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Theranos founder Elizabeth Holmes sentenced to more than 11 years for defrauding investors

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Elizabeth Holmes, founder of Theranos, has been sentenced to more than 11 years in prison over her role in the blood testing firm that collapsed after its technology was revealed to be largely fraudulent.

Holmes was convicted in January on four counts of defrauding investors. She appeared on Friday afternoon at the San Jose, California, courthouse where her nearly four-month-long trial began in August 2021, alongside relatives and supporters, including her partner, Billy Evans.

The sentencing marked a dramatic end to the years-long saga of the blood testing firm, which Holmes founded after dropping out of Stanford at 19 years old. Promising a revolutionary technology that could run hundreds of health tests on just a drop of blood, Theranos attracted big-name backers such as the former secretary of state Henry Kissinger and the former defense secretary James Mattis, who testified against her in the trial.

It was once valued at more than $9bn, but it imploded after reporting in the Wall Street Journal in 2015 revealed shortcomings and inaccuracies in its core technology. Theranos dissolved in 2018 and Holmes was charged with 12 counts of fraud, alongside her co-executive and former romantic partner, Sunny Balwani, who was convicted on 12 counts in his own trial.

Prior to her sentencing, Holmes was given a last opportunity to speak to the court. Through tears, she expressed regret for letting down “the people who believed in us”.

“I am devastated by my failings,” she said. “Every day for the past years I have felt deep pain for what people went through because I failed them. I regret my failings with every cell of my body.”

In a statement preceding the sentencing, the federal judge Edward Davila painted a picture of Silicon Valley as being a formerly rural agricultural center to that became “the crucible for innovation around the world”. He said its legacy dependsed on the ability of investors to make decisions “free from lies and misrepresentation”.

“This is a fraud case where an exciting venture went forward with great expectations and hope, only to be dashed by misrepresentation, hubris, and plain lies,” he said.

Davila said the court had calculated the total loss as $384m in investments and a $121m loss in share value that can be attributed directly to Holmes’s fraud. He also found that Holmes, through Theranos, had defrauded more than 10 investors – listing big name victims such as the media mogul Rupert Murdoch and the family of the former government official and investor Betsy DeVos.

A woman in a black suit against a blue background.
Elizabeth Holmes speaks at the Fortune Global Forum in San Francisco in this 2015 photo. Photograph: Jeff Chiu/AP

Also among those investors was the former US secretary of state George Shultz, whose son Alex Shultz gave a victim’s statement regarding the impact of Theranos on his family. Alex’s own son Tyler worked at Theranos before revealing the shortcomings unfolding inside the company.

Alex Shultz said the saga had torn his family apart, and that Tyler had lived in fear after Holmes hired private investigators to track him due to his whistleblowing. “My son slept with a knife under his pillow every night thinking someone would come and murder him,” Alex Shultz said. “My family home was desecrated by Elizabeth.”

Davila ordered three years of supervised release once Holmes is out of prison. He will set a hearing date to determine the amount of restitution she must pay. Holmes has been ordered to surrender herself into custody in April, although her lawyers are expected to ask that she remain free and on bail while she appeals the sentence.

Federal prosecutors had suggested the judge sentence Holmes to 15 years in prison and require her to pay $800m in restitution, while her lawyers requested a sentence of no more than 18 months to be served on house arrest.

More than 130 people submitted letters of support for Holmes ahead of the hearing, including Evans and Senator Cory Booker. “I firmly believe in the possibility of rehabilitation and in the power of redemption for anyone,” Booker wrote of Holmes, whom he said he considered a friend.

Throughout the trial, Holmes’s lawyers cast her as an ambitious but misguided young founder who was unaware of the extent to which Theranos’s technology was malfunctioning. In a letter to judges filed last week, they argued sending Holmes to prison was unnecessary.

“Ms Holmes is no danger to the public,” Holmes’s lawyers said in the court documents. “She has no criminal history, has a perfect pre-trial services compliance record and is described by the people who know her repeatedly as a gentle and loving person who tries to do the right thing.”

