Like Holmes, Balwani faces 12 counts of fraud and conspiracy to commit wire fraud for allegedly misleading investors, patients, and others about blood-testing startup’s technology
Clinical laboratory managers and pathologists are buckling up as the next installment of the Theranos story gets underway, this time for the criminal fraud trial of ex-Theranos President and COO Ramesh “Sunny” Balwani.
In one text to Holmes, Balwani wrote, “I am responsible for everything at Theranos,” NBC Bay Area reported.
Partners in Everything, including Crime, Prosecutors Allege
According to the Wall Street Journal (WSJ), prosecutors are following the Holmes trial playbook. They focused their opening arguments on the personal and working relationships between the pair, tying Balwani to Holmes’ crimes at the Silicon Valley blood-testing startup.
As second in command at Theranos, Balwani helped run the company from 2009 to 2016. He also invested $5 million in Theranos stock, while also underwriting a $13 million corporate loan.
“They were partners in everything, including their crimes,” Assistant US Attorney Robert Leach told jurors, the Mercury News reported. “The defendant and Holmes knew the rosy falsehoods that they were telling investors were contrary to the reality within Theranos.”
Leach maintained that Balwani was responsible for the phony financial projections Theranos gave investors in 2015 predicting $990 million in revenue when the company had less than $2 million in sales.
Former Theranos President and COO Ramesh “Sunny” Balwani (above) is seen arriving at the federal court in San Jose, California, for the start of his federal fraud trial. Clinical laboratory leaders and pathologists who followed the trial of ex-Theranos founder and CEO Elizabeth Holmes will no doubt be interested in what can be learned from this trail as well. (Photo copyright: Jim Wilson/The New York Times.)
“This is a case about fraud. About lying and cheating to obtain money and property,” Leach added. Balwani “did this to get money from investors, and he did this to get money and business from paying patients who were counting on Theranos to deliver accurate and reliable blood tests so that they could make important medical decisions,” the WSJ reported.
Defense attorneys downplayed Balwani’s decision-making role within Theranos, pointing out that he did not join the start-up until six years after Holmes founded the company with the goal of revolutionizing blood testing by developing a device capable of performing blood tests using a finger-prick of blood.
“Sunny Balwani did not start Theranos. He did not control Theranos. Elizabeth Holmes, not Sunny, founded Theranos and built Theranos,” defense attorney Stephen Cazares, JD of San Francisco-based Orrick, said in his opening argument, the WSJ reported.
The trial was expected to begin in January but was delayed by the unexpected length of the Holmes trial. It was then pushed out to March when COVID-19 Omicron cases spiked in California during the winter.
Balwani’s trial is being held in the same San Jose courthouse where Holmes was convicted. Balwani, 56, is facing identical charges as Holmes, which include two counts of conspiracy to commit wire fraud and 10 counts of wire fraud. He has pleaded not guilty.
Holmes, who is currently free on a $500,000 bond, will be sentenced on Sept. 26, Dark Daily reported in January.
Judge Excludes Jurors for Watching Hulu’s ‘The Dropout’
During jury selection in March, some jurors acknowledged they were familiar with the case, causing delays in impaneling the 12-member jury and six alternates. US District Court Judge Edward Davila excluded two potential jurors because they had watched “The Dropout,” Hulu’s miniseries about Holmes and Theranos. Multiple other jurors were dropped because they had followed the Holmes trial in the news, Law360 reported.
When testimony began, prosecutors had a familiar name take the stand—whistleblower and former Theranos lab tech Erika Cheung, who provided key testimony in the Holmes trial. During her testimony, Cheung said she revealed to authorities what she saw at Theranos because “Theranos had gone to extreme lengths to [cover up] what was happening in the lab,” KRON4 in San Francisco reported.
“It was important to report the truth,” she added. “I felt that despite the risk—and I knew there could be consequences—people really need to see the truth of what was happening behind closed doors.”
Nevada State Public Health Laboratory (NSPHL) Director Mark Pandori, PhD, who served as Theranos’ lab director from December 2013 to May 2014, was the prosecution’s second witness. Pandori testified that receiving accurate results for some tests run through Theranos’ Edison blood testing machine was like “flipping a coin.”
“When you are working in a place like Theranos, you’re developing something new. And you want it to work. Quality control remained a problem for the duration of my time at the company. There was never a solution to poor performance,” Pandori testified, according to KRON4.
While the defense team has downplayed Balwani’s decision-making role—calling him a “shareholder”—Aron Solomon, JD, a legal analyst with Esquire Digital, maintains they may have a hard time convincing the jury that Balwani wasn’t a key player.
