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Former Theranos Lab Director and Staff Testify in Ongoing Elizabeth Holmes Fraud Trial That They Voiced Concerns about Reliability and Accuracy of Edison Blood-Testing Device

Four-star general Jim Mattis testified that he eventually “didn’t know what to believe about Theranos anymore,” The Wall Street Journal reported

Former-Theranos CEO Elizabeth Holmes was known for her obsession with Steve Jobs, imitating not only the late Apple CEO’s well-known management style, but also his wardrobe choices. However, clinical laboratory managers and pathologists will not be surprised to learn that—in testimony during Holmes’ federal fraud trial—Theranos’ former laboratory director told jurors Holmes’ “confident demeanor” disappeared when she was told her revolutionary blood-testing technology “didn’t work,” KPIX5 TV reported.

During two days of testimony in San Jose, Calif., pathologist Adam Rosendorff, MD, told jurors that in the days leading up to the 2013 launch of the Edison blood-testing device he warned Holmes in emails and in person that the product wasn’t ready to be deployed commercially.

“I told her that the potassium was unreliable, the sodium was unreliable, the glucose was unreliable, [and] explained why,” testified the clinical pathologist. “She was very nervous. She was not her usual composed self. She was trembling a bit, her knee was tapping, her voice was breaking up. She was clearly upset,” he added.

KPIX5 TV reported that Holmes had told Rosendorff the laboratory could substitute conventional federal Food and Drug Administration (FDA)-approved devices as needed.

Rosendorff left his position with Theranos in November 2014. According to KPIX5, he told jurors, “I felt pressured to vouch for [medical laboratory] tests that I did not have confidence in. I came to believe that the company believed more about PR and fundraising than about patient care. The platform was not allowing me to function effectively as a lab director.”

Adam Rosendorff, MD

Former Theranos Laboratory Director Adam Rosendorff, MD (above), testified in the federal fraud trial of Theranos founder and ex-CEO Elizabeth Holmes that he considered filing a whistleblower lawsuit against his employer because of his concerns about the Edison blood-testing device’s lack of reliability and accuracy of test results. “I wanted to get the word out about what was happening at Theranos,” the clinical pathologist told jurors, the Wall Street Journal reported. (Photo copyright: LinkedIn.)

In continuing testimony, Rosendorff acknowledged that tension increased between himself and Holmes and Theranos’ Chief Operating Officer Ramesh “Sunny” Balwani over Rosendorff’s concerns about the reliability and accuracy of the lab’s test results. At one point, he asked Balwani in an email if his name could be removed from the Theranos CLIA lab license so he would not be legally responsible for the lab’s problems.

Balwani’s own fraud trial begins in January 2022.

Former Theranos Lab Director Considered Filing a Qui Tam Lawsuit

According to the Wall Street Journal (WSJ), Rosendorff testified he forwarded work emails to his personal email account to protect himself in case the federal government investigated Theranos. He also considered filing a whistleblower lawsuit against the company.

“I wanted to get the word out about what was happening at Theranos,” he testified, the Wall Street Journal reported.

The government’s first witnesses were former Theranos employees:

Gangakehedkar testified that Holmes knew about reliability issues with the Edison blood-testing device, yet pressured staff to move forward with the Walgreens roll out.

Theranos’ partnership with Walgreens ended in 2016, after Theranos voided years of test results performed on its machines.

In “Former Theranos Chemist Says Elizabeth Holmes Was Aware of Testing Failures,” the WSJ reported that Gangakhedkar resigned from Theranos in September 2013, taking with her Theranos documents and copies of emails in which she expressed her concerns to Holmes and others about continuing problems with Theranos’ lab tests.

“I was scared that things would not go well,” Gangakhedkar testified, her voice breaking at one point. “I was afraid I would be blamed.”

As foreshadowed during the trial’s opening statements, Holmes’ defense team plans to argue that their client did not intend to defraud investors but believed her blood-testing technology—portrayed as capable of running more than 200 tests using a finger-stick sample of blood—would revolutionize the healthcare industry.

In his opening remarks to the jury, Lance Wade, JD, a member of the Holmes defense team from Williams and Connolly LLP, told jurors that evidence will show Theranos investors were “incredibly sophisticated and knew the risks” and were actually pushing to invest in Theranos. The reality of the case, he said, is “far more human and real, and oftentimes, I hate to say it, technical and complicated and boring” than what the federal government has suggested, Forbes reported.

