Three Frauds

17 Nov 2022

Ray’s two cases. When John Ray took over FTX on 11 November 2022, his sworn declaration listed Enron among the failures he had supervised, and called FTX “unprecedented.” This story follows three collapses, Enron (2001), Theranos (2015 to 2018) and FTX (2022), through what courts found. In each, a court convicted people who ran the company. It looks at who else was there: directors, auditors, investors, and the employees, patients and customers who paid.

16 Oct 2001

Houston, 2001. Enron’s chief financial officer, Andrew Fastow, ran partnerships that traded with Enron. The board’s Powers committee found that Enron employees in them were enriched by tens of millions of dollars they should never have received, Fastow by at least $30 million, and that many deals were “designed to accomplish favorable financial statement results.” Enron filed for bankruptcy on 2 December. The Senate wrote that thousands of employees lost their jobs and “a significant part of their retirement savings.” The AP counts more than $60 billion in market value and $2 billion in pension plans.

1 Feb 2002

The board said yes. The report said the board “failed, in our judgment, in its oversight duties.” It could not be faulted for what it was denied, the authors wrote, “However, it can and should be faulted for failing to demand more information.” Many members “did not understand” the Rhythms and Raptor deals. It put “primary responsibility” on management, and said Arthur Andersen “did not fulfill its professional responsibilities.” A footnote says the passages on the board are solely the views of Powers and Raymond Troubh. The third member, Herbert Winokur, sat on the board.

8 Jul 2002

Their answer. Winokur told the House that management, on whom the board relied “to tell us the truth,” did not. All 13 directors the Senate interviewed in April disagreed that the board had failed, and at the May hearing all five witnesses rejected any share of responsibility. Winokur: “We cannot, I submit, be criticized for failing to address or remedy problems that have been concealed from us.” The subcommittee replied in its July report. It found a “fiduciary failure” by the board.

15 Jun 2002

The auditor. After the SEC’s subpoenas, an e-mail from David Duncan’s secretary on 9 November 2001 read: “No more shredding.” Duncan, Andersen’s lead Enron partner, pleaded guilty to obstruction in 2002 and withdrew the plea in 2005; the task force did not oppose. A Houston jury convicted the firm on 15 June 2002, and it ended its public audits on 31 August. On 31 May 2005 the Supreme Court reversed on the jury instructions. It made no finding on Enron’s audits. The Justice Department then moved to dismiss, and Andersen called that a step toward removing “an unjustified cloud.”

7 Feb 2002

Not aware. Within days of Skilling’s resignation on 14 August 2001, an Enron accountant, Sherron Watkins, warned Lay that Enron could “implode in a wave of accounting scandals,” the Supreme Court records. In February 2002 Skilling told the House he was “devastated by, and apologetic about, what our company has come to represent,” and had not refused to answer one question. He blamed a “run on the bank.” In 2006 a jury returned its verdict.

14 Jan 2004

The plea. Fastow was indicted in October 2002 on 78 counts, says Famous Trials; the AP says 98. On 14 January 2004 he pleaded guilty to two counts of conspiracy, “admitting to running various schemes to hide Enron debt and inflate profits while enriching himself,” the AP says. He gave up $23.8 million (Famous Trials) or nearly $30 million (AP). Judge Hoyt gave him six years for his cooperation. A small investor, Brian Durbin, told the court that investors were “victims of an elaborate scam, if not outright theft.”

25 May 2006

The verdict. The counts were conspiracy, securities fraud, insider trading and false statements to auditors, over a scheme the Justice Department says deceived investors and the SEC about Enron’s results. Judge Lake gave Skilling 292 months. In 2010 the Supreme Court rejected his fair-trial claim but limited the honest-services law to bribes and kickbacks. In April 2011 the Fifth Circuit held that error harmless. A pension-plan enhancement was thrown out, and in 2013, by agreement, he got 168 months; about $42 million went to victims. On verdict day: “Obviously, I’m disappointed.”

17 Oct 2006

Erased. On 25 May 2006 a jury convicted Enron’s founder, Kenneth Lay, on six counts, and Judge Lake on four more in a separate bench trial. Lay: “I firmly believe I am innocent of the charges against me, as I have said from Day One.” He died of heart disease on 5 July. On 17 October the judge vacated the conviction under a Fifth Circuit rule, blocking the criminal route to $43.5 million prosecutors alleged Lay took; the government said it would pursue other remedies. Russell Butler, who lost $8,000, had asked for restitution. His lawyer, Keli Luther, called the ruling “unfair for victims that have been left penniless by Mr. Lay’s actions.”

6 Oct 2004

Insurance paid most. Of the $168 million settlement with Enron’s former directors, $155 million, 92 percent, was insurance. More than $13 million came from ten directors’ own funds, which the University of California, lead plaintiff, called insider trading proceeds. Its release says the deal settles claims under the strict-liability provisions of Section 11 of the 1933 Securities Act, “not the fraud provisions of Section 10(b).” It does not say what the directors admitted, and the records read here hold no statement from them on it. Two inquiries criticised the board; no criminal charge against an outside director appears in them.

