| | | | | | | 'FRAUD IS NOT A TRADE SECRET' | | Good morning, Term Sheet readers. | | More than $700 million: That's how much capital Theranos CEO Elizabeth Holmes raised from investors for her blood-testing company. And she did it by using language like this: | | | | . |  | | . | | | | "We do routine, specialty, and esoteric tests. What we've done is take those, and develop the chemistry and analytic systems that made it possible to run them on a microsystem." | | Once questioned about why the company was not performing hundreds of tests using its proprietary technology, it issued statements like this: | | "Over time, we've been optimizing our clinical lab to bring up tests that are more commonly ordered, and in some cases move resources off the proprietary tests that are less commonly ordered to get to a point where the ordering patterns we are seeing can all be accommodated through our finger-stick technology." | | You follow? Neither did investors, reporters, and the public. Since the very beginning, Holmes has been criticized by industry peers about running an operation shrouded in secrecy, but the opaqueness was easy to defend — Competitors are watching! We must protect trade secrets! | | At Theranos, silence was golden. The company reportedly kept departments siloed, preventing employees from discussing projects with one another. It also allegedly demanded all visitors sign a non-disclosure agreement before entering the building. | | As I've said before, it's my opinion that when hundreds of millions of dollars are on the line, investors should expect accountability, transparency, and verification. This is becoming harder and harder as private companies actively work to maintain secrecy. Yet the hype builds, the money pours in, and whistleblowers are dismissed as "disgruntled former employees." | | Fortune was the first magazine to dedicate a cover to Holmes, who then went on to grace the covers of virtually every major business publication. When Roger Parloff was reporting the story for Fortune in 2014, he asked questions that the company told him were "getting into the realm of trade secret." | | But after years of secrets, the Securities & Exchange Commission shined a light on the reality of the company's day-to-day operations. On Wednesday, the SEC charged Holmes and the company's former president Ramesh "Sunny" Balwani with an "elaborate, years-long fraud in which they exaggerated or made false statements about the company's technology, business, and financial performance." | | So in one of the most spectacular flameouts in recent years, Theranos went from a $9 billion Silicon Valley unicorn to a Silicon Valley unicorpse. Here's the biggest lesson the Valley can learn from this: What happens in the dark will always come out in the light. | | I'll leave you with a quote from Tyler Shultz, the employee who blew the whistle on Theranos: "Fraud is not a trade secret. I refuse to allow bullying, intimidation and threat of legal action to take away my First Amendment right to speak out against wrongdoing." | | *NEWSLETTER ALERT:* Fortune recently launched "The Ledger," a new franchise focused on cryptocurrency and the blockchain. Now, reporters Jeff John Roberts, Jen Wieczner and Robert Hackett are launching a fire new newsletter to help you catch up on the latest in crypto. Sign up here. | | | | . | | |  | | | | | | THE LATEST FROM FORTUNE... | | | | | | • Airtable, a San Francisco-based developer of an application that allows users to edit, comment, and collaborate in real time, raised $52 million in Series B funding. CRV and Caffeinated Capital co-led the round, and were joined by investors including Freestyle Capital and Slow Ventures. • Zum, a Redwood City, Calif.-based provider of transportation and care for children, raised $19 million in Series B funding. 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Financial terms weren't disclosed. • Nordic Capital is buying Trustly, a Sweden-based provider of online banking payment and processing solutions, in a deal that values the payment company at 700 million euros ($865.2 million), according to The Financial Times. • Cairngorm Capital Partners acquired Parker Building Supplies, a U.K.-based provider of heavyside building materials to trade and retail customers. Financial terms weren't disclosed. • Delos Capital acquired Sage, a Delhi, India-based maker of specialty metal products. Financial terms weren't disclosed. • L Catterton agreed to acquire Airxcel, a Wichita, Kansas-based maker of branded, market leading heating, ventilating, air conditioning and appliance products. Financial terms weren't disclosed. • Argentum Group made a "significant" investment in LAUNCH Technical Workforce Solutions, an Oak Brook, Ill.-based technical workforce solution provider to the aviation industry, Financial terms weren't disclosed. • The Carlyle Group and 22C Capital made an investment in DiscoverOrg, a Vancouver-based sales and marketing intelligence provider. Financial terms weren't disclosed. • NexPhase Capital acquired Gulf Coast Pain Institute, a Pensacola, Fla.-based pain management practice. Financial terms weren't disclosed. | | . | | | | | • Experian will acquire ClearScore, a London-based credit score platform, for £275 million ($385 million), plus an unspecified earnout based on future performance. • Bullhorn acquired Talent Rover, a Chicago-based recruitment software platform, and Jobscience, a San Francisco-based social relationship management hiring software. 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