Former Vice President received an exclusive tour of a completely fake medical testing laboratory within Theranos, which he found “most impressive”
One thing clinical laboratory leaders and pathologists may still be curious about concerning the whole Theranos affair is how the company founder Elizabeth Holmes could fool so many high-ranking individuals—including then Vice President Joe Biden—into endorsing a completely fraudulent medical laboratory test process.
But it was the lengths to which Holmes and Balwani went to “trick” Joe Biden into endorsing Theranos—and subsequently receive the positive press that followed—that MSN found most intriguing.
According to MSN, in July of 2015 Holmes and Balwani procured Biden’s endorsement by giving the VP a tour of a “completely fake, staged lab.”
“What’s most impressive to me is you’re not only making these lab tests more accessible, you’re charging historically low prices, which is a small fraction of what is charged now, while maintaining the highest standards, and empowering people whether they live in the barrio or a mansion, putting them in a position to help take control of their own health,” stated then VP Joe Biden (above with Elizabeth Holmes) in a Theranos press release. Sadly, many clinical laboratory leaders who were skeptical and outspoken about Theranos’ claims were ignored by the press. (Photo copyright: ABC News.)
Wall Street Journal Reporter Exposes Theranos Fraud
According to a 2018 article by John Carreyrou which was part of his expose´ of Theranos published in The Wall Street Journal, “Ms. Holmes and Mr. Balwani wanted to impress Vice President Biden with a vision of a cutting-edge, automated laboratory. Instead of showing him the actual lab with its commercial analyzers, they created a fake one, according to former employees who worked in Newark. They made the microbiology team vacate a room it occupied, had it repainted, and lined its walls with rows of [Theranos] miniLabs stacked up on metal shelves.”
And the ruse worked. A 2015 Theranos press release outlined the visit at the time and stated that Biden found the facility inspiring and was impressed by the work being done by the company.
“I just had a short tour and I’m glad because you can see first-hand what innovation is all about just walking through this facility. This is the laboratory of the future,” Biden said in the press release.
In 2015, then Vice President Joe Biden toured the Theranos facility with Elizabeth Holmes, observed their supposedly innovative finger stick test system, and met with several Theranos employees. Later reports exposing the fraud stated that Holmes and Balwani were desperate to obtain Biden’s approval as it would provide positive press for Theranos, a good reputation within the industry, and lure potential investors. Theranos later tweeted a photo (above) of the visit showing Biden and Holmes walking amongst numbered blood-testing machines with a huge Theranos logo banner in the background. (Photo copyright: Connor Radnovich/The Chronicle.)
Biden’s visit occurred just a few months before Carreyrou’s Wall Street Journal report questioned the efficacy of Theranos’ blood testing technology and alleged the lab testing company tried to cover up its failures and mislead investors and patients.
Prior to that hard-hitting exposé, Holmes was heralded by the media as a star in the field of medicine. She was even prominently featured on magazine covers of influential business periodicals such as Fortune, Forbes, and Inc.
Others Who Were Bamboozled by Holmes and Balwani
Biden was not the only high-profile individual who was fooled by Holmes, Balwani and their billion-dollar con job. Other high-profile people included:
Theranos ceased operations in September of 2018 amidst the exposing of the fraud and inability to locate a buyer for the company. The shutdown rendered all investments in the company worthless.
Holmes to Receive New Hearing in Federal Court
In January of this year, Holmes was found guilty of three counts of wire fraud and one count of conspiracy to commit wire fraud for lying to investors about Theranos products. She faces up to 20 years in prison and a fine of $250,000 plus restitution for each count.
And so, clinical laboratory leaders and pathologists now have a better idea as to how Joe Biden was hoodwinked and endorsed a completely fake blood testing laboratory at Theranos. Can he be blamed for his ignorance of clinical laboratory test technology? Probably not. But it makes for interesting reading.