Sep 2013

Palo Alto, 2013. By the Justice Department’s account, Holmes claimed Theranos’s analyzer could run any blood test from a finger-prick. It launched in Walgreens stores in the fall of 2013. The SEC said the analyzer could complete only a small number of tests, and most patient tests ran on other companies’ machines. The SEC counts more than $700 million raised from investors. The Justice Department counts more than $730 million from Series C-1 and C-2 investors alone.

2015

The patients. Staff raised concerns about the reliability of the tests to Holmes and Balwani, the Ninth Circuit records, and inspectors found “immediate jeopardy” to patient health. The U.S. Attorney says “Numerous misdiagnoses followed”: a pregnant woman told she was miscarrying who delivered a healthy baby, and a physician given falsely high cancer-marker results. TechCrunch reported that a patient, Erin Tompkins, was flagged HIV-positive and waited three months for a second test. Balwani’s jury convicted him of defrauding patients. Holmes’s jury acquitted her on the patient counts, so this is no finding against her.

2014

A board like no other. A Fortune writer wrote in 2015 that the board was “assembled for its regulatory and governmental connections, not for its understanding of the company or its technology.” Theranos called the Wall Street Journal’s reporting “factually and scientifically erroneous.” Director James Mattis testified that Holmes misled him, that he put in $85,000 of his own savings, and that he told her he would serve for free. Theranos paid him $150,000 a year, per Holmes’s lawyers. At her sentencing, Alex Shultz, son of director George Shultz, said Holmes “took advantage of my dad.”

14 Mar 2018

The SEC. On 14 March 2018 the SEC charged Theranos, Holmes and Balwani over a fraud it said raised more than $700 million. Theranos and Holmes settled without admitting or denying the allegations: Holmes agreed to pay $500,000, accepted a ten-year bar from serving as an officer or director of a public company, and gave up voting control. The SEC said it would litigate against Balwani; the records read here do not give the outcome. By the Associated Press’s list, investors included Rupert Murdoch, the Walton family and Larry Ellison. The records read here hold no statement from them.

3 Jan 2022

San Jose. Holmes’s jury found her guilty on four investor counts, acquitted her on four patient counts, and could not agree on three more investor counts. AP: “Holmes maintains her innocence.” Balwani’s jury convicted him on 7 July 2022 on all counts, patients included; his lawyer said, “He’s not Ms. Holmes. He did not pursue fame and fortune.” The Ninth Circuit affirmed both on 24 February 2025, with $452 million in restitution, $54.5 million of it to Safeway and Walgreens. ABC reported in January 2026 that Holmes had asked for a commutation, status pending.

11 Nov 2022

The Bahamas, 2022. Ray’s first act, on 11 November 2022, was to authorize the bankruptcy filings. He swore that many FTX entities “never had board meetings,” and doubted the audits that existed, “especially with respect to the Dotcom Silo.” The Dotcom auditor was Prager Metis. In September 2024 the SEC settled two charges with it, one for negligence in its FTX audits; it did not admit or deny them and paid a $745,000 penalty for that action, reports say. Nothing read here charges Armanino, which audited the American arm.

22 Nov 2022

The investors. Sequoia Capital put $214 million into FTX, per Bloomberg, and wrote it down to zero. Bloomberg, citing unnamed people and with Sequoia declining to comment, reported that partners apologised to their own investors, defended their checks and said they believed they were misled. One unnamed person said they had reviewed unaudited statements in July 2021. Temasek’s account is its own statement: its review found “no misconduct by the investment team,” and its team and senior management had pay cut. The U.S. Attorney says Bankman-Fried defrauded FTX’s investors of more than $1.7 billion.

2 Nov 2023

New York. A jury convicted Bankman-Fried on 2 November 2023 of seven counts. The Second Circuit said he used “FTX as his own personal piggy bank, spending customer funds on real estate, political contributions, and investments.” The U.S. Attorney said customers “in some cases had their life savings wiped out overnight.” Bankman-Fried testified he did not “defraud anyone” and did not “take customer funds.” At sentencing he said, “I am sorry about what happened at every stage,” although, NPR noted, he did not admit fault. Judge Kaplan said there was no remorse and that he had perjured himself.

12 Jun 2026

On appeal. One of Bankman-Fried’s lines of defense is that customers would in time have been made whole. The estate’s plan projects about 119% of allowed claims, a digest of NYT and WSJ reports said 118 percent, valued at November 2022 prices, so customers “will not benefit from a recent surge in the crypto market.” Actual payments need a later source. On 12 June 2026 the Second Circuit affirmed, citing the Supreme Court’s 2025 ruling that fraud needs no net loss. His petition was filed on 10 September 2026; the government’s response was due 16 November, and on 30 October it asked for more time.

17 Nov 2022

What no source says. Two sources touch two of the three: Ray lists Enron among his cases, and NPR set Theranos beside the inquiry into FTX. Neither compares them. The Powers Report and Ray both doubted outside auditors. The three boards stood differently: Enron’s approved the conflict, Theranos’s included Mattis, who testified he was misled, and many FTX entities “never had board meetings.” No source read compares all three, so any pattern across them is this story’s reading, not a finding.