counts of money laundering and 15 counts of wire fraud.
While Rothenberg won’t be sentenced until March 1, he could be facing a mountain of time in prison in addition to millions of dollars in fines. Meanwhile, one of the most tragic angles on this story is that Rothenberg’s bets were pretty good. Among his early investments was Robinhood, the stock brokerage company that went on to become a highly successful investment for its other venture investors. — Connie Loizos.
Ex-Uber chief security officer Joe Sullivan convicted after data breach cover-up
Former federal prosecutor turned Uber chief security officer Joe Sullivan became the first corporate cybersecurity lead to be convicted for crimes committed on the job. In March, a federal judge sentenced Sullivan to three years probation after previously finding the former Uber executive guilty on charges of obstructing an official proceeding and misprision of a felony, effectively a failure-to-report-wrongdoing offense.
Sullivan spoke with TechCrunch months later about his court case and why he had to "get over" the shock of his unexpected conviction and the bitterness he felt. Sullivan, who now heads a nonprofit helping to get tech and humanitarian aid to Ukraine, said security executives "should run towards" the job, not away from it. — Zack Whittaker.
Read more on TechCrunch:
