Trial set to detail Theranos rise, fall
Founder faces 12 federal felonies
SAN JOSE, Calif. — Nearly 20 years after she founded Silicon Valley blood-testing company Theranos — which soared to a $9 billion valuation on claims that its machines could conduct a full array of tests on just a few drops of blood — Elizabeth Holmes’ meteoric rise and dramatic fall will be laid bare in federal court.
It is one of the highestprofile criminal cases in Bay Area history, and interest has been primed by two documentaries, a bestselling book and news that Jennifer Lawrence will star as Holmes in an forthcoming movie.
Holmes was a 19-yearold Stanford University dropout when she founded the now-defunct Palo Alto, Calif. company in 2003 and persuaded powerful people to fund and back her vision.
Today, she’s 37, the mother of a newborn, and about to be tried on 12 felony fraud charges that could put her in prison for two decades. Now, some of those powerful people may be called to testify at her trial.
Jury selection begins today. The trial is schedI
uled to begin Sept. 8 and is expected to last about three months. Legal experts say the evidence against her appears strong but she may yet walk free.
Prosecutors allege that before Theranos went belly up in 2018, Holmes and former company president Sunny Balwani bilked investors — including media magnate Rupert Murdoch and the Walton family of Walmart fame — out of more than $700 million, and defrauded doctors and patients with false claims about their technology. Holmes and Balwani, who is to be tried separately, have denied the allegations.
The trial will showcase Silicon Valley’s startup culture in its glory and its warts — from worship of industry disruption, whiz-bang innovations and high-profile entrepreneurs to hype-fueled pursuit of investors’ cash.
The case revolves around a central question: Did Elizabeth
Holmes — who appropriated the black turtleneck of legendary Apple co-founder Steve Jobs — go beyond hype into willful deception?
A QUESTION OF INTENT
Understanding Holmes’ intent will not be simple, said Jennifer Chatman, University of California, Berkeley Haas School of Business professor. Holmes may have stuck to her faith in Theranos’ technology and its early promise despite deficiencies that emerged, Chatman said.
“My sense is that she believed that the idea could bear fruit, even when the evidence pointed in another direction,” Chatman said.
But in 2018, the U.S. Securities and Exchange Commission accused Holmes of “an elaborate, yearslong fraud” and she agreed to pay a $500,000 penalty and be banned for 10 years from serving as an officer or director for any public company. Still, Stanford Law professor Robert Weisberg said, Holmes doesn’t fit the picture of the white-collar fraudster that the public associates with “calculators” like Ponzi schemer Bernie Madoff.
“She’s just going to try to create reasonable doubt about whether she had intent to defraud,” Weisberg said.
Possible witnesses, according to court filings, include prominent Theranos board members: former U.S. Secretary of State Henry Kissinger; former U.S. secretaries of defense James Mattis and William Perry; and former U.S. Centers for Disease Control Director William Foege. Also on the list are Tyler Shultz, who spent eight months working at Theranos then blew the whistle on what he’d seen; former Theranos lab director Adam Rosendorff, and former lab associate Erika Cheung, another whistleblower.
POSSIBLE STRATEGIES
Over the months of pretrial proceedings that followed Holmes’ June 2018 indictment, possible defense strategies emerged. One Holmes lawyer told Judge Edward Davila that exaggeration about products in Silicon Valley “is something that is done.”
Her lawyers suggested in a court filing that the “sophistication” of Theranos’ investors made it unlikely that they had been bamboozled by Holmes. In one court hearing, a Holmes lawyer argued that Theranos performed 7 million to 10 million tests so incorrect outcomes were “the proverbial one in a million.”
However, prosecutors claim thousands of patients received unreliable Theranos tests — including a man falsely told he was HIV positive, a pregnant woman falsely informed she was miscarrying, and a woman told she wasn’t pregnant who had a potentially deadly ectopic pregnancy.
The prosecution plans to call as witnesses 11 patients it says received inaccurate test results, arguing that those patients are “bricks in the wall” of evidence about problems in the company’s technology, with internal emails showing Holmes knew about the issues.
Documents released by Davila on Saturday and relating to what Holmes’ lawyers called “the issue of guilt” show she plans to claim Balwani — with whom she had a long-running intimate relationship — abused and coerced her.
A filing from his legal team indicates she plans to claim he sexually abused her in addition to psychologically and emotionally abusing her. A filing from Holmes’ lawyers referred to her “potentially debilitating” symptoms of post-traumatic stress disorder.
Balwani’s team in a filing said he “categorically denies” her claims. Holmes, according to a court filing, is likely to testify in court about her claimed abuse by Balwani.
Holmes’ fate may rest on how much sympathy jurors develop for her, Weisberg said. Her new baby could pull heartstrings, he said.
Her tech career is likely over and members of the jury may wonder, “Why are we doing this? The woman has been chastised,” Weisberg said.