Four-star General Jim Mattis (ret.) Testifies

According to the Wall Street Journal, former Defense Secretary Jim Mattis testified he joined the Theranos board in the summer of 2013, at which time he invested $85,000 in the company. He said he had first met Holmes in San Francisco in 2011. At the time, Mattis, a Marine Corps four-star general, was leading the US military’s Central Command (CENTCOM) and that, according to testimony, he recognized the Edison device’s potential for use on the battlefield.

Mattis testified he and other Theranos board members were surprised to learn in 2015 that Theranos was using blooding testing equipment from competing companies.

“There came a time when I didn’t know what to believe about Theranos anymore,” he told jurors, according to the WSJ. Mattis resigned from the board in 2016, after learning he would be nominated as Secretary of Defense in the Trump administration.

Courtroom sketch

The courtroom sketch above shows former Defense Secretary four-star general Jim Mattis testifying Wednesday at the criminal trial of Theranos founder Elizabeth Holmes in San Jose, Calif. (Graphic copyright: Vicki Behringer.)

Theranos Investors

Theranos, which reached a peak valuation of $9 billion, received nearly $1 billion in funding from private investors, including from some well-known people. In “Theranos Trial Jurors to Weigh Whether Investors Were Dupes or Savvy Speculators,” according to the WSJ, the startup’s top investors included:

  • The Walton family—$150 million—heirs to the Walmart fortune;
  • Fox News Corp Executive Chairman Rupert Murdoch—$125 million—who sold his shares back to the company in 2017 for $1;
  • Former Education Secretary Betsy DeVos and her family—$100 million;
  • The Cox family, owner of Atlanta-based media and automotive company Cox Enterprises—$100 million;
  • Media investor Carlos Slim—$30 million;
  • Greek shipping magnate Andreas Dracopoulos—$25 million;
  • The Oppenheimer family—$20 million;
  • Riley Bechtel, former Chairman of Bechtel Corp.—$6 million;
  • Estate attorney Daniel L. Mosley—$6 million; and
  • New England Patriots owner Robert Kraft—$1 million.

As Holmes’ fraud trial heats up, Dark Daily will continue its coverage. In “Text Messages Between Theranos Founder Elizabeth Holmes and Ex-Boyfriend Ramesh “Sunny” Balwani Grab Headlines in Early Days of Fraud Trial,” we reported that Holmes’ defense team revealed plans to claim “intimate partner abuse” by Holmes’ then boyfriend, Theranos Chief Operating Officer Ramesh “Sunny” Balwani.

And in “On-demand Video Service Hulu Gets Underway on TV Miniseries Documenting Rise and Fall of Former Theranos CEO Elizabeth Holmes,” we covered Hulu’s plan to produce the “The Dropout,” a limited series chronicling Holmes’ rise and fall from Founder and CEO of $9 billion tech company Theranos to criminal defendant.

The trial is expected to last until mid-December, with jurors hearing testimony on Tuesdays, Wednesdays, and Fridays. For clinical laboratory scientists, each day of testimony should bring a new round of surprises so stay tuned.

Andrea Downing Peck

Related Information

Elizabeth Holmes Trial: Live Updates

Theranos Trial Jurors to Weigh If Investors Were Dupes or Savvy Speculators

Elizabeth Holmes’ Lawyer Says She Made ‘Mistakes,’ But ‘Failure Is Not a Crime’

Former Theranos Chemist Says Holmes Was Aware of Testing Failures

Elizabeth Holmes Confident Demeanor Vanished When Told Tests Didn’t Work, Former Lab Director Tells Jury

Elizabeth Holmes Trial: Jim Mattis Tells Jury He Came to Doubt Theranos Technology

Text Messages Between Theranos Founder Elizabeth Holmes and Ex-Boyfriend Ramesh “Sunny” Balwani Grab Headlines in Early Days of Fraud Trial

On-demand Video Service Hulu Gets Underway on TV Miniseries Documenting Rise and Fall of Former Theranos CEO Elizabeth Holmes

Reporter Who Broke Theranos Scandal Maintains Disgraced Clinical Laboratory Testing Company Could Have Returned Funds to Defrauded Investors Instead of Fighting Lawsuits

Former CEO Elizabeth Holmes now awaits March 9 court date on federal fraud charges that include reporting false medical laboratory test results on some patients

Clinical laboratory leaders have watched with keen interest the federal criminal proceedings against disgraced Theranos founder and former CEO Elizabeth Holmes, whose blood-testing company lost nearly $1 billion of investors’ money before dissolving in 2018.

