They had a knack for convincing investors like SoftBank and Peter Thiel to give them millions. But they couldn’t keep up the charade indefinitely. They’ve since entered the pantheon of fraudulent founders. From Theranos to WeWork, and other now-infamous names, here’s how these founders went from celebrated to disgraced.
1. Elizabeth Holmes
Role: Founder and CEO, Theranos
Total Funding: $1.1 billion
Investors: Blue Cross Blue Shield Venture Partners, Fortress Investment Group
As perhaps the most documented case of startup fraud in recent memory, Theranos has become the proverbial fallen unicorn. Its founder and CEO, Elizabeth Holmes, was repeatedly hailed as “the next Steve Jobs,” a label that was quickly replaced by more negative ones.
Holmes founded Theranos in 2003 at age 19 after dropping out of Stanford. Theranos was allegedly a revolutionary blood testing startup which claimed to run blood tests at a fraction of the cost and time, while only needing a tiny amount of patients’ blood. By 2010, Theranos was valued at $1 billion and later had over $400 million in funding (the company would go on to be valued at $10 million).
Despite fooling investors, Holmes couldn’t get past the scientific community. That’s because there was no tech to back up Holmes’s outlandish claims. Blood tests simply couldn't be done in the way Holmes described, and many found her explanations absurd. Here’s one of Holmes’s statements explaining the fictional tech: "a chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel."
By 2015, the cracks were starting to show. A Wall Street Journal article exposed Holmes for the fraud that she was, and after years of damage control, failed partnerships with pharmacy chains, and multiple lawsuits, the jig was up. The SEC charged Holmes and Theranos President Ramesh "Sunny" Balwani with wire fraud. According to a press release from the U.S. Attorney's Office, Holmes and Balwani "engaged in a multi-million dollar scheme to defraud investors and a separate scheme to defraud doctors and patients." Holmes currently awaits trial (the coronavirus pandemic delayed proceedings until March 2021), and could face up to 20 years in prison.
2. Adam Neumann
Role: Cofounder and CEO, WeWork
Total Funding: $20.6 billion
Investors: SoftBank, Benchmark, Goldman Sachs
Israeli-born Adam Neumann may not have committed massive fraud to get his company up and running, but he did practically run it into the ground before being ousted by his board of directors. Neumann stepped down in September 2019 just before WeWork’s parent company, The We Company, was supposed to go public.
In the run up to his departure, Neumann had conducted a series of shady business transactions with his coworking company. WeWork paid Neumann around $6 million to change the company name to “The We Company,” a trademark that Neumann owned. Meanwhile, Neumann was buying property to lease to WeWork, while the company was paying his rent and lending him money. Then, just before WeWork’s IPO, Neumann cashed out bigtime. Through stock sales and loans, Neumann took home $700 million from his own company. Much of these bizarre transactions were revealed in WeWork’s IPO, indefinitely delaying it in the process.
Not only did Neumann cripple his company’s finances, but his company wasn’t profitable to begin with. In 2018 alone, WeWork lost $1.9 billion. It was a long way to fall for a company that was valued at $47 billion at its height.
3. Trevor Milton
Role: Founder, Nikola
Total Funding: $2.5 billion
Investors: Fidelity Management & Research Company, ValueAct Spring Fund
Trevor Milton’s fall from grace came in September when the electric truck maker he founded, Nikola, was exposed by financial research company Hindenburg Research. Hindenburg’s report, which soon led to Milton’s ouster, was titled “Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America” In it, they it was revealed that Nikola faked its tech, including having proprietary battery technology, natural gas wells, solar panels, and hydrogen production capabilities. To top it off, a promotional video of a Nikola truck driving in the Utah desert was later revealed to be a prototype being rolled down a hill to give the illusion of propulsion.
The company admitted to its fraudulent doings, and Milton promptly stepped down as executive chairman, despite the company never admitting to any wrongdoing. GM, which had recently agreed to a $2 billion deal with Nikola, stuck by its initial decision in light of the scandal.
Milton’s accusations don’t stop at Nikola, however. He has two sexual assault allegations against him, both from women who were underage at the time. As for his self-described serial entrepreneurship, Milton leaves behind a history of failed startups and betrayed investors.
This week, the Department of Justice issued subpoenas to Milton and Nikola, in addition to the subpoenas issued by the SEC in September.
4. Danielle Fong
Role: Cofounder and chief scientist, LightSail Energy
Total Funding: $70 million
Investors: Khosla Ventures, Founders Fund, Total
Danielle Fong’s clean energy startup, LightSail, promised large-scale energy storage using compressed air, fixing an issue that many thought didn’t have a solution. Fong’s business concept was so promising that LightSail even raised money from Bill Gates, Peter Thiel’s Founders Fund, and Vinod Khosla’s VC firm. Unfortunately, that energy storage system never came to be. Instead, all LightSail came up with was a set of gas storage tanks. The company never went commercial.
Disgruntled employees later spoke to Greentech Media about Fong’s lavish spending, including purchasing a company car — a Tesla Model S. Coupled with a $225,000 salary (Thiel himself advocates for low executive salaries in the startup world) and being consistently absent from the office, Fong seemingly assumed the tech would catch up with the other aspects of LightSail’s success. Unfortunately, it didn’t.
By 2017, LightSail had run out of cash and gone into “hibernation,” co-founder and CEO Stephen Crane told Greentech. "We would have liked to have gotten a bit further," Crane added.
5. Adam Rogas
Role: cofounder and CEO, NS8
Total Funding: $157.9 million
Investors: Lightspeed Venture Partners, Edison Partners, AXA Venture Partners
Ns8 billed itself as a fraud prevention and detection platform. In a bizarrely ironic twist, however, NS8’s CEO, Adam Rogas, turned out to be a fraud himself.
Rogas faked financial documents to make it look as if his company had turned a handsome profit, in a bid to get more capital from investors. Rogas, whose main role at NS8 was to raise money, did it well — except once he raised it, he kept $17.5 million for himself. In September, the FBI, with the help of the SEC, made the fraud allegations, which resulted in Rogas’s arrest in Las Vegas, Nevada. He currently faces up to 45 years in prison for his misdeeds.