The one thing venture capitalists and the medtech industry don’t want you to know is that innovation can sometimes be used as a manipulation to evade the law.
The industry can sometimes, even knowingly, be deceptive in three very specific ways. These are: lie to government agencies, underreport adverse events, blame the employees and consumer (victims). My goal as a federal whistleblower is to explain how these at times carefully crafted lies impacts each of you.
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Whether you’re an employee, consumer, taxpayer or potential long-term shareholder you’re affected by fraud. And yet, there are ways of preventing it from happening again in the future.
Here’s how I’ve seen deception at work:
Lying To Government Regulatory Agencies
Venture capital-funded startups of all stripes have the same goals — either to get to an IPO or get acquired by a conglomerate. From what I have seen nothing, and I mean nothing, comes before profits.
The goal of venture capitalists is achieving 8-to-10 times their original investment in roughly 3-to-5 years. That’s a very short window where notoriously sluggish government regulatory boards from transportation (think Uber) to medical devices (think Theranos) get in the way of the investors’ profits.
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In some cases, the startup industry knowingly, willingly, and fraudulently exploits little-known government regulatory loopholes while operating under the guise that they’re “too small” for the government to notice. They’ve blamed the government for moving too slowly to gain clearances only to justify their breaking the law. The law in which they never had any intention of following.
That was once very much the case but is no longer as the Department of Justice, the Securities & Exchange Commission, the Food and Drug Administration are all wise to this tactic of evading the law thanks in part to employee whistleblowers.
Sadly, the DOJ views VC-funded startup fraud as pharma fraud and not what it really is — SEC fraud. My case involving Acclarent, the subsidiary of Johson & Johnson, was the first to make this argument, albeit unsuccessfully, and thankfully now we’re seeing the FDA & SEC intervene in the Theranos whislteblower case, so that’s progress.
Underreporting Adverse Events
Employees of startups are threatened and intimidated into doing what’s asked of them even if it involves breaking the law. The motive is to not challenge executives or management.
Employees are told by the company’s regulatory department to report any and all adverse events from accidents to faulty equipment, which can potentially harm consumers. However, the message from the VCs on the company’s board, executives, sales and marketing is to underreport any and all events because it hurts the sales of the company.
Lucrative stock options are dangled like a carrot as another manipulation, which benefits the investors and not the employees who end up knowingly or unknowingly breaking the law.
Those employees who excel at breaking the law on behalf of investors are encouraged, their actions replicated and their efforts are rewarded by promotions. Those that challenge management with factual data that contradicts the board and executive narrative are labeled as difficult and removed from the company.
This is why it’s laughable that some of the investors on the Theranos board are suing the startup. Fraud starts at the top.
Blame the Employees and Consumers (Victims)
A startup provides sales employees with quotas to hit revenue targets, not based on what the market can bear but what the investors want for their ROI. These are essentially false projections to give the appearance of hypergrowth to receive a big valutation, which is fraud.
Fraud is the reason we’re seeing employee layoffs and an uptick in consumer injury. Employees are wrongly blamed for underperforming and consumers are unethically blamed for user error, both of which deflect accountability from the actual problem. Fraud designed and executed at the startup level is not a sustainable business model.
Corrupt industries will not change on their own — they must be forced to be accountable. Exposing the negative truth others would rather remain hidden, hurts the image of companies, and image is tied to profits. However, using truth to legitimately hurt profits can create positive change.
This is first achieved when those injured by fraud, employees and consumers, come forward with both legal intervention and publicly with the help of media. The government can’t keep expecting others to do their jobs for them without compensating properly.
Whistleblowers from med tech are more like SEC whistleblowers and not pharma whistleblowers. Injured consumers and patients shouldn’t have to wait almost a decade to have their cases heard and then insulted and demeaned again when the company losing the case automatically files an appeal just to delay payment. These companies are guilty of fraud and no amount of delays will change those facts.
Photo: lilu13, Getty Images