In a recent CNBC interview, John Carreyrou, the Wall Street Journal (WSJ) investigative journalist who first broke the Theranos story in 2015, contended that the once-high-flying Silicon Valley startup could have paid back investors on a pro-rata basis, but that the company opted to use its dwindling cash to challenge lawsuits.

“If you rewind to October 2015, when I finished, when I published my first investigative story on Theranos, the company still had $400 million in the bank and it could have called it quits then,” Carreyrou said in the interview. “And Elizabeth Holmes could have apologized to investors, to patients, to everyone she had misled and returned that money to shareholders on a pro-rata basis.”

Theranos Scandal Breaks Wide Open

Carreyrou’s nearly year-long Wall Street Journal investigation into Theranos helped bring down the venture capital darling that had achieved a $9 billion private valuation before crumbling under the weight of fraud allegations. Dark Daily and our sister publication The Dark Report (TDR) covered in detail the allegations against and investigation into the embattled blood test company in dozens of e-briefings and TDR articles starting in 2015.

In fact, The Dark Report was first to publish the news that Theranos had ceased using its finger-stick collection method in Phoenix as early as April 2015. (See TDR, “Theranos: Many Questions, But Very Few Answers,” April 20, 2015.) At that time, Theranos declined to respond to The Dark Report’s requests for comments.

Theranos had built its superstar reputation on the backs of a revolutionary finger-prick blood testing system, which Holmes promised could diagnosis diseases ranging from diabetes to cancer with just a few drops of blood. But an in-depth investigation into hoopla surrounding the company’s breakthrough technology by Carreyrou and other reporters at the Wall Street Journal revealed it was based on false test results and phony claims to investors and companies, such as Walgreens, which had planned to feature the technology in their retail clinics. 

Elizabeth Holmes former CEO of Theranos
Elizabeth Holmes (above), founder and former CEO of now defunct Theranos, was considered a wunderkind when, as a 19-year-old Stanford University dropout, she founded Theranos in 2003. Early on, she attracted high-profile members to the Theranos board, including former US Secretary of State George Schultz, and cultivated comparisons to legendary Apple CEO Steve Jobs. But once the accuracy of Theranos’ capillary blood-test device fell under suspicion, Holmes’ fall from grace was swift, as clinical laboratories learned from multiple Dark Daily e-briefings and articles in The Dark Report going back to 2015. (Photo copyright: The New York Times.)

In 2016, Theranos received sanctions from the Centers for Medicare and Medicaid Services (CMS), which included revocation of the company’s CLIA certificate and sanctions against Holmes and other company officials that prohibited them from owning or operating a medical laboratory for two years. Soon afterward, Theranos laid off 340 workers, closed its laboratory operations, and shuttered its wellness centers to “focus on an initiative to create miniature medical testing machines,” the New York Times reported.

When Theranos was finally dissolved in September 2018, Carreyrou reported that the company had an estimated $5 million in cash to distribute to unsecured creditors. All told, Carreyrou estimates Theranos’ investors, which included such big names as News Corp Executive Chairman Rupert Murdoch, Bechtel Group Chairman Riley Bechtel, and US Education Secretary Betsy DeVos, lost nearly $1 billion.

While Holmes’ star was fading, Carreyrou’s fame was rising with the 2018 publication of his best-selling book on Theranos’ downfall, titled, “Bad Blood: Secrets and Lies in a Silicon Valley Startup.”

Theranos’ Final Chapter

Today, Holmes is preparing to stand trial on a dozen federal wire fraud and conspiracy to commit wire fraud charges at the US District Court in San Jose, Calif., where jury selection is slated to start on March 9, 2021, amid COVID-19 pandemic safety precautions.

According to the Mercury News, Holmes faces maximum penalties of 20 years in prison and a $2.75 million fine, plus possible restitution. Carreyrou does not expect Holmes to seek a plea deal.