“There’s no way the defense is going to be successful in painting Sunny Balwani in the light simply as a shareholder,” he told NBC Bay Area. “We know that, literally, Sunny Balwani was intimately involved with Theranos, because he was intimately involved with Elizabeth Holmes,” Solomon added.
Little Media Buzz for Balwani, Unlike Holmes Trial
While the Holmes trial hogged the media spotlight and drew daily onlookers outside the courthouse, reporters covering Balwani’s court appearances describe a much different atmosphere.
“The sparse crowd and quiet atmosphere at US District Court in San Jose, Calif., felt nothing like the circus frenzy that engulfed the same sidewalk months earlier when his alleged co-conspirator and former girlfriend, Elizabeth Holmes, stood trial on the same charges,” The New York Times noted in its coverage of the Balwani trial.
The Balwani trial may not reach the same headline-producing fervor as the Holmes legal battle. However, clinical laboratory directors and pathologists who follow these proceedings will no doubt come away with important insights into how Theranos went so terribly wrong and how lab directors must act under the Clinical Laboratory Improvement Amendments of 1988 (CLIA).
Jurors are expected to hear closing arguments beginning on December 16 and then will decide Holmes’ fate in criminal fraud trial
It was seven days of testimony from former Theranos CEO Elizabeth Holmes, reported in detail by most major news outlets. The jury in her criminal fraud trial heard the once-high-flying Silicon Valley executive attempt to explain away charges of deception. She acknowledged that she made mistakes while leading the clinical laboratory blood-testing company but claimed that others were ultimately responsible for the company’s failures.
Rosendorff left Theranos in November 2014. He was followed by three more Theranos laboratory directors, all of whom have testified in the fraud case against Holmes.
Presumably, in her testimony, Holmes was laying the blame for key failures in the accuracy of the lab tests performed for patients, along with major deficiencies in how her medical lab company complied with CLIA regulations, on these former Theranos laboratory directors (as the clinical laboratory company’s CLIA lab directors of record during those years).
“Whether you have an intent to defraud is really a state of mind,” she said.
The illustration above depicts ex-Theranos CEO and founder Elizabeth Holmes concluding seven days of testimony in her criminal fraud trial in San Jose, California. Closing arguments are scheduled to begin December 16. Clinical laboratory directors and pathologists following the fraud trail may soon learn whether the four clinical laboratory directors who worked for Theranos may in some way be held accountable for some of the company’s activities. (Graphic copyright: Vicki Behringer/The Wall Street Journal.)
‘We Wanted to Help People’
Holmes’ testimony may have both helped and hurt her case. According to The Wall Street Journal (WSJ), Holmes “hasn’t flinched during questioning by her lawyer or the government.
“The persona of the confident yet traumatized chief executive could create reasonable doubt in the minds of jurors, legal observers following the trial say, and muddy the evidence prosecutors put forward over 11 weeks to prove she intended to defraud investors and patients about the reach of Theranos’ technology,” the WSJ wrote.
During testimony, Holmes maintained that her goal in founding Theranos was to increase access to healthcare. “We wanted to help people who were scared of needles,” she told jurors, the WSJ reported.
In building its case, prosecutors presented witness testimony and other evidence strongly suggesting Holmes lied to investors about Theranos’ laboratory testing capabilities and deployment, concealed its use of commercial blood testing machines, and hid ongoing issues with its Edison device.
One of the most damaging moments of Holmes’ own testimony may have been when she admitted to affixing the logos of pharmaceutical giants Pfizer and Schering-Plough to reports sent to Walgreens and potential investors.
Holmes told jurors that her intent was to give credit to others, not to deceive and her defense attorneys attempted to show that many of Holmes’ more questionable decisions were aimed at protecting Theranos trade secrets.
“We had a huge amount of invention that was happening in our laboratories,” Holmes testified, according to CNN’s trial coverage. “We had teams of scientists and engineers that were working really hard on coming up with new ideas for patents and trade secrets, and we needed to figure out how to protect them.”
Holmes Claims No Responsibility for Theranos’ Lab Operations and Product Development
On the witness stand, Holmes acknowledged she was the final decisionmaker at Theranos. However, she worked to distance herself from the company’s medical laboratory troubles. She pointed out that others within the company had control over laboratory operations and scientific decision-making.
The WSJ reported that defense lawyer Kevin Downey asked Holmes, “Who was responsible for operational management of the lab?”
Holmes replied, “Sunny Balwani.” She explained that her former No. 2 executive oversaw all the “business parts” of the lab. Meanwhile, the clinical/scientific decision-making, Holmes stated, was the job of the laboratory director and laboratory leadership.