Her legal team has also argued Holmes was the victim of abuse at the hands of Balwani, who they say influenced her decisions at the company that led to its collapse. Balwani, who has denied these claims, is due to be sentenced in December.

A harsh lesson for tech founders

The downfall of Holmes continues to cast a long shadow over Silicon Valley. The story has spawned numerous articles, podcasts and an Emmy-award winning TV series, and is seen as an indictment of Silicon Valley’s “fake it ’til you make it” culture, which encourages founders to make big promises to secure investments.

A courtroom sketch shows a judge speaking to a woman who is standing at a microphone.
Elizabeth Holmes, shown here in a courtroom sketch, was painted as an ambitious founder by her attorneys. Photograph: Vicki Behringer/Reuters

Throughout the trial, Holmes attorneys attempted to paint her as an ambitious founder who overpromised on a company she believed in – a justification Davila soundly rejected. “Failure is normal,” he said. “But failure by fraud is not OK.”

The harsh ruling – which aligned with federal sentencing guidelines but was far more severe than the 18 months of house arrest requested by Holmes – sends a strong message from the US government to Silicon Valley, said Anat Alon-Beck, a law professor at Case Western Reserve University in Ohio.

“There is a new sheriff in town – this is going to change things for both founders and investors,” she said. “People are going to be more careful.”

Her sentencing could lead founders in the future to be more careful about what they advertise of companies in the future, said Neama Rahmani, president of West Coast Trial Lawyers and a former federal prosecutor.

“This is a very high profile case, and investors in Silicon Valley are paying attention,” Rahmani said. “Going forward, founders are going to be much more careful about what they say in the startup phase, because this has shown the government will hold you accountable.”


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Rupert Murdoch stepping down as chair of Fox and News Corp

Rupert Murdoch is stepping down as chair of Fox and News Corp – ending a seven-decade run as one of the world’s most transformative and controversial media moguls.

In a note to staff first reported in the Murdoch-controlled Wall Street Journal, he wrote: “For my entire professional life, I have been engaged daily with news and ideas, and that will not change. But the time is right for me to take on different roles.”

Murdoch, 92, will become chairman emeritus of the two corporations, the company said in a release.

Lachlan Murdoch, Murdoch’s eldest son, now seems to be his successor. In the note Murdoch called Lachlan a “passionate, principled leader” who can take the companies into the future.

“On behalf of the Fox and News Corp boards of directors, leadership teams, and all the shareholders who have benefited from his hard work, I congratulate my father on his remarkable 70-year career,” said Lachlan Murdoch, 52, in a statement.

“We thank him for his vision, his pioneering spirit, his steadfast determination, and the enduring legacy he leaves to the companies he founded and countless people he has impacted,” he said.

The handover comes at a time of uncertainty in a media landscape that Murdoch dominated for so long. Fox is in a competition for eyeballs with much larger and better resourced broadcasters, at a time when Americans are swapping cable television for streamed entertainment, while News Corp, owner of the Times and the Sun newspapers in the UK, is battling for revenues as print sales fall away and advertising migrates to the big social media platforms.

Rupert Murdoch, center, speaks to the media after the company’s annual general meeting in Adelaide, Australia, on October 9, 2002. He is flanked by his sons Lachlan Murdoch, left, and James Murdoch.
Rupert Murdoch, center, speaks to the media after the company’s annual general meeting in Adelaide, Australia, on October 9, 2002. He is flanked by his sons Lachlan Murdoch, left, and James Murdoch. Photograph: Bloomberg/Getty Images

As his business expanded across continents, Murdoch faced numerous challenges and setbacks, emerging victorious from a confrontation with London’s powerful print unions in the 1980s by moving his newspaper production to Wapping, and later closing his best selling News of the World tabloid in the wake of the phone hacking scandal.

The Fox founder’s latest blow came five months ago when his news network paid $787.5m to settle a defamation suit brought by voting equipment company Dominion. Dominion charged that Fox had knowingly broadcast false and outlandish allegations that it was involved in a plot to steal the 2020 election.

