Balwani’s lawyers opted not to have their client testify in his own defense and called only two witnesses, while Holmes’ defense team offered jurors the opportunity to hear her testimony
Elizabeth Holmes and Ramesh “Sunny” Balwani dreamed of revolutionizing the clinical laboratory blood-testing industry with their now defunct Theranos Edison device, which they claimed could perform multiple tests with a single finger prick of blood. Instead, they became the rare Silicon Valley executives to be convicted of fraud.
On July 7, ex-COO/President Balwani was convicted on all 12 counts of wire fraud and conspiracy charges in his federal fraud trial. Holmes, Theranos’ founder/CEO and former romantic partner to Balwani, avoided convictions six months ago in January on seven of the 11 counts she faced for her role in exaggerating the accuracy and reliability of the company’s Edison blood-testing device and providing false financial claims to investors.
“Once again, a jury has determined that the fraud at Theranos reached the level of criminal conspiracy,” said FBI Special Agent in Charge Sean Ragan in a press release posted on Twitter following the verdict. “The FBI has spent years investigating this investment fraud scheme with our partners at USPIS and the FDA Office of Criminal Investigations. Lies, deceit, and criminal actions cannot replace innovation and success.”
How did the trials differ? That’s the question many clinical laboratory directors and pathologists who followed Theranos’ legal saga may be asking, as well as how the Theranos trials reflect on their own duties under the Clinical Laboratory Improvement Amendments of 1988 (CLIA).
Balwani’s Age and Experience May Have Worked Against Him
Michael Weinstein, JD, a former Justice Department prosecutor who is the Chair of White-collar Litigation at Cole Schotz, told The New York Times that Balwani’s age and his trial date—three months after Holmes’ conviction—worked against him. Balwani, 57, could not present himself as a young and inexperienced tech executive easily manipulated by those around him, as Holmes, 38, had attempted to do.
“Holmes could come off as a bit naïve, and [her defense team] tried to sell that,” Weinstein said of the former Stanford University dropout who founded Theranos in 2003 when she was 19.
In Holmes’ case the verdict was mixed, with jurors acquitting her of the patient fraud counts but unable to reach a decision on some of the investor fraud counts, Bloomberg reported.
Mr. Balwani, however, “came off as more of an experienced technology executive,” Weinstein added.
Weinstein pointed out that because the government’s case against Balwani mirrored its case against Holmes, prosecutors had time to refine their strategy before making a second appearance inside US District Court Judge Edward Davila’s San Jose courtroom.
“The streamlined presentation, the streamlined evidence, the streamlined narrative—all was beneficial for the government in the end,” he said.
Ever since opening arguments in March, Balwani’s legal team portrayed him to the jurors as a loyal partner who believed in Theranos’ technology and “put his money where his mouth is,” the Guardian noted.
Prosecutors, however, made the case that Balwani had a hands-on role in running the lab and was the source of Theranos’ overinflated financial projections.
Balwani invested about $15 million in the startup between 2009 and 2011 and never cashed in when his stake grew to $500 million. That money evaporated when Theranos collapsed.
In all, 24 witnesses testified against Balwani. He was ultimately convicted of all 12 counts he faced:
- Two counts of conspiring with Holmes,
- Six counts of defrauding investors, and
- Four counts of patient fraud.
Major Differences in Trial Testimony
The Balwani trial made headlines due to COVID-19 pandemic related delays, but otherwise did not produce the news-generating moments that punctuated Holmes’ nearly four-month-long court appearance. Thirty-two witnesses appeared at the Holmes trial, including Secretary of Defense James Mattis, according to CNN.
Another significant difference in the two trials was that Holmes testified in her own defense. Holmes spent nearly 24 hours on the stand, CNN Business noted at that time, during which she cast the blame for Theranos’ failings on those around her, including Balwani.
In one of her trial’s most dramatic moments, a tearful Holmes accused Balwani of emotional and sexual abuse, including forcing her to have sex, which Dark Daily covered in “Balwani and Holmes’ Personal Relationship Takes Center Stage in Criminal Trial, Fueling Continued Public Interest in Theranos Fraud Saga.” Balwani denied those allegations.
“[The abuse claims] did not come up at his trial, but during [Holmes’] seven days of testimony, they were a big portion of what she talked about,” Jarvis said in an ABC News “Start Here” podcast. “The biggest difference is that he didn’t take the stand to say, ‘I didn’t do this,’ or … raise his own objections to the claims against him.
“You think about a jury who is supposed to know nothing about any of [the defendant’s] backstory, and they’re shown these things like … case pictures of [Holmes] so much younger than [Balwani], supposedly having to rely on him for his expertise,” Jarvis added.
“You can imagine where the jury may have found that presentation more sympathetic than Sunny Balwani who had experience,” she said.
Text May Have Been Balwani’s Undoing
Balwani’s defense team called only two witnesses:
- A naturopathic physician who used Theranos’ blood-testing lab, and
- A technical consultant who Balwani’s legal team hired to assess the accessibility of patient data in Theranos’ Laboratory Information System (LIS), which the defense argued could have provided evidence of the accuracy of Theranos’ test results.
“This verdict also signals the jurors did not buy Balwani’s highly speculative argument that the database Theranos lost in 2018 would have proven his innocence,” Park said.
“We are obviously disappointed with the verdicts,” he said. “We plan to study and consider all of Mr. Balwani’s options including an appeal.”
Following the verdicts, Judge Davila raised Balwani’s bail to $750,000 and set a Nov. 15 sentencing date. Holmes is scheduled to be sentenced Sept. 26.
Balwani’s own words may have been his final undoing. During closing arguments, prosecutors again showed jurors a text message Balwani sent to Holmes in 2015, The New York Times reported.
“I am responsible for everything at Theranos,” he wrote. “All have been my decisions too.”
Clinical laboratory directors and medical laboratory scientists will no doubt continue to monitor the fallout from these two extraordinary federal fraud trials. There’s still much to learn about CLIA-laboratory director responsibility and how the government plans to prevent future lab testing fraud from taking place.
—Andrea Downing Peck