Prosecution tries to block Theranos reviews

Witness on Monday accused of bias against former CEO

Positive reports from patients and lab techs about Theranos’ blood testing show that company founder Elizabeth Holmes believed in the accuracy of her firm’s test results, her legal team argued in a court filing concerning a key claim in the prosecution’s case.

Holmes’ lawyers are seeking to allow the jury to see some of the feedback she received, compiled from patients using the Theranos app and from blood-draw technicians doing work for Theranos tests. Her attorneys claim the reports help refute prosecution allegations that Holmes knowingly misled investors and patients with false claims that her company’s machines could provide reliable results when she knew they had serious accuracy problems.

Central to the defense motion filed Friday in U.S. District Court in San Jose is Theranos’ relationship with the Walgreens drugstore chain, which for a time offered Theranos blood-testing services in Palo Alto and Arizona. Holmes’ lawyers noted that the 12-count felony fraud indictment against her alleges she told investors Theranos had “an expanding partnership” with Walgreens but knew by late 2014 that the drugstore chain’s rollout had stalled.

Jurors heard in earlier testimony that Walgreens paid Theranos $100 million, and invested $40 million more in the failed company. Walgreens sued Theranos in 2016, seeking $140 million. The following year The Wall Street Journal reported that the two companies had reached a tentative settlement deal for Theranos to pay Walgreens less than $30 million.

Holmes’ legal team, in their court filing, said positive feedback from patients and technicians is relevant to Holmes’ understanding “of how the Walgreens rollout was progressing at the time, as well as the likelihood of continued expansion,” along with Holmes’ “good-faith belief that the Walgreens relationship was healthy and would grow in the future.”

Prosecutors, however, filed a motion to keep jurors from learning about the feedback, arguing

that it represented mostly cherry-picked positive reports providing an “unbalanced view.” All but one of the feedback reports was given to Holmes after all Theranos investments were made, according to the prosecution.

“She would have received the majority of these reports after she pitched investors,” the filing said. That single report from before investing ended, according to the prosecution’s Sunday filing, was an email from a Theranos employee about a customer providing “the lowest star rating” for the bloodtest check-in process, and complaining about a slow check-in, and “a few bathroom cleanliness concerns.”

Also, the prosecution claimed in the filing, “these customer reports have no bearing on whether Walgreens executives were satisfied.”

Judge Edward Davila said on Monday he would hear arguments about the feedback Tuesday.

Holmes, who founded Theranos at age 19 in 2003, is charged with allegedly bilking investors out of hundreds of millions of dollars, and defrauding patients with false claims that the company’s machines could conduct a full range of tests using just a few drops of blood. She and her co-accused, former company president Sunny Balwani, have denied the allegations. Balwani is to be tried next year.

Also on Monday, former Theranos investor Alan Eisenman returned to the witness stand. The Texas money manager repeated his claims that Holmes stonewalled him when he sought information about the company, and said cautionary language in investor documents he signed warning of “immense risks” was contradicted by what Holmes and other sources communicated to him about the company’s successes and plans. Asked by prosecutor John Bostic about the current value of his $1.2 million investment in Theranos, he snapped: “It’s worth zero.”

Holmes lawyer Kevin Downey grilled Eisenman about his relationship with the prosecution, and displayed for the jury a 2018 email between Eisenman and a federal agent. “You know that I am a faithful part of your team, and will do all that I can to help your case,” Eisenman wrote. Explaining the email, Eisenman testified Monday that he and the prosecution were on the same page. “I was lied to and cheated by the company,” he claimed. “There was business fraud. We have the same (desired) outcome that justice be served.”

Downey suggested that Eisenman had tried to get prosecutors to investigate other companies he had invested in and lost money. Facing an objection by the prosecution, Downey said the purported bid by Eisenman to get the federal government to probe other companies showed his bias in the matter of Holmes and Theranos.

Eisenman asserted emphatically, “I have no bias in this case.”

Holmes faces maximum penalties of 20 years in prison and a $2.75 million fine if convicted, plus possible restitution, the Department of Justice has said.