Fox still faces a $2.7bn defamation suit filed by Smartmatic, a global election technology company, that also alleges Fox allowed its journalists and guests to broadcast falsehoods about its involvement in the 2020 election. Fox News forced out Tucker Carlson, its highest-rated host, after the settlement. Carlson has claimed his ousting was part of the settlement, a claim both Fox and Dominion deny.

The last two years have been tumultuous for Murdoch. As well as the huge lawsuits filed in the wake of Fox News’ election coverage, Murdoch announced he was divorcing his fourth wife, the supermodel Jerry Hall. A hard-hitting Vanity Fair report also detailed a series of health problems for the nonagenarian, who reportedly broke his back in a fall on a yacht in January 2018, leaving him close to death.

In April this year, Murdoch abruptly called off his engagement to Ann Lesley Smith, 66, a former San Francisco police chaplain turned conservative radio host, reportedly because of his and his family’s discomfort with Smith’s evangelical views.

In his memo, Murdoch said: “Our companies are in robust health, as am I.”

David Folkenflik, author of Murdoch’s World: The Last of the Old Media Empires, said he had not heard of “anything about an immediate health crisis or scare but it doesn’t mean that is not front of mind”.

Folkenflik said as well as Murdoch’s age, the election scandal and upcoming shareholder meetings for Fox and News Corp, parent company to its newspaper empire, may have led to the announcement’s timing.

“Rupert Murdoch once called the hacking scandal ‘the humblest day of his life’. But I think that by dint of his own personal involvement in the Dominion scandal, his own testimony, his own conscious decision not to intervene to prevent hosts from spreading very pernicious and utterly unfounded rumors of election fraud that pulls him front and center,” said Folkenflik.

Murdoch’s rise to become the most powerful media figure of his generation began when he inherited his father’s interests in the Adelaide newspaper the News in 1952. By the 1980s, his newspaper empire spanned the globe and included the Australian, the Times, News of the World and the Sun in the UK and the New York Post in the US.

Rupert Murdoch names Roger Ailes as the head of Fox News in New York City in January 1996.
Rupert Murdoch names Roger Ailes as the head of Fox News in New York City in January 1996. Photograph: Allan Tannenbaum/Getty Images

The empire expanded over the next decades, moving into television, publishing and film, taking over film studio Twentieth Century Fox in 1985, launching Sky Television in the UK in 1988, creating publisher HarperCollins in 1990 and launching Fox News in 1996.

As his power grew, so did his influence. Murdoch has shaped generations of politicians across the globe, from backing Margaret Thatcher in the UK in her war against the unions to supporting Donald Trump’s victory over Hillary Clinton.

“He didn’t stay within the lanes at all,” said Folkenflik. “He was happy to influence policy from the invasion of Iraq to Brexit to Donald Trump, for whom he had great contempt but whose support he wanted. That paid off for him.”

The company has also been mired in scandal. Guardian investigations uncovered routine hacking of the phones of politicians, celebrities and people in the news by News Corp journalists, causing international fury. Following the news that reporters had illegally accessed the voicemails of murdered schoolgirl Milly Dowler, Murdoch closed the News of The World – his biggest-selling newspaper – in 2011.

Rupert Murdoch speaks to media in London in July 2011 after meeting with the family of Milly Dowler.
Rupert Murdoch speaks to media in London in July 2011 after meeting with the family of Milly Dowler. Photograph: Stefan Rousseau/PA

That scandal still dogs the company. Prince Harry is suing the publisher of the Sun over allegations of unlawful information gathering by its employees. The trial is set to start in January.

After a long battle with his younger brother, James, Lachlan Murdoch emerged as his father’s heir apparent in 2019 after Fox sold its movie studio and top cable assets to Disney for $71bn. The Murdochs now control a far smaller media empire but one that includes its politically powerful newspaper assets and Fox News.

But while Lachlan Murdoch looks set to take over his father’s empire, the length of his tenure is already being questioned.

In The Successor: The High-Stakes Life of Lachlan Murdoch, the longtime Murdoch watcher Paddy Manning claims shareholders are not keen on the Murdoch’s succession plans.

“A Wall Street analyst who has covered the Murdoch business for decades and is completely au fait with the breakdown in the relationship between the brothers [Lachlan and James Murdoch], volunteers off the record that it would be ‘fair to assume Lachlan gets fired the day Rupert dies’,” writes Manning.

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UAE oil company executives working with Cop28 team, leak reveals

Senior executives from the UAE’s national oil company are working with the Cop28 team as the country ramps up its PR campaign ahead of the major UN climate summit later this year, leaked internal records show.

Two PR professionals from the Abu Dhabi National Oil Company (Adnoc) are identified as providing “additional support” to the team running the summit, according to a Cop28 communications strategy document obtained by the Centre for Climate Reporting (CCR) and the Guardian. It adds to growing evidence of blurred lines between the UAE’s Cop28 team and its fossil fuel industry.

In January, Adnoc’s chief executive, Sultan Al Jaber, who also serves as the UAE’s climate change special envoy, was announced as Cop28 president, which is being hosted in Dubai in November and December. Since then, multiple reports have raised concerns about ties between his two teams. The Cop28 team previously stated that there were “clear governance guidelines in place to ensure the team can operate entirely independently from any other entity”.

“It is wholly inappropriate for Adnoc staff to be doing PR for Cop28,” said Pascoe Sabido, a researcher from Corporate Observatory Europe who co-coordinates the Kick Big Polluters Out coalition. He says the findings clearly demonstrate the close links between the oil company and the summit team.

Earlier this year, CCR and the Guardian revealed that several members of Adnoc staff had taken up important roles at the summit, including as climate negotiators. Some had even been seconded from ongoing roles with the oil company.

In June, the Guardian reported that Adnoc and Cop28 shared an IT system and that Adnoc staff were able to read emails sent to and from the Cop28 team. Adnoc had also been consulted on how to respond to a media inquiry about the summit. At the time, the Cop28 team insisted that the emails were held on a “standalone, firewall-protected network”.

The two Adnoc communications executives named in the leaked document – Philip Robinson and Paloma Berenguer – have a combined 28 years of experience in the fossil fuel industry, according to their LinkedIn accounts. They both previously worked for Shell before joining Adnoc.

A Cop28 spokesperson said the two executives had not travelled as part of its team to New York for the UN general assembly this week and had not been involved in communications activities there.

“The COop28 team regularly receives queries not related to Cop28 that it directs to the appropriate UAE entities to answer,” the spokesperson continued.

The document lays out the Cop28 team’s public relations strategy and key talking points for Al Jaber and senior team members, who are attending the UN general assembly. The meeting at the UN will “set the tone, inform the climate agenda and shape the climate narrative in the lead up to Cop28”, the document states.

Speaking at the UN on Wednesday, Al Jaber reiterated that a “phase down” of fossil fuels was inevitable and essential. But he stopped short of calling for a complete phase-out, which the UN secretary-general, António Guterres, has said is necessary to abate global heating.

“Actions are falling abysmally short,” Guterres said. “To stand a fighting chance of limiting global temperature rise, we must phase out oil, coal and gas in a fair and equitable way.”

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The leaked communications plan makes no mention of a phase-down or phase-out of fossil fuels. Instead, it focuses on messaging around “fast-tracking the energy transition” by boosting global renewables capacity, reducing emissions from polluting industries and providing finance for green investments. As chief executive of Adnoc, Al Jaber is overseeing a major expansion of the company’s oil and gas production.

“The Cop28 presidency has consistently stated that the phase-down of fossil fuels is inevitable, as part of a just and orderly energy transition, and it must go hand-in-hand with a rapid phase-up of zero-carbon alternatives,” a Cop28 spokesperson said. “This position was reiterated on the floor of the United Nations.”

Adnoc did not respond to requests for comment.

Sabido said: “The fossil fuel industry has consistently and repeatedly pushed back against a managed phase out of all fossil fuels because it means the end of the road for their core business.” He called for measures to protect the UN from the “pervasive” influence of the fossil fuel industry and other oil-producing nations.

“Al Jaber and Adnoc have been part of this. But let’s not pretend this is Al Jaber alone.”

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Peak China? Jobs, local services and welfare strain under economy’s structural faults

When finding a job feels as unlikely as winning the lottery, playing the actual lottery may seem like a more productive use of time. In the first half of 2023, faced with a struggling economy, Chinese consumers spent 273.9bn yuan ($37bn/£30bn) on lottery tickets, an increase of more than 50% on the same period in 2022.

It’s just the latest symptom of an economy in distress. A record high youth unemployment rate of 21.3% in June prompted the government to stop publishing data on the issue – along with other areas such as the consumer confidence index – all which showed China’s economy was struggling.

Several factors have contributed to the unusually high youth unemployment rate. Education, real estate and technology – industries that graduates previously flocked to – have been hit by a regulatory storm in recent years which annihilated millions of jobs. And during the Covid-19 pandemic, more students stayed in education while the jobs market was all but frozen, leading to a pent-up supply of recent graduates on the jobs market.

But the bigger problems for the Chinese economy may be structural. Most of the people in the youth unemployment cohort are not recent college graduates but school leavers who are unable to get the types of service-sector jobs that have previously kept China’s cities buzzing. Millions of would-be hospitality workers, security guards, couriers and nannies are unemployed. Educated, creative college graduates going without work is a problem for a “politically significant part of the workforce”, says Eli Friedman, a professor who focuses on Chinese labour issues at Cornell University, but the fact that people are not finding more low end jobs is the “big concern”.

Since 2013, as factories have moved to countries with cheaper labour, the number of people employed in manufacturing has been in decline. That has led to an “era of polarisation”, according to a study published by economists at Stanford and Wenzhou universities, in which wages have risen for high-skilled professionals, while the surplus of workers at the low-skilled end of the economy has driven down wages.

Chart showing share of Chinese people working in the informal economy in urban areas

Between 2004 and 2019, the share of people working in China’s cities in the informal sector grew from 33% to about 60%. As well as contributing to yawning inequality, this hampers China’s ability to boost its productivity rates. “You don’t turn yourself into a high-income country with [close to] 70% of your economy in the informal sector,” says Scott Rozelle, an economist who led the wage polarisation study.

‘A peculiar time to be cutting entitlements’

Another problem created by the explosion in China’s informal sector is that it inhibits the ability of local governments to collect taxes. Personal income tax accounts for just 6% of China’s total tax revenues, compared with 24% in OECD countries. Only a tiny fraction of the country’s population pay any income tax at all.

As a result, local governments are forced to rely on non-tax sources of revenue, such as land sales. Between 2012 and 2021, the share of local government revenues that came from land sales increased from 20% to 30%.

But in 2020, armed with the mantra that “houses are for living in, not for speculation”, the government unleashed a wave of regulatory shocks to the real estate sector, prompting a record number of defaults and the worst slump in the housing market in the 21st century. That was bad news for local governments, which saw their land sale revenues fall by nearly a quarter in 2022.

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Residential buildings under construction in Beijing
Residential buildings under construction in Beijing. Photograph: Tingshu Wang/Reuters

The slumping revenues exposed a problem that has been brewing for years. China’s provincial governments have all but run out of money. Local government debt is estimated to total $23tn, and 22 municipalities are at medium or high risk of default, according to MacroPolo, a thinktank. The effects are already being felt across China.

In Hegang, a frosty coal-producing town near the Russian border, residents were left without heating, which is normally subsidised by the government, after the city made history by becoming the first to undergo fiscal restructuring in December 2021.

In February, the public bus operator in Shangqiu, a city of 7 million people in Henan province, said it was suspending services as it had run out of money to pay wages, insurance contributions or even to charge the electric buses.

In a bid to balance the books, Beijing has encouraged local governments to slash welfare payments, prompting pensioner protests earlier this year. With a rapidly ageing population and an already weak social safety net, it is a “peculiar time to be cutting entitlements”, Houze Song, a MacroPolo fellow, has noted, especially because reducing benefits encourages people to stash away their money, hurting consumption.

And so China’s economic problems risk falling into a vicious circle, where weak demand drags down employment and public revenue, which – in the absence of a free market – undermines the ability of the state to support jobs and economic confidence.

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