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.”
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.
ABC NewsRebecca Jarvis, host and creator of the podcast “The Dropout,” believes Balwani’s decision not to testify worked against him.
“[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.
“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.
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.
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 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.