When given the opportunity to cross-examine Holmes, prosecutors focused on Holmes’ response to the 2015 WSJ investigation into Theranos and her retaliatory actions against whistleblower Erika Cheung, a former lab employee who became a source for the WSJ’s expose and a prosecution witness.
According to WSJ live coverage, Holmes testified that Theranos hired a law firm and threatened Cheung with litigation after she left the company, but only did so to protect Theranos’ trade secrets. Holmes acknowledged that Cheung’s concerns about Theranos’ blood-testing technology ultimately were proven correct.
“I think I mishandled the entire process of the Wall Street Journal reporting,” Holmes said.
Closing Arguments
In her closing day of testimony, Holmes was asked if she ever intentionally misrepresented Theranos’ technology to patients and investors, the WSJ reported.
“Never,” Holmes responded.
Asked if investors lost money because of her attempting to mislead them, she answered, “Of course not.”
Clinical laboratory directors and pathologists who have taken a keen interest in the Holmes fraud trial will soon learn if the jury buys her arguments. Closing arguments are set for December 16, after which the jury must decide whether Holmes intended to defraud patients and investors or is guilty only of falling short in her goal of revolutionizing clinical laboratory medicine.
Pregnant former Theranos CEO Elizabeth Holmes makes her first court appearance in 15 months as pre-trial maneuvering continues in court case involving clinical laboratory tests
During pre-trial hearings for the August fraud trial of former Theranos CEO, Elizabeth Holmes, federal prosecutors signaled that the accuracy of Theranos’ blood tests will be center stage in their arguments. This latest installment in the continuing saga of defunct medical laboratory testing company Theranos took place when a now-pregnant Holmes made her first in-person court appearance in 15 months.
Clinical laboratory scientists have watched with interest as the often-delayed fraud trial inched closer to its new August 31 start date. After being delayed multiple times by the COVID-19 pandemic, United States District Court Judge Edward Davila ruled in March that the trial would be postponed from mid-July to late August due to Holmes’ pregnancy. She is due to give birth in July.
Do Prosecutors Lack Proof Theranos’ Blood Testing Technology Is Inaccurate?
As Dark Dailypreviously reported, Holmes faces 12 counts of wire fraud charges for alleged false claims that Theranos created a revolutionary technology for performing a wide range of clinical laboratory tests using a tiny amount of blood.
In its 2015 investigative report, The Wall Street Journal (WSJ) alleged Theranos had not disclosed publicly that the vast majority of its tests were performed with traditional machines purchased from Siemens AG and other companies, not its so-called breakthrough proprietary technology.
The recent three-day hearing provided Holmes’ attorneys and federal prosecutors with an opportunity to present arguments regarding what evidence can be presented at the upcoming trial.
According to the WSJ article, Holmes’ defense team is trying to block the government from calling patients and medical professionals to testify about the accuracy of Theranos’ blood test results. At the hearing, attorney Amy Saharia, a Williams and Connolly LLP partner, maintained prosecutors lack scientific proof Theranos tests were inaccurate. She called this lack of scientific evidence a “gigantic hole” in the government’s case.
“This trial is going to be a sprawling mess of irrelevant, prejudicial evidence,” she told the court, the WSJ reported.
Saharia added, “We have all become very familiar with testing this year. Testing involves many different variables,” CNBC reported. “What the government offers is without scientific basis, they have to establish Theranos technology was responsible for erroneous results. Just because it happened doesn’t mean it was because of Theranos technology.”
Pregnant Elizabeth Holmes (above), who is due to give birth in July, is seen entering the courtroom for a pretrial hearing in San Jose, Calif., in the US government’s fraud case against the former Theranos CEO. In the hearing, federal prosecutors indicated the accuracy of Theranos’ clinical laboratory tests will be at the center of their arguments. (Photo copyright: Mercury News.)
Defense Tries to Block Pathologists’ Testimony
During the second day of hearings, federal prosecutors responded to defense attorneys’ efforts to block clinical pathologist Stephen Master, MD, PhD, from testifying. Defense attorneys argued the government is using Master as a “parrot” and argue his views on Theranos’ blood tests are “based on emails and customer complaints” not personal familiarity with the tests, CNBC reported. Master is Division Chief and Director, Metabolic and Advanced Diagnostics at Children’s Hospital of Philadelphia, and an Associate Professor of Pathology and Laboratory at University of Pennsylvania’s Perelman School of Medicine.
Assistant US Attorney Robert Leach, however, said, “Miss Holmes went out, told the world and told investors: we have tests with the highest accuracy rate,” adding that testimