Holmes’ lawyers maintain the former CEO of Theranos has not waived right to be charged by indictment and therefore argue the added charge is ‘unconstitutional’ and should be dismissed

Clinical laboratory leaders needing a break from nonstop coronavirus pandemic news will be interested to learn a familiar name is again making headlines. Disgraced Theranos founder Elizabeth Holmes—who went from paper billionaire to criminal defendant—is now facing a 12th felony fraud charge, with the additional count tied to a patient’s blood-test result.

Holmes founded the blood testing company in 2003 after dropping out of Stanford University. Though Theranos reached a peak valuation of $9 billion in 2015, according to Investopedia its unicorn-startup status began unraveling that same year when a Wall Street Journal (WSJ) investigation exposed the company’s massive deceptions and questionable practices related to its finger-prick blood-testing technology.

Holmes and codefendant Ramesh “Sunny” Balwani, former Theranos President and Chief Operating Officer, claimed Theranos had developed a medical technology that could  run thousands of clinical laboratory tests using a finger-prick blood test that would return results in two hours and at a price that was 50% of Medicare’s fees for lab tests.

As Dark Daily previously reported in “Previously High-Flying Theranos Provides Clinical Laboratories and Pathology Groups with Valuable Lesson on How Quickly Consumer Trust Can Be Lost,” the company was brought to the edge of bankruptcy in the aftermath of a fraud settlement with the Securities and Exchange Commission,

sanctions from the Centers for Medicare and Medicaid Services, investor lawsuits, consumer lawsuits, and a settlement with Walgreens over claims about Theranos’ Edison portable blood analyzer, CNBC reported. Theranos ceased operations in September 2018.

Elizabeth Holmes is seen above entering the Northern District of California courthouse with attorneys Kevin Downey (left) and Lance Wade (right) of the law firm Williams and Connolly. (Photo copyright: Jason Doiy/ALM)

The 12th Felony Charge Against Elizabeth Holmes

Earlier in 2018, David L. Anderson, US Attorney for the Northern District of California indicted Holmes and Balwani on 11 counts of wire fraud and conspiracy to commit wire fraud.

Now, an additional wire fraud charge has been added to that list. The 12th felony charge was included in Superseding Information federal prosecutors filed with the court on May 8. Superseding Information is a charging document that does not require a grand jury proceeding.

In the filing, the latest allegation of fraud is alleged to have occurred on October 12, 2015, in the states of California and Arizona and is described as a “telephone call from Patient B.B. to Theranos regarding laboratory blood test results.”

The Superseding Information states: “Knowing that the accuracy and reliability of Theranos test results was questionable and suspect, Holmes and Balwani oversaw the electronic wiring of test results to patients, including persons known to the Attorney for the United States as Patients B.B, E.T., and M.E. These wires … travelled between one state and another.”

The amended charging document also more than doubles the length of time the pair are alleged to have conspired to defraud investors, adds additional categories of alleged victims, and revises the dates of two of the other prior wire fraud charges, changing them from 2014 to 2015.

“In particular, Holmes and Balwani knew that Theranos was not capable of consistently producing accurate and reliable results for certain blood tests, including but not limited to bicarbonate, calcium, chloride, cholesterol/HDL/LDL, gonorrhea, glucose, HbA1c, hCG, HIV, LDH, potassium, PSA, PT/INR, sodium, testosterone, TSH, vitamin D (25-OH), and all assays conducted on Theranos’ TSPU [Theranos Sample Processing Unit] version 3.5, including estradiol, prolactin, SHBG, thyroxine (T4/free T4), triiodothyronine, and vitamin B-12,” the Superseding Information states.

According to Law.com, Holmes’ lawyers at Williams and Connolly responded by filing a motion to dismiss the Superseding Information. Because grand jury proceedings have been suspended in the Northern District of California since mid-March due to COVID-19, they argue that Holmes, who hasn’t waived the right to be charged by grand jury indictment, is unable to be arraigned. They maintain the prosecutors’ actions violate her rights under the US Constitution and Federal Rules of Criminal Procedure Rule 7, which requires crimes punishable by a prison sentence of more than a year to be charged by indictment unless the defendant waives that right.

“Because Ms. Holmes does not waive prosecution by indictment, convening an arraignment on this information would be pointless and a waste of the Court’s time because no arraignment could actually occur,” her lawyers wrote in their motion. “The Court should dismiss this unconstitutional information without scheduling an arraignment.”

On May 26, prosecutors filed their opposition to the defendants’ motion to dismiss. They maintained that US District Judge Edward Davila should either deny the defense request outright or hold off ruling until a “reasonable time after the Court lifts the suspension of grand jury hearings.”

They wrote, “Defendants’ claim that an information must be ‘dismissed immediately’ because it is not the constitutionally required indictment proves too much,” adding, “Criminal charges are initiated all the time through preliminary proceedings like a complaint or an information. They are not ‘patently unconstitutional merely because a defendant has indicated she will not waive her right to be prosecuted by indictment.”

COVID-19 Delays Court Proceedings

Holmes’ trial originally was set to begin in August, but the COVID-19 pandemic has resulted in the case being postponed to October 27, reported CNBC. According to Davila, “We’re in unchartered waters and unchartered territories. We need to make sure the environment is safe for all parties, including the jury that’s called to hear the matter.”

The Theranos scandal continues to serve as a reminder to clinical laboratory leaders

and pathology groups that questionable or deceptive business practices eventually will draw the attention of federal regulators, prosecutors, and consumers, and that the penalty for fraud can be severe. The frustration for medical laboratory professionals and pathologists is that it generally takes years for federal investigators to bring charges against such frauds.

—Andrea Downing Peck

Related Information:

Theranos Case: Prosecutors Add a Criminal Fraud Charge Against Elizabeth Holmes

U.S. v. Elizabeth A. Holmes, et al. Superseding Information

Elizabeth Holmes’ Lawyers Object to Government’s Decision to Amend Charge by Information, Rather than Indictment

Hot Startup Theranos Has Struggled with its Blood-Test Technology

New Criminal Charge Against Theranos Founder Elizabeth Holmes Called ‘Patently Unconstitutional’

Theranos Founder Elizabeth Holmes’ Trial Delayed, Feds Plan to Add Charges

Elizabeth Holmes’ Criminal Trial Delayed Due to Coronavirus

U.S. vs. Elizabeth A. Holmes and Ramesh “Sunny” Balwani

U.S. v. Elizabeth Holmes, et al.

United States’ Opposition to Defendants’ Motion to Dismiss

Theranos, Walgreens Reportedly Reach a Deal to Settle Lawsuit for Under $30 Million

Theranos, CEO Holmes, and Former President Balwani Charged with Massive Fraud

Previously High Flying Theranos Provides Clinical Laboratories and Pathology Groups with Valuable Lesson on How Quickly Consumer Trust Can Be Lost