Finance

A Problematic Delay Between Wrongdoing And Consequences For Complex Financial Crimes

It’s hard to ignore how our justice system is stacked in favor of pretty much all financial criminals.

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(Photo by Justin Sullivan/Getty Images)

In early 2019, an Organized Crime Drug Enforcement Task Forces investigation involving multiple law enforcement agencies caught a man named Gabriel Vasquez-Ruiz selling more than three pounds of methamphetamine to an undercover law enforcement agent. Agents continued building evidence in their investigation of the drug ring Vasquez-Ruiz was working with until December 16, 2020, when Vasquez-Ruiz was indicted along with 10 other people.

That same day, Vasquez-Ruiz was placed in custody, where he remained up until his sentencing on November 29, 2022. At age 36, Vasquez-Ruiz was sentenced to 10 years in prison for conspiracy to distribute controlled substances, along with an additional five years of supervised release following his exit from prison.

More than a million people are arrested for drug offenses every year in the U.S. Like Vasquez-Ruiz, many of them have to sit in a cell while awaiting a conviction and sentencing.

Compare that to the pathway of Elizabeth Holmes, the founder of fraudulent blood testing company Theranos, who has now been convicted of multiple federal fraud and conspiracy charges.

With whistleblowers at the company raising the alarm to journalists, in October of 2015, the Wall Street Journal published an exposé on some of the questionable practices at Theranos. Holmes continued to make public appearances touting the company’s prowess. In January 2016, federal regulators sent a letter to Theranos complaining that its California lab was falling short of minimum standards. Later in 2016, Holmes was banned from running any lab for two years, and her net worth was revised by Forbes from $4.5 billion to zero. After this, Holmes still had the audacity to unveil and attempt to market the company’s faulty “miniLab” testing device.

Multiple investors sued. There were more failed lab inspections. Patients received wildly inaccurate diagnoses. Minor regulatory actions with federal inspectors and with the Arizona attorney general were settled. In May of 2018, reporter John Carreyrou published the book “Bad Blood,” in which he extensively detailed wrongdoing at Theranos and by Holmes in particular. Finally, in June 2018, Holmes and her accomplice Ramesh “Sunny” Balwani were indicted on criminal fraud charges.

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Throughout all of this, Holmes was unrepentant. But Holmes didn’t have to sit in custody until her sentencing like Gabriel Vasquez-Ruiz did. No, Holmes found the time to go to concerts, bear a child, and get pregnant a second time while she exploited every loophole for delay the justice system provides. Even after Holmes was convicted in January 2022, and sentenced to 11 years in November 2022 — even as I write this — she is still not in custody.

The Elizabeth Holmes case is admittedly an extreme example. A lot more legal ammunition is available to someone whose company was valued in the billions (we’re all apparently expected to overlook the fact that Holmes would not have the celebrity or the money that gave her so much clout within the justice system had she not committed fraud at Theranos in the first place).

Even in less high-profile cases, it’s hard to ignore how our justice system is stacked in favor of pretty much all financial criminals. White-collar criminal cases routinely take up to four years from investigation to a prison term — that is, if the white-collar criminals ever get caught at all. Meanwhile, the Vasquez-Ruizes of the world have to sit in jail before they’ve been proven guilty of anything.

American white-collar crime costs victims an estimated $300 billion to $800 billion per year (the broad range has to do with so many of the perpetrators getting away with it). According to FBI statistics, street-level property crimes like theft, larceny, and burglary only cost about $16 billion annually. The entire illegal drug trade generates about $100 billion every year. It doesn’t take a statistician to see that we are misallocating justice system resources by focusing most heavily on the latter types of crimes.

Someone like Gabriel Vasquez-Ruiz should have to pay for his crimes. We all should, in a just society. But someone like Elizabeth Holmes is clearly not paying for her crimes to the same degree. That is a problem. That undermines faith in the justice system.

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When justice is swift, severe, and certain for everyone else, but lethargic, lenient, and questionable any time a rich powerful person commits a crime, people throw up their hands. It causes all of us to think (though most of us have the decency never to act on it), “If they don’t have to follow the laws, why do I?”

And you know what? It should.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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