Greed-to-Grief, No. 2

This is part of our series, Greed-to-Grief, which tells stories of greed gone wrong. Greed-to-Grief stories will show up in our newsletter from time to time.

Cravath, Swain & Moore is one of the oldest and most prestigious law firms in the world. One of its original partners served as President Lincoln’s Secretary of State. More than 100 years ago, Paul Cravath is credited with inventing the associate system in which senior partners direct younger associates in a coordinated manner.

The Cravath associate system was revolutionary since it paid younger lawyers for their apprenticeship, when prior legal apprentices actually paid senior lawyers for the training. Cravath typically places in the top five of any ranking of worldwide law firms.

Dan Mosley was a senior partner at Cravath and head of its Estates and Trusts (E&T) department. In this capacity, Mosley advised wealthy families on the best ways to optimize tax and other benefits to grow the wealth of the family office. (A family office is a legal and business structure that undertakes the job of increasing the wealth of the family through investments and management of the family’s money.)

Mosley was at the top of his profession and counted the Walton family (Walmart owners), the DeVos family (Amway), and the Cox family (Cox Communications) as clients. He also advised former Secretaries of State George Shultz and Henry Kissinger.

Mosley also was enamored with a new technology start-up and its founder. We have written previously about blood-testing company Theranos and its wonderkid founder, Elizabeth Holmes.

Holmes founded Theranos at 19 years old and raised $900 million before it was revealed that Theranos was a fraud, the technology that purportedly ran hundreds of tests from a pinprick of blood did not work. Investors lost all their money. Of the $900 million invested and lost, about $400 million was raised by Mosley from his network of wealthy families.  

Before Mosley invested $6.0 million of his own money, he asked Holmes for the audited financial statements of Theranos and Holmes declined to send them. Mosley shrugged his shoulders, invested anyway, wrote Holmes a gushing note of appreciation, and was the conduit for an additional $400 million.

In my experience, I hire attorneys like Mosley because they are supposed to bring two things to the table:

1. They are smarter than me, and

2. They are dispassionate, unemotional decision makers. I go to them with a risky idea and want to be shot down and told why it won’t work.

Mosley, even with all his experience, flipped the “sound legal advice” equation on its head. He led the charge into an unproven company with an unproven founder.

Mosley invested his own money, which was a tell for the family offices: If Mosley is investing, this thing must be good. He surely knew that by making the investment, he gave his family offices the “all clear” on the Theranos investment.

But something has always bothered me about Mosley’s involvement: Did he ever get a Theranos blood test? If he did, we never heard much about it. If you were the pivot point for such a transfer of wealth, would you want to say that you used the product and it worked?

You know, try the burger before guiding your friends to invest in the restaurant.

This is what Jean-Louis Gassee did. Gassee was a high-ranking executive at Apple and wrote a great article on his experience getting his blood tested at Theranos and comparing the results with those from conventional blood-testing labs. Needless to say, the Theranos results did not match up with the conventional testing results.

The path from Greed-to-Grief

It seems that, like many, Mosley was infatuated with the brilliant, smooth-talking Holmes.

No diligence. No testing of the product. No audit. C’mon man! Was this the work of a connected and well-regarded senior partner at one the world’s top law firms?

Mosley and his clients were already rich, so why the get-rich-quick behavior? Massive FOMO is the only explanation.

At the Theranos trial, Mosey testified that Holmes lied to him. Gimme a break! Contrast this statement with what he said in the Kissinger memo (above).

Mosley was at the top of the hill. These days, his LinkedIn profile lists him as working at a family office.

Sometimes there are worse punishments than going to prison. Mosley’s profile includes no mention of his 30 years at Cravath.

Things I think about

In the game of BlackJack, the house has an average advantage of about 7%. If the player uses perfect strategy, the edge for the house is reduced to 0.5%.

Recommended reading

The Four
The hidden DNA of Amazon, Facebook, Apple, and Google

Going Infinite
The story of FTX

The House of Morgan
History of JP Morgan and how modern finance came about

The HP-Autonomy Lawsuit
Timeline of a disaster

Pandora’s Lab
Seven stories of science gone wrong

Bad Blood
Full account of the Theranos fraud.

See the full reading list here.