In 2003, 19-year-old Stanford University dropout Elizabeth Holmes founded biotech Theranos Inc. Holmes brazenly claimed to have developed proprietary technologies that would disrupt the blood-testing industry. One technology eliminated the need to collect blood samples through traditional needles, instead using a finger stick that collected tiny amounts of blood into a small tube called a nanotainer. Another technology was a laboratory device named Edison that was able to run dozens of tests on the same, minute amount of blood, testing a gamut of fatal diseases including diabetes, heart disease, and cancer. Theranos promised that its blood- tests would be faster, cheaper, and more accurate than traditional tests offered in labs, clinics, and hospitals.1 The media hype over the startup earned Theranos the vaunted unicorn status. However, by 2015, various media outlets exposed Theranos for perpetrating Silicon Valley’s biggest fraud. In 2018, federal prosecutors filed criminal charges against Elizabeth Holmes and the company’s former No. 2 executive Ramesh “Sunny” Balwani for defrauding investors, doctors, and patients. In the wake of the high-profile scandal, the company began the formal process of dissolution. The case involves multiple stakeholders and raises economic, legal, and ethical issues worthy of consideration. 

Theranos launched a series of successful funding rounds, backed by luminary venture capitalists Larry Ellison, Rupert Murdoch, and Carlos Slim. Mega-deals with Walgreens, Pfizer, and the Department of Defense (DoD) whet the appetites of new investors and fueled additional funding. In 2014, Theranos reached a valuation of $9 billion with Holmes retaining 50% of the privately held company. Holmes had a net worth estimated at $4.5 billion, making her the youngest female self-made billionaire. A blue-chip board of directors was established, which included former Secretary of State George Shultz, former Secretary of Defense, James Mattis, and Senator Sam Nunn, just to name a few. By 2015, reports surfaced that Holmes and Balwani had lied to doctors and patients about test results and deceived investors about the company’s financial position. What ensued was a complete unraveling of the company and financial implosion. The company formally dissolved and sought to pay unsecured creditors its remaining cash, estimated at roughly $5 million. All told, Theranos investors lost nearly $1 billion, and  Holmes’s net worth dropped to virtually nothing.2 In June 2018, the Department of Justice (DoJ) charged Holmes and Balwani with nine counts of wire fraud and two counts of conspiracy to commit wire fraud, stemming from allegations that the two engaged in a scheme to defraud investors and a separate scam to defraud doctors and patients. Both Balwani and Holmes have pleaded not guilty to the charges. The DoJ said at the time that Holmes and Balwani could face up to 20 years in prison, a $250,000 fine, and restitution costs, for each count on which they're convicted.3 However, recently a federal judge ruled that Holmes and Balwani would have their fraud case narrowed, but not dismissed. The judge ruled that prosecutors couldn’t pursue charges that relied on claims that Holmes and Balwani defrauded doctors and customers who didn’t pay for the company’s blood-tests. The judge said the indictment “failed to connect a specific intent to defraud” non-paying patients because prosecutors didn’t show how Holmes and Balwani intended to swindle them out of money or property. For similar reasons, the judge said, prosecutors couldn’t pursue charges based on doctors as victims. Nonetheless, while the ruling narrows the case, it leaves intact the lion’s share of charges that investors were defrauded. In short, prosecutors can still pursue charges that Holmes and Balwani bilked paying patients into relying on technology that they knew was faulty and placed some of those people in peril by providing false lab results. 4 If one wanted to give Holmes the benefit of doubt, then they would argue Holmes was an entrepreneurial founder, innovator, and visionary. As an entrepreneur, Holmes was swimming against enormous skepticism of what all-too-many deemed as impossible, not unlike entrepreneurs before her including Thomas Edison. Holmes was dismissed for having no medical or scientific training, yet credentials are not a necessary requirement for innovation. Innovators like Holmes often risk everything, daring to improve our living standards and make the world a better place. Theranos sought to differentiate itself through a more pain-free extraction of blood that would not require the needles that strike fear in so many. In finished form, the company’s technologies would facilitate rapid analysis of a small amount of blood on the way to more patient-specific drug regimens, early disease detection, and vastly greater peace of mind. With blood testing happening with great speed and at lower costs minus the horror of big needles, more and more patients would have the means and eagerness to test themselves with great regularity. Ultimately, Holmes was a visionary who believed deeply in technology that would eventually help save many lives, and that still may.5 Critics of Holmes would argue a very different account and cite secrecy, lies, and a toxic culture at Theranos. Simply put, the technology didn’t work properly and produced inaccurate results, even though the company publicly claimed that it could perform hundreds of tests and began deploying it in Walgreens stores. In reality, the company was secretly running its tests on commercial machines produced by Siemens and diluting blood samples to make it work. Holmes lied to investors by faking data, orchestrating results, and grossly overestimating its annual revenue forecasts. Holmes established a company culture of stifling dissent through intimidation and fear. When employees did raise concerns, they were typically fired on the spot. Theranos would then aggressively pursue lawsuits against ex-employees. Employees that remained at the company were typically forced to sign “airtight” non-disclosure agreements. While Holmes’ vision for a better blood test was legitimate and the cause noble, she crossed a line when she began to grossly misrepresent what she had achieved in her efforts to raise the support she needed.6 This case was written by Dr. Paul Melendez, Department of Management and Organizations, The University of Arizona. February 11, 2020.

In the 19th century, the British HMS Challenger set off on the first global research expedition to gather data on ocean temperatures, marine life, and geology of the seafloor. This was the first oceanographic ship replete with its own laboratories, microscopes, and other scientific equipment on board. Scientists explored the Atlantic, Indian, and Pacific oceans and discovered the first polymetallic nodules.1 These nodules form at a depth of 4,500 meters in the ocean, grow a mere centimeter every million years, and comprise rare-earth minerals including manganese (Mn), nickel (Ni), copper (Cu), and cobalt (Co). These base minerals will be essential to fueling the advanced development of renewable energy. However, little is understood of the environmental impacts of deep sea mining. As land-based resources have become depleted, commercial interest has turned to mining these minerals at the bottom of the sea. The case involves multiple stakeholders and raises economic, legal, and ethical issues worthy of consideration. 

A bountiful supply of nodules exists on the abyssal plains in Clarion-Clipperton Zone (CCZ), a 4.5 million square kilometer area between Hawaii and Mexico. Estimates suggest that the CCZ holds six times more cobalt (Co) and three times more nickel (Ni) than all known land-based stores, as well as vast deposits manganese (Mn) and a substantial amount of copper (Cu). These extraordinary reserves could profoundly impact global supply chains. Of particular interest is cobalt (Co) and nickel (Ni) as both are key components of lithium-ion batteries, which at present, offer the best energy density of any commercially available battery.2 The high energy density makes them ideal for use in cell phones, electric vehicles, and grid-level energy storage. The World Bank found that production of rare-earth minerals such as cobalt (Co) and nickel (Ni) could increase an astonishing 500 percent by 2050, to meet the growing demand for clean energy technologies.3 A spate of countries and companies have begun to engage in the exploration, research, and development phase of deep sea mining, tantalized by the prospect of tapping into the enormously valuable nodules.

The International Seabed Authority (ISA) is an autonomous international organization established under the 1982 United Nations Convention on the Law of the Sea (UNCLOS). Headquartered in Kingston, Jamaica, the ISA is mandated with organizing, regulating, and controlling all mineral-related activities in the international seabed area beyond the limits of national jurisdiction. The area encompasses nearly two hundred and sixty million square kilometers, just over 50 per cent of the entire seafloor on earth, which the ISA simply refers to as “the Area.” The ISA is in the process of developing regulations for commercial activity and any contractors wishing to undertake mining operations in the international deep seabed area will need to abide by their regulations. Ultimately, the economic benefits of deep seabed mining -most likely in the form of royalties paid to the ISA- are to be shared for the "benefit of mankind as a whole" with particular emphasis on the developing countries that lack the technology and capital to carry out seabed mining for themselves.4 

Advocates of deep sea mining have maintained it holds the promise of relieving some of the enormous burden from mining rare-earth minerals on land. Mining nodules will support growing populations, urbanization, and decarbonization. Unlike land-based mines, deep sea mining will not create open-pits, lead to deforestation, or produce toxic mining wastes. Seabed mining will not involve the relocation of people en masse nor will it result in the exploitation of indigenous people or employ child labor. Furthermore, a unique characteristic of nodules is the presence of multiple commodities in one deposit, making deep sea mining much more efficient and ecologically safe than land-based mining.5 Critics have called for a stay on deep sea mining given the seabed is largely unmapped, unobserved, and unexplored. While the seabed may seem inhospitable, life exists in, on, and around nodules. The mining, pumping, and cleaning process of the nodules will generate sediment plumes, noise, and vibrations, not only destroying micro and macro fauna, but also disturbing marine mammals such as dolphins and whales, which could force them to flee from their natural habitat. In the absence of any scientific consensus on the long-term impacts of deep sea mining, scant oversight of industrial activity, and the fragility of deep sea ecosystems, many scientists have argued the only safe way to proceed is not to.6 

This case was written by Dr. Paul Melendez, Department of Management and Organizations, The University of Arizona. June 6, 2021.

1 Corfield, R. (2003). The Silent Landscape: The Scientific Voyage of HMS Challenger. Washington, DC: Joseph Henry Pres.

The chair of the board of directors for a local non-profit (dedicated to providing social services to families of children who have degenerative diseases) sat in her office contemplating the fate of the organization. Just an hour earlier she had been notified by the auditor that the CEO confessed to skimming funds, misclassifying restricted donations, and creating a fictitious vendor through which he paid himself without supplying the goods that the invoices claimed. The frauds perpetrated totaled approximately $25,000.The CEO had been at his post for many years and had earned the respect and trust of the community. The organization’s mission had been achieved and in fact had expanded under the CEO’s tenure. Still, with the recession, the organization’s reserves were near depletion. The CEO could not have picked a worse time to breach his fiduciary duties given that the organization had just “kicked off” their capital campaign. The chair worried how all this would be received by the community if it became public.

When the CEO admitted to the fraud, he explained the dire personal circumstances that led to his dishonest conduct. His wife was suffering from terminal cancer, had consequently quit her job, and he was left as the sole support for his family. He agreed to legitimately borrow against his home to pay back the stolen money, but conditioned his agreement on being allowed to leave “quietly” so that he would be able to seek other employment to pay his debts and support his family.

Empathy for the CEO and other practical reasons made the chair reluctant to report the incident to the authorities and handle the matter internally. The chair knew that the organization did not have the financial resources to litigate the matter if the CEO did not pay voluntarily. By settling with the CEO, the organization stood a better chance of getting its money back.

With the admission of guilt by the CEO, assurance that the funds would be paid back, and his immediate resignation, the chair believed that justice would be served. However, the chair wasn’t sure if failure to report the incident to authorities was ethical. The CEO had committed a series of financial crimes against a charitable organization that he was entrusted to serve. In the major scandals of the previous decade, many CEOs were given long sentences for abusing their power and taking corporate funds. Here was someone who took from the most vulnerable population.

The chair wondered what would prevent this from happening in the future to some other organization that the CEO might work for. What if other employees knew about the CEO’s conduct? A quiet departure could invite more dishonesty in the organization. Finally, the community that supported the organization might lose faith in the board and in future leadership if others disclosed the fraud rather than the board. One can never count on a secret being kept. The chair had to think of how to best instill confidence in the remaining employees and donors considering the alternatives of reporting the fraud to law enforcement or risking the news getting out without the board being the one to disclose it. Most importantly, the chair had to grapple with what was the right thing to do ethically.

This case was written by Dr. Paul Melendez, Department of Management and Organizations, The University of Arizona. August 20, 2011. The case is fictional, but represents a potential dilemma confronted by non-profit boards.

The "fifth generation" (5G) of telecommunication systems will be one of the most critical building blocks of the European Union (EU) digital economy and society in the next decade. The EU has taken significant steps to lead global developments towards this strategic technology. 5G will provide virtually ubiquitous, ultra-high bandwidth, and low latency connectivity not only to individual users, but also to connected objects.1 From artificial intelligence to self-driving cars to telemedicine, all the things Europeans hope will make their lives easier, safer, and healthier will require high-speed, always-on internet connections. However, China-based Huawei Technologies Co., the world’s largest provider of telecom equipment maker and leader of 5G technology, has faced opposition in the EU over building out the new 5G infrastructure on the continent. Amid security concerns, the EU has raised fears that Huawei’s equipment could be used to spy on countries and companies at the behest of the Chinese government. The case involves multiple stakeholders and raises economic, legal, and ethical issues worthy of consideration.

Huawei’s technology touches virtually every corner of the globe. Huawei’s carrier business (e.g., networking equipment) has been the company’s heart and soul, but its enterprise business (e.g., cloud computing) has grown at breakneck speed. Huawei got its start supplying telecom equipment to rural areas of China, which remains its largest market. Huawei later expanded to other developing markets before capturing a significant share of Europe’s telecom market. Currently, Huawei along with Chinese peer ZTE, hold a combined market share in the EU of more than 40%.2 Huawei is well entrenched in existing 4G wireless networks on the continent. Huawei’s equipment is priced so cheaply and is of such high quality that EU mobile operators have little choice but to use it. If the EU were to institute a ban on Huawei due to security threats emanating from its products, replacing existing networks would be expensive. For EU countries that have Huawei 4G gear, it makes sense to have their 5G gear as well, as there are financial incentives that can’t be overlooked. Neither operators nor the governments of the EU have the funding to replace Huawei in their networks.3 According to an industry analysis, restricting Huawei from EU networks would cost the region $62 billion, delay 5G rollout for 18 months, and reduce competition in the network equipment market. The analysis assumed that there was no security risk to using Huawei equipment.4 

Two wide-ranging Chinese national security laws are of grave concern to governments worldwide: the National Intelligence Law and the Counter-Espionage Law. The former requires Chinese information technology (IT) firms to support, assist, and cooperate in national intelligence work. The latter states that during the course of a counter-espionage investigation, relevant organizations and individuals, must truthfully provide information and must not refuse. Major governments including Japan, Australia, and the United States have blocked Huawei from providing hardware for 5G. The United States has argued that Huawei equipment could provide backdoors to the Chinese government into American networks.5 The EU identified a series of specific security threats posed by foreign vendors of telecommunications equipment, significantly heightening the bloc’s scrutiny of suppliers like Huawei. EU leaders will lay out specific guidelines for member states on how best to approach issues of security within 5G networks which EU member countries, can choose to adopt or ignore.6The confrontation between the United States and China over Huawei’s role in the deployment of 5G networks in Europe has placed the EU in the middle of a geopolitical tug of war and has led to questions about the EU’s approach to the issue and ultimately which side the EU will take on the matter.7 The United States has cautioned the EU that allowing untrustworthy companies such as Huawei to supply networking equipment could jeopardize the sharing of sensitive information between nations. The United States has also warned the EU that Huawei could steal intellectual property, engage in espionage, and potentially sabotage networks. Huawei has vehemently denied any criminal wrongdoing and has taken exception to being unfairly maligned by the United States. Huawei has countered that the United States has not provided evidence that it has worked inappropriately with the Chinese government or that it would in the future. Huawei has insisted that it will remain independent of the Chinese government despite its national security laws. Moreover, Huawei has contended that there are ways to manage and mitigate risks which have worked successfully in other countries.8

This case was written by Dr. Paul Melendez, Department of Management and Organizations, The University of Arizona. January 13, 2020. 

On Oct. 31, 2008, a white paper penned by a person using the alias “Satoshi Nakamoto” described a new system of electronic cash called Bitcoin. Cryptocurrency is the name given to a broad group of digital assets which are not issued, regulated, or backed by a central authority. Cryptocurrencies are digital tokens used to transfer online payments directly from one party to another without using an intermediary entity. Underpinning cryptocurrencies is an open-access ledger referred to as the blockchain. When a cryptocurrency owner transfers a digital token to another party, the transaction is posted to the blockchain and assigned a unique string of numbers and letters. The distributed software networks that cryptocurrencies operate on can be downloaded by anyone. Miners, the people who run these programs, verify transactions by running the numbers through formulas on high-powered computers. These miners compete with others to batch together a block of transactions. The first block to be recognized by the network earns the winning computer a batch of newly minted bitcoins. This competition provides an incentive for miners to maintain the network and a mechanism through which new bitcoins are created.1 Cryptocurrency has stirred up considerable hype. While detractors have described cryptocurrency as a Ponzi scheme, others remain sanguine it will become the world’s currency reserve, advocates believe it is the new gold. The case involves multiple stakeholders and raises economic, legal, and ethical issues worthy of consideration.

While there are thousands of cryptocurrencies, only a handful have any appreciable size and potential future (e.g., Bitcoin, Ethereum, and Tether respectively). The total market

capitalization of the global cryptocurrency market is now back at the $1.1 trillion level. Nonetheless, the aggregate cryptocurrency market cap is still down sharply from its peak value of nearly $3 trillion in 2021.2 Recent small surges notwithstanding, the cryptocurrency market is stuck in the doldrums. Some experts have suggested that cryptocurrency prices could fall even further before any sustained recovery. Though still in its infancy, the industry is constantly evolving with new entrants of cryptocurrencies, exchanges, lending platforms, dealer-brokers, and Web3. This largely explains the boom-and-bust cycles. However, criminal abuse of the cryptocurrency ecosystem has created huge impediments for continued adoption, victimized innocent people around the world, and heightened calls for law enforcement and regulatory authority involvement.

Cryptocurrency-based crime hit a new all-time high in 2021 with illicit addresses receiving $14 billion over the course of the year, up from $7.8 billion in 2020. 3 The most common type of crime were “rug pulls” associated with decentralized finance (DeFi) projects, a relatively new scam in which developers built what appeared to be legitimate cryptocurrency projects before taking investors’ money and disappearing. DeFi transaction volume, coupled with the proliferation of newly created DeFi tokens (absent requisite code audits), understandably lured bad actors. In nearly all cases, developers tricked investors into purchasing tokens associated with a DeFi project before draining the tools provided by those investors, sending the token’s value to zero in the process. While the focus has been on DeFi-related crime, other threats, such as ransomware, cryptocurrency money laundering, and non-fungible token (NFT)-related fraud are on the rise. As law enforcement agencies such as the Department of Justice develop their ability to seize illicit cryptocurrency and build out their blockchain-based investigative capabilities, regulatory authorities such as the Securities and Exchange Commission are actively examining whether cryptocurrency should be classified as security and/or commodity.4

Champions of cryptocurrency have touted the inclusion of the unbanked, efficiencies of transactions, and the security of blockchain. While many people with low-income may not

qualify for loans, invest, or open an account with traditional banks, cryptocurrency promotes equal access to financial products. Cryptocurrency also provides easy, low-cost, and speedy processing of payments and money transfers. Furthermore, the distributed system protects the blockchain from collapse at a single point of failure. Critics of cryptocurrency have pointed to its volatility, criminal syndicates that use the platform, and the environmental impact of mining activities. The no-holds-barred cryptocurrency environment has resulted in consumer scams, fraud, and theft. Nation-states have also used cryptocurrency to bypass sanctions while terrorist organizations and drug cartels have used exchanges to launder money. Moreover, mining activities associated with cryptocurrency not only draw on electricity, but also produce carbon emissions, and e-waste.5

This case was written by Dr. Paul Melendez, Department of Management and Organizations, The University of Arizona. August 3, 2022.