What Do Bernie Madoff, Elizabeth Holmes and Big Pharma Have in Common?

It doesn't take a conspiracy to deceive people. Sometimes it's just massive groupthink.

“It is much easier to fool people than to convince them that they have been fooled.”

 — Mark Twain

I’ve been quiet for the past month because like many of you, I’ve been busy trying to process recent events. By the time I’ve digested one, an even more insane event presents itself. The world feels so chaotic, and the chaos seems to be increasing on an almost daily basis. It’s overwhelming.

But I’ve also been struggling with something else: a deep, deep disconnect and a growing sense of alienation. It’s as if we’ve all had a common point of reference all our lives — sanity —  and over time that reference point has faded and disappeared. We're slipping into collective insanity, yet so many people can't even see it.

I’ve been trying to pinpoint why this is happening, and I think it's because a surprising number of people still trust and believe whatever experts and leaders in government and other institutions (a/k/a "smart" people) tell us. If "smart" people don’t see the insanity, then the people who trust them won’t see it, either.

Thirty years ago, virtually every American would be appalled by what’s happening now: If the U.S. had been $30 trillion in debt and spending billions to fight a war that poses no direct threat to our security  — even as as millions of Americans struggled to afford food and shelter  —  everyone would have thought this was insane.

If employers and universities forced Americans to get injected with a vaccine that doesn’t even prevent infection and requires boosters every 90 days, everyone would have thought this was insane.

If teachers taught our children that it’s not entirely clear what a “woman” is and that men can get pregnant, everyone would have thought this was insane.

Today it’s a different story.

Now we’re expected to turn a blind eye to the outrageous and the unthinkable because “smart" people are conditioning us to believe that it's all perfectly normal and business as usual. And plenty of Americans are falling in line. As long as “smart people” insist that nothing is amiss, or they can point to a study telling us that what seems “off” actually makes sense, these Americans will simply trust them and think everything is fine.

They can't imagine that so many “smart” people could possibly be wrong, because that would mean they’re part of some giant “conspiracy” to deceive us. They can’t fathom the possibility that so many experienced and astute people in media, government agencies, and other institutions could be wrong  because they’ve simply been misled or misinformed.

They can’t accept that “smart” people aren’t infallible; like us, they’re human. They can and often do make mistakes, sometimes monumental ones. They don’t understand that even the most educated and powerful people can be led astray if their ego and assumptions about others keep them from seeing the obvious. Because no one wants to admit they’ve been fooled, least of all experts who’ve staked their reputation on always being right.

Most people prefer to stay in the weeds, but I’m more of a big picture person. It’s a trait that allows me to see patterns , and right now I’m seeing a dangerous one that’s been developing for years. We’re being led deeper into the bowels of insanity by “smart” people who are so confident in their intelligence and so certain in their beliefs that they’ve shut themselves off from the possibility of ever being wrong.

A few weeks ago I binged Netflix’s “Madoff: The Monster of Wall Street.” I was already familiar with the basics of the Bernie Madoff scandal; I knew he’d fabricated trades out of thin air and defrauded thousands of investors. But I had one burning question that had never been answered: how was it possible for someone to keep a Ponzi scheme in excess of $60 billion going for decades without drawing the attention of the Securities and Exchange Commission (SEC), the government agency tasked with policing financial crimes?

Midway through the series, the answer became clear.

The SEC didn’t conspire with Madoff to enable his fraud, and his Ponzi wasn’t so air-tight that disinterested observers couldn’t see what was happening. Madoff’s scheme worked, not just because he was incredibly secretive about his investment methods, but because investors and federal regulators chose to ignore obvious red flags. They couldn’t imagine that a man with his reputation and stature, with swanky offices in the Lipstick Building in midtown Manhattan, would ever lie to them.

Whistleblower Harry Markopolos, a portfolio manager at Rampart Investment Management, made a few calculations after seeing Madoff’s sketchy investment returns for clients and “figured out they were bologna. Then he spent eight years trying to get the SEC to listen to him.” But the SEC didn’t believe Markopolos, despite his many attempts to persuade them. They thought he was crazy.

As director Joe Berlinger notes: “The scariest thing of all to me in this story is that… [r]egulators missed it. People who are very sophisticated investors, who should have known better, who should have known that a conservative option strategy can’t produce those kinds of results, didn’t ask the right questions.” They simply believed what Madoff told them.

In other words, nearly 5,000 very rich and very “smart” people got it very wrong.

It wasn’t until the 2008 financial crisis that the wheels came off the bus and Madoff’s scheme became obvious for the world to see. A trusted government agency ignored the obvious until it could no longer be ignored. In this sense, Madoff’s story is an illuminating study of human nature — not only of the deceiver, but also the deceived.

Nearly a decade after Madoff’s Ponzi scheme imploded, another deception-in-plain-sight was underway across the country in Silicon Valley. Elizabeth Holmes, a 20-year old wunderkind who never graduated from college, was on her way to building a biomedical empire based entirely on smoke and mirrors.

For more than a decade, Holmes’ raised hundreds of millions of dollars from investors to fund a revolutionary blood testing device produced by her start-up company, Theranos. There was just one problem: the technology to power this device didn’t even exist.

The most stunning thing about the Theranos debacle is that some of the world’s shrewdest and wealthiest men invested in the company, despite signs that there were glaring problems with its “proprietary” technology. Financial titans from Rupert Murdoch to Oracle founder Larry Ellis and even former Secretary of State George Shultz threw millions into Theranos. Walgreens even ponied up $50 million to set up testing centers in its stores, with no proof whatsoever that Theranos’ groundbreaking blood testing device actually worked. At its peak, Theranos was valued at $9 billion.

None of these “smart” and sophisticated investors imagined that a woman as bold and confident as Holmes would ever lie to them — not just because they had complete confidence in their own bullshit detectors, but also because so many other “smart,” sophisticated investors believed in Holmes. Groupthink spawned by arrogance, pride, and FOMO led all of them to make the same mistake.

Like Madoff, Holmes operated under a veil of secrecy, revealing as little information as possible to investors and outsiders. Like Madoff, Holmes’ scheme succeeded because investors weren’t the only “smart” people she duped; she also managed to elude the FDA, the agency tasked with ensuring the safety of medical devices, and used a clever loophole to evade scrutiny. Like Madoff, Holmes managed to fool everyone, including a fawning media, until a black swan in the form of a lone journalist who caught the scent of fraud and doggedly pursued the truth that his colleagues had ignored for years.

If you think the Theranos scandal was the only time an embarrassingly shoddy product has escaped the scrutiny of government regulators, you’d be wrong. While Elizabeth Holmes was still in elementary school, Purdue Pharma was conducting clinical trials on what would become the best-selling drug in the company’s history: OxyContin.

You’ve probably heard about OxyContin’s role in fueling the opioid crisis, but what you may not know is that there were plenty of red flags about the drug’s lethality. The FDA didn’t just miss these red flags; regulators even ignored the voices of the handful of people in the Justice Department who saw them and begged the agency to take the drug off the market.

How could public servants dedicated to safeguarding the health of Americans make such a monumental blunder? Because they made the same mistake that “smart” people made with Madoff and Holmes: they were fooled by the window dressing. They couldn’t believe that a multi-billionaire pharmaceutical company would behave so irresponsibly and unscrupulously. They trusted what they were told without digging deeper.

This blind trust led the agency to downplay compelling evidence that OcyContin was extremely addictive (despite Purdue’s claims to the conrrary) and had been linked to thousands of overdoses and deaths around the country. If the FDA had conducted proper due diligence, it would have discovered that Purdue had manipulated data to convince regulators that its painkiller wasn’t as addictive as victims claimed.

One of the most shocking revelations in the OxyContin scandal was the single study that Purdue relied on as evidence that opioid medications aren’t addictive. In reality, this “study” wasn’t a study at all; it was merely a four-sentence letter to the editor published in New England Journal of Medicine describing addiction-related outcomes for the Boston University Medical Center’s patients who had been prescribed opioids. If the agency had attempted to verify this pivotal study, it would easily have discovered that Purdue was lying. Instead, regulators turned a blind eye.

“Smart” people at one of the country’s most trusted institutions allowed themselves to be duped, and millions of doctors and patients who relied on them paid the ultimate price.

I could point to a dozen other examples that fit this pattern — from experts at intelligence agencies who relied on shoddy information leading them to believe Saddam Hussein had weapons of mass destruction, to ratings agencies that relied on misleading data from the banks that caused the 2008 Financial Crisis.

Again and again we’ve seen that when “smart people” don’t ask enough questions, or trust without verifying, it rarely ends well.

To be clear, I’m not blaming these people for being human. None of us is perfect; at some point, we’ve all been fooled or taken advantage of. But “smart” people who think they’re infallible are a problem, especially when large swaths of the population have grown accustomed to trusting and believing everything they say. "Smart" people who arrogantly insist that they have a monopoly on truth and that anyone who disagrees with them is spreading misinformation are a danger to all of us -- because they're enabling insanity and keep millions of Americans from even seeing it.

No society can function if it can’t rely on its leaders or others tasked with delivering critical information to do their due diligence. As long as we blindly trust these people, the insanity will continue.