“I think that the chances of that are pretty unlikely. From what I hear, she’s telling her friends and her entourage that she’s actually looking forward to her day in court and she thinks that the real story—her version of the story—will come out at trial,” he told CNBC. “And so, she’s actually putting on a cheerful face with people she knows, and people have seen her recently and are saying that she’s looking forward to see this go to a jury.”

While the final chapter of this story will be written by a federal court jury, clinical laboratory leaders likely will want Holmes to face maximum penalties if found guilty of all charges. The deceptive scientific and business practices Theranos allegedly engaged in caused many headaches for the clinical lab directors of hospitals and health networks as their CEOs asked why the “cheap and fast” Theranos testing system could not be used instead of traditional, more expensive testing methods.

Theranos also financially damaged investors who might otherwise have gained capital and continued to invest in more credible startups of diagnostic companies and clinical laboratories.

—Andrea Downing Peck

Related Information:

Theranos Could Have Paid Back Investors Years Ago, But Used Money to Ward Off Lawsuits: Experts

Theranos Founder Elizabeth Holmes May Seek ‘Mental Disease’ Defense in Trial, Document Shows

Theranos to Close Labs and Lay Off 340 Workers

Blood-Testing Firm Theranos to Dissolve

Theranos Founder Holmes’ Trial to Go Ahead with Socially Distanced Jury: Judge

Elizabeth Holmes Wants to Block Jurors from Hearing About Her Luxurious Lifestyle as Theranos CEO

Internationally-respected Experts in Clinical Pathology and Laboratory Medicine Ask: Why Don’t We Know More about Theranos’ Technology?

WSJ ‘Sticks’ Theranos, Raises Serious Questions: Two Front-Page Stories Describe Problems with Lab Test Technology and Issues with the FDA

Kissinger, Mattis, and Murdoch Possible Government Witnesses for the Prosecution against Elizabeth Holmes in Theranos Clinical Laboratory Testing Fraud Case

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.

However, in “Theranos: Many Questions, But Very Few Answers,” published April 20, 2015, our sister publication, The Dark Report, noted that Theranos had ceased using fingerstick collections in the Phoenix market.

Dark Daily covered the company’s first expansion into an existing clinical laboratory testing market in “Theranos Selects Phoenix Metro to Plant Its Flag and Enter the Competitive Market for Clinical Pathology Laboratory Testing,” May 4, 2015. By then, the company had a stock valuation of $9 billion, and Inc. magazine touted Holmes as, “the next Steve Jobs,” The Washington Post reported.

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 back in court
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:

  • Riley Bechtel, former chairman of the Bechtel Corporation, a large engineering and construction company.
  • David Boies, a prominent attorney who also served as the company’s legal counsel.
  • William Frist, a former US Senator from Tennessee who also served as CEO of Hospital Corporation of America.
  • Henry Kissinger, US Secretary of State and National Security Advisor in the Nixon and Ford Administrations.
  • James Mattis, former US Secretary of Defense in the Trump Administration and a lieutenant general in the US Marine Corps.
  • Sam Nunn, former US Senator from Georgia.
  • 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.
  • Fostering culture of secrecy and forcing employees and others to sign non-disclosure agreements.
  • 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.
  • Multiplexing test results and disregarding outliers to mask inconsistency.
  • Improperly setting and altering reference ranges.
  • Withholding critical test results and other important information from doctors and patients.
  • Decommissioning Theranos’ Laboratory Information System (LIS) database.
  • 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.

—Stephen Beale

Related Information:

Theranos Founder Elizabeth Holmes’ Fraud Case: Mattis, Kissinger, Murdoch are Possible Witnesses

Theranos: A Fallen Unicorn

US v. Elizabeth Holmes, et al.

Theranos Founder Elizabeth Holmes’ Twice-delayed Trial To Start in March: Judge

Theranos: Feds Throw Molotov Cocktail Case at Elizabeth Holmes Over Grand Jury Request

Theranos Founder Holmes Hit with 12th Fraud Charge—Again

Theranos: Deadlines Set after Elizabeth Holmes Claims Coronavirus Changes May Have Violated Her Rights

Theranos Destroyed Patient Test Data, Prosecutor Alleges

Theranos Founder Elizabeth Holmes’ Trial Delayed Again by Coronavirus

Theranos Founder Holmes, on Firm’s Reported False-Negative Pregnancy Test: ‘How Did That Happen?’