Schemer or Naïf? The Trial of Elizabeth Holmes

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SAN FRANCISCO – After four years, repeated delays and the birth of her baby, Elizabeth Holmes, founder of blood testing startup Theranos, is on trial for fraud and crowns a saga of Silicon Valley hubris, ambition and deception.

Jury selection begins Tuesday in federal court in San Jose, California, followed by opening arguments next week. Ms. Holmes, whose trial is expected to take three to four months, is battling twelve cases of fraud and conspiracy to commit referral fraud over false claims she made about Theranos’ blood tests and business.

In 2018, the Justice Department charged both her and her business partner and former friend Ramesh Balwani, known as Sunny, with charges. The trial of Mr Balwani will begin early next year. Neither of them pleaded guilty.

Ms. Holmes’ case has been viewed as a parable for the bold “fake it till you make it” culture in Silicon Valley that helped lead the region’s start-ups to unfathomable wealth and economic power. That same spirit has also led crooks and unethical prostitutes to thrive, often without consequence, raising questions about Silicon Valley’s deepening influence on society.

But the process will ultimately revolve around one person. And the central question will be whether Ms. Holmes was a deceitful intriguer driven by greed and power or a naive who believed her own lies and was manipulated by Mr. Balwani.

The case depends on Ms. Holmes ‘knowledge of the problems with Theranos’ blood testing machines. Her lawyers could argue that she was just the public face of the start-up while Mr Balwani and others took over the technology, legal experts said. You could argue that the seasoned investors who backed Ms. Holmes should have done better research on Theranos. And you could say that Ms. Holmes was simply following Silicon Valley’s norms of exaggeration in the service of an ambitious mission.

Last year, Judge Edward Davila of the U.S. District Court for the Northern District of California agreed to separate Ms. Holmes and Mr. Balwani cases. The move is unusual for such cases, said legal experts and allows the couple to blame each other without being able to react.

In sealed 2020 court files released over the weekend, Ms. Holmes said her relationship with Mr. Balwani had a “pattern of abuse and coercive control.” According to the files, Ms. Holmes’ lawyers could provide expert testimony about her mental state and the effects of the alleged abuse. Mr. Balwani’s lawyers denied the allegations on a file. If convicted, Ms. Holmes, 37, faces up to 20 years in prison. While high-profile start-up founders from Travis Kalanick from Uber to Adam Neumann from WeWork have quickly fallen out of favor due to ethics scandals, Ms. Holmes could be one of the few who actually go to jail for this.

“Too often, this type of fraud doesn’t get criminally prosecuted,” said Alex Gibney, director of The Inventor, a documentary about Theranos. “So many other people fake it until they get it, but that never justifies not bringing charges if someone has committed fraud.”

Ms. Holmes’ attorneys did not respond to a request for comment. An attorney for Mr. Balwani, 56, declined to comment, as did a representative from the Northern District of California US Attorney General who is prosecuting the case.

The public’s fascination with the scandalous details of the Theranos drama will be great throughout the process.

For years, Ms. Holmes maintained her public image with an unusually deep voice, an intense look and a uniform made of black turtleneck sweaters, which should be reminiscent of Steve Jobs. She installed bulletproof glass in her office and traveled with a security squad in a jet or chauffeur. In 2019, she reportedly married William Evans, a hotel heir. She gave birth to her son in July.

Her high profile presents a challenge in finding jurors who have no opinion of her or the case. The judges filled out a 28-page questionnaire detailing their media consumption, medical experience, and whether they’d heard from Ms. Holmes or seen her TED talk. About half of the 200-plus potential jurors had consumed media related to the case, according to a court file last week.

It is unclear whether Ms. Holmes will take a stand to defend herself. As managing director and chairwoman of Theranos, she was convincing and inspiring. She vehemently defended Theranos and dismissed any criticism as a sign that the company is changing the world.

But if Ms. Holmes takes a stand, prosecutors could use previous testimony to violate her credibility. In a 2017 filing by the Securities and Exchange Commission, she replied “I don’t know” to questions at least 600 times.

“She’s going to have a hard time saying, ‘I remember this like that,’ when she said, ‘I don’t know,’ so many times,” said John C. Coffee Jr., a Columbia Law School professor who was not involved in the case . “That is the most damaging evidence against them.”

When the US indicted Ms. Holmes in 2018, the once soaring Theranos was as good as dead.

Ms. Holmes founded the start-up in 2003 at the age of 19 and left Stanford shortly afterwards. In 2009, she hired Mr. Balwani and raised more than $ 700 million from investors, which Theranos valued at $ 9 billion. The Palo Alto, Calif. Company has agreements with Walgreens and Safeway to bring its blood tests to their stores. It also drew dignitaries, senators, and generals – including George Shultz, Henry Kissinger, William Frist, and James Mattis – to its board of directors.

“We have reinvented the traditional laboratory infrastructure,” said Ms. Holmes at a conference in 2014. “This eliminates the need to stick needles in your arm.”

In 2015, the Wall Street Journal published a series of exposés that questioned the effectiveness of the Theranos machines.

“She committed a fraud,” said Dr. Phyllis Gardner, a Stanford medicine professor who was an early Theranos skeptic. “It has harmed many patients. She chased people for their money. “

Increased regulatory and investor scrutiny uncovered additional issues and allegations of fraud, leading to fraud charges with the Securities & Exchange Commission and a lawsuit from investors and Walgreens.

By 2016, Forbes had cut its estimate of Ms. Holmes’ net worth from $ 4.5 billion to zero. In 2018, she set up shop with the SEC and investors. Theranos was closed in the same year.

The Justice Department’s indictment, also enacted earlier that year, accused Ms. Holmes and Mr. Balwani of telling investors that Theranos’ blood testers could quickly perform a whole series of clinical tests on a fingertip blood sample, even though they both knew the tests were done became limited, unreliable, and slow. Ms. Holmes and Mr. Balwani also exaggerated Theranos’ deals, telling investors that the company would have $ 1 billion in sales in 2015 when it made just a few hundred thousand dollars, the indictment reads.

Ms. Holmes’ attorneys have since repeatedly pressed for delays in the trial. They tried to exclude evidence and block witnesses. And they argued over other details, like whether Ms. Holmes had to wear a mask during the trial.

Some allegations of fraud on behalf of doctors and patients whose tests were paid for by insurance were removed from the case last year. But Theranos patients whose test results were inaccurate are allowed to testify.

The potential witness list of more than 200 people includes many of the big names who have entered Theranos orbit. Among them: Rupert Murdoch, the media mogul who invested in the start-up; David Boies, the star attorney who represented Ms. Holmes and was on the board of Theranos; and Mr. Kissinger, Mr. Frist and Mr. Mattis.

Lawyers in the case have also argued over the hype and stretching of the truth about the fundraising in Silicon Valley. To keep the focus on Theranos, prosecutors have tried to prevent Ms. Holmes’ attorneys from arguing that it is common for startups to exaggerate their claims of raising investments. But Judge Davila said the court would allow general comments on the matter.

“Counterfeit it until you can do it – you don’t do that with medical devices,” said Dr. Gardner. “They are heavily regulated. You have to be absolutely precise and not harm anyone, and that’s what it did. “