Even as Balwani’s trial moves ahead, Hulu’s miniseries ‘The Dropout’ chronicles the pair’s romance and the company’s downfall while providing controversial subject matter for various media outlets
Unlike Theranos founder Elizabeth Holmes’ criminal trial for fraud which generated daily headlines across the nation, the related fraud trial of ex-Theranos COO Ramesh “Sunny” Balwani is not getting the same news coverage. Therefore, media have shifted their reporting to Balwani’s personal relationship with the Holmes, which is clearly having its moment in the media spotlight.
The release of the Hulu miniseries “The Dropout”—which chronicles Holmes’ failed attempt to revolutionize the clinical laboratory industry by developing a device capable of performing multiple clinical blood tests using a finger-stick of blood—created the initial media and TV-viewer buzz.
Now a diverse range of media, including Fortune, The New York Post, and The Guardian, are turning their attention to the former Theranos executives’ private relationship during the time when they were in charge at the failed medical laboratory company.
As “The Dropout” outlines, Holmes gained celebrity status after dropping out of Stanford University at age 19 and founding Theranos in 2003. Years later, when Theranos claimed its Edison blood-testing device could conduct hundreds of blood tests using a finger-prick of blood, the startup’s valuation soared to nearly $9 billion in 2014, making Holmes a billionaire based on her 50% stake in the company, Investopedia reported.
In “What Happened to Elizabeth Holmes and Sunny Balwani? Where the Shamed Theranos Execs are Today,” Fortune used the release of “The Dropout” to publish an update on Holmes and Balwani. The magazine notes Holmes’ family connections—she was a descendant of the founders of America’s first yeast company and the daughter of a former Enron executive and congressional aide—helped her early efforts at fundraising for Theranos.
Fortune also stated that Holmes’ “pedigreed background” enabled her to attract “luminaries” such as former Secretary of State Henry Kissinger and former CDC Director William Foege to the Theranos board and gained her access to high-profile investors.
In U.S. District Court Northern District of California, ex-Theranos president and COO Ramesh “Sunny” Balwani (above) faces charges for allegedly defrauding patients and investors about Theranos. His defense team has attempted to distance their client from the day-to-day decision-making in the clinical laboratory company, while prosecution witnesses are attempting to show Balwani not only invested money in the startup but orchestrated many of the company’s actions. Balwani has pleaded not guilty to all charges. (Photo copyright: David Paul Morris, Fortune.)
Theranos, Holmes Cloaked in Secrecy, according to Fortune
While Holmes sought the spotlight when promoting Theranos, Fortune maintains the company’s work culture and Holmes herself were clocked in secrecy. The article states Holmes hired bodyguards to serve as her chauffeurs, installed bulletproof glass in her office windows, and did not allow workers in separate departments to discuss projects with one another.
Balwani met Holmes in 2002 while both were studying in Beijing as part of a Mandarin language summer program. He was 37 and married at the time, while Holmes was an 18-year-old high school student. Balwani was attending an MBA program at the University of California, Berkeley, which he entered after selling his shares in software company Commerce One in 2000 for nearly $40 million.
The New York Post reported Balwani sold the upscale Silicon Valley home he previously shared with Holmes for $15.8 million this past January. The 6,800-square-foot, five-bedroom, seven-bathroom house in Atherton, Calif., is a one-acre property, which The Post states was purchased by the couple for $9 million in 2013. Balwani bought out Holmes’ 50% stake in 2018.
Aron Solomon, a Chief Legal Analyst for legal marketing firm Esquire Digital, is not surprised by the interest in all things Theranos-related.
“We are seeing a ton of interest following the Holmes trial, and I don’t think it’s going to go away,” he told The Guardian.
Potential Reason for Delay in Holmes’ Sentencing
Holmes was convicted in January on four counts of fraud, but she is not expected to be sentenced until September. Amanda Kramer, JD, a partner in the White Collar Defense and Investigations practice at Covington and Burling, LLP, and a former federal prosecutor, suggests that Holmes’ sentencing date may have been delayed until after Balwani’s trial due to the potential for new information to come to light.
“It’s not typical for a case to be sentenced eight months out, but this is not a typical case in many senses,” Kramer told NPR. “And some facts established in Balwani’s trial might prove to be relevant in Holmes’ sentencing.”
So, it appears clinical laboratory directors and pathologists may find more interesting insights about the problems at Theranos emerging from court testimony when it is time for Holmes to be sentenced and during the remaining days of Balwani’s trial. Stay tuned. Dark Daily will continue to bring you the relevant facts of the case.
Split verdict could still mean considerable prison time for the one-time high-flying Silicon Valley entrepreneur
In a trial generating unprecedented interest among clinical laboratory scientists, former Theranos CEO Elizabeth Holmes was found guilty in federal court this week on four charges of defrauding investors.
Holmes faces up to 20 years in prison as well as a fine of $250,000 plus restitution for each count, though sentencing experts predict a much lighter sentence for the 37-year-old whose birth of her first child caused one of multiple delays in the start of the three-month-long trial.
“I suspect she may get five to seven years in prison,” Justin Paperny, Founder of federal prison consultancy White Collar Advice, told Fortune. However, Paperny said Holmes will be unlikely to be eligible for early release in federal prison beyond a 15% reduction in prison time for good behavior.
“There is no real mechanism to really aggressively advance your release date in federal prison,” Paperny told Fortune.
Holmes was acquitted on four counts, while the jury failed to reach a decision on three counts. Judge Edward J. Davila of the US District Court, Northern District of California, who presided over the trial, will sentence Holmes at a later date. Holmes is expected to be allowed to remain free on bail until sentencing.
The graphic above, taken from a CNBC live report, shows the jury’s verdicts in all 11 charges, including those on which the jury did not arrive at a verdict. (Photo copyright: CNBC.)
Trial Delays Due to Pandemic, Holmes’ Pregnancy
According to ABC News, Holmes “expressed no visible emotion as the verdicts were read.” She did not respond to questions about the verdict as she left the courtroom and walked to a nearby hotel where she has stayed during seven days of jury deliberations.
“The jurors in this 15-week trial navigated a complex case amid a pandemic and scheduling obstacle,” US Attorney of the Northern District of California, Stephanie Hinds, told reporters Monday evening, according to ABC News. “I thank the jurors for their thoughtful and determined service that ensured verdicts could be reached. The guilty verdicts in this case reflect Ms. Holmes’ culpability in this large-scale investor fraud, and she must now face sentencing for her crimes.”
The decision followed an often-delayed trial in which the prosecution put 29 witnesses on the stand, most of whom reinforced the government’s contention that Holmes defrauded investors and patients as she worked to bring to market Theranos’ “revolutionary” Edison finger-prick blood-testing device. The prosecution also presented emails, text messages, and other documents that it said were evidence of Holmes’ deceptions.
Dark Daily covered all of this in multiple ebriefings, including the potential that the four CLIA-laboratory directors who held the top laboratory position in Theranos’ lab during Holmes’ tenure as CEO might be held accountable for their actions or inactions on some level.
Details of Charges and Guilty Verdicts against Holmes
According to the Mercury News, the jury returned guilty verdicts on four counts facing Holmes:
Count 1: Guilty of conspiracy to commit wire fraud against Theranos investors. This charge accused Holmes and Chief Operating Officer Ramesh “Sunny” Balwani, of “knowingly and intentionally” soliciting payments from investors with false statements about Theranos’ technology, its business partnerships, and its financial model.
Count 6: Guilty of wire fraud in connection with a 2014 investment of $38,336,632 made by PFM Health Sciences of San Francisco. Brian Grossman, PFM’s Chief Investment Officer, testified that his team was told Theranos had brought in more than $200 million in revenue, “mostly from the Department of Defense.” In realty, 2011 revenue came in at $518,000 and the company had no revenue in 2012 or 2013, according to Theranos’ former head of accounting.
Count 7: Guilty of wire fraud in connection with an October 2014 investment of $99,999,984 made by a firm associated with the family of former Education Secretary Betsy DeVos. Managing Director, Global Private Equity at Ottawa Avenue Private Capital, Lisa Peterson testified Holmes claimed Theranos’ technology was in use “on military helicopters,” and sent a report with a Pfizer logo touting the “superior performance” and accuracy of Theranos’ machines. The logo and follow-up questioning, Peterson said, led her to conclude that the report was prepared by Pfizer, which was false.
Count 8: Guilty of wire fraud in connection with an October 2014 investment of $5,999,997 from a company involving Daniel Mosely, the long-time lawyer for former US Secretary of State Henry Kissinger. Mosely testified he also was led to believe Pfizer had approved Theranos’ technology. In a letter to Kissinger, he called the report “the most extensive evidence supplied regarding the reliability of the Theranos technology and its applications.”
The illustration above shows Elizabeth Holmes being kissed on her head by her father after being found guilty in federal court on four charges of defrauding investors while CEO of now defunct blood-testing laboratory Theranos. (Graphic copyright: Vicki Behringer/ABC News.)
The jury of eight men and four women began deliberations on December 20 after closing arguments in the nearly four-month-long trial in San Jose, California. Holmes originally faced 12 counts of wire fraud and conspiracy to commit wire fraud. One count was dropped during the trial.
During a blistering three-hour closing argument, Assistant US Attorney Jeffrey Schenk hammered home the prosecution’s contention that Holmes choose to deceive investors and patients rather than admit failure in her quest to revolutionize healthcare by delivering a blood-testing device capable of running up to 200 laboratory tests using a finger-prick of blood.
“Ms. Holmes made the decision to defraud her investors, and then to defraud patients,” Schenk told jurors, according to CNBC. “She chose fraud over business failure. She chose to be dishonest with investors and with patients.”
The defense team put three witnesses on the stand, with Holmes emerging as a surprise witness in her own defense. She maintained she never intended to defraud anyone and instead relied on experts within her company for the claims she made about Theranos’ blood-testing device. During her seven days of testimony, she also alleged emotional, physical, and sexual abuse by Balwani. Balwani has denied in legal filings Holmes’ abuse allegations.
Holmes Wanted to “Change the World,” Defense Claims
In his closing argument, defense attorney Kevin Downey maintained Holmes’ intent was not to deceive but to “change the world.”
“At the end of the day, the question you’re really asking yourself is, ‘What was Ms. Holmes’ intent?'” Downey told jurors, according to Business Insider, “Was she trying to defraud people?”
The jury’s answer: “Yes.”
Clinical laboratory directors and pathologists will soon learn the price Holmes will pay for her deceptions when she is sentenced in coming weeks. Meanwhile, the start of Balwani’s fraud trial has been postponed to February 15, according to Bloomberg News.
The federal trial, now set to begin in March 2021, could become a media spectacle given the marquee names on the witness list
Clinical laboratories following the federal criminal proceedings against Theranos founder and former CEO Elizabeth Holmes will have to wait until next year for the case to go to trial. When it does, it could become a media spectacle given the list of prominent witnesses who may be called as government witnesses.
The names, according to a letter that prosecutors sent April 3 to Holmes’ defense team, include former US Cabinet Secretaries Henry Kissinger and James “Mad Dog” Mattis, both of whom sat on the board of the ill-fated diagnostics company. Prosecutors may also call media mogul Rupert Murdoch to testify, the (San Jose) Mercury News reported.
To Fingerstick or Not to Fingerstick
As readers of Dark Daily will recall, Holmes claimed that Theranos had developed ground-breaking blood-testing technology that allowed for a range of blood tests using only 25 to 50 microliters of blood drawn by fingerstick rather than conventional venipuncture. Use of capillary specimens for many clinical laboratory tests was regularly touted by Holmes as one of Theranos’ technology secrets and a key to its plans to disrupt the clinical laboratory marketplace.
But then a series of articles by The Wall Street Journal (WSJ) in the fall of 2015 revealed serious problems with Theranos’ management and technology, eventually leading to the company’s downfall.
Charges of Fraud
According to documents filed with the US Department of Justice (DOJ) US Attorney’s Office Northern District of California, on June 15, 2018, a federal grand jury indicted Holmes and Theranos president Ramesh Balwani with 11 counts related to wire fraud. The government alleges one scheme to defraud investors and another to defraud doctors and patients. The defendants each face up to 20 years in prison for each count plus fines and restitution. They have pleaded not guilty.
“Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos’ blood testing laboratory services, even though, according to the government, the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests,” the government stated in an announcement of the indictment. “It is further alleged that the tests performed on Theranos technology were likely to contain inaccurate and unreliable results.”
Prosecutors later added a 12th felony charge tied to a patient’s blood-test result, as Dark Daily reported in July. That charge was later withdrawn and then restored amid legal wrangling about the composition of the grand jury.
The start of the trial has been delayed twice due to the COVID-19 pandemic. Jury selection is now set to begin March 9, 2021, the East Bay Times reported.
Elizabeth Holmes, founder and former CEO of Theranos, is seen above with her attorneys exiting the Robert F. Peckham US Federal Court in San Jose, California. Jury selection for her trial will begin on March 9, 2021. She has been charged with two counts of conspiracy and nine counts of wire fraud, CNBC reported. (Photo copyright: CNBC.)
Witnesses for the Prosecution
Dark Daily has reviewed the April 3 letter sent by prosecutors to the defense team. It lists witnesses and documents that may be used as evidence in the case. The defense attorneys included the letter in a June 30 filing indicating that they will seek to exclude or limit much of the prosecution evidence.
The April 3 letter “did not identify the particular acts Ms. Holmes supposedly committed and continued to rely on vague themes,” they wrote. “It did not disclose what evidence the government would introduce outside its case in chief. And it did not provide any explanation of which particular acts the hundreds of witness statements and the thousands of pages of discovery it identified would support.”
One section, with the heading “False and misleading representations made to Theranos’ Board of Directors,” includes the following former board members as possible witnesses:
William Perry, US Secretary of Defense in the Clinton Administration.
Robert Shapiro, an attorney best known as a member of the defense team in the O.J. Simpson murder trial.
George Shultz, US Secretary of State in the Reagan Administration and US Secretary of the Treasury in the Nixon Administration.
The letter also indicates that some of these former board members could be called to testify about alleged efforts by defendants Holmes and Balwani to conceal a romantic relationship, as well as alleged efforts by the defendants to avoid subjecting Theranos technology to “meaningful comparative tests.”
Murdoch, executive chairman of News Corp., is one of six potential witnesses who may be called to testify about “threats, influence, or vilification of journalists in response to negative coverage with Theranos.” News Corp. is the parent company of The Wall Street Journal.
Another section relates to alleged “false and misleading representations made to journalists.” It references articles published in Wired, Fortune, CNN, The Economist, Medscape, and The New Yorker.
Other sections of the letter offer a broader picture of the government’s case against Holmes and Balwani. It lists potential witnesses and documents related to the following subjects, though some names have been redacted:
False and misleading representations directed at insured patients.
False and misleading representations directed at doctors.
False and misleading representations made to Walgreens.
False and misleading representations made to Safeway.
Restricting access to laboratory areas within Theranos.
Harassing, threatening, or otherwise influencing doctors or patients who had negative experiences with Theranos.
Blaming and vilifying competing companies.
Threatening or intimidating employees and former employees.
False and misleading representations made to FDA, CMS, CDPH, and other regulatory organizations.
Violations of industry standards and government regulations or rules regarding research and development procedures, medical devices, and clinical laboratory practices.
Altering or tampering with third-party medical devices.
Obtaining personal benefit from position at Theranos.
One interesting aspect to the rise and fall of Elizabeth Holmes and Theranos is that the clinical laboratory and anatomic pathology professions were never fooled by all the publicity and news coverage of the company. Pathologists and clinical laboratory scientists knew that, over the 10-plus years of Theranos’ existence, its scientific team had never published any research findings of significance in a respected, peer-reviewed journal.
That was strong evidence that Theranos had no new break-through, disruptive, diagnostic technologies that would allow it to perform multiple tests on a single drop of blood that was collected by a fingerstick procedure.
Since the collapse of Theranos and the downfall of Elizabeth Holmes, many in the clinical laboratory profession have hoped that federal prosecutors would prosecute her under the full extent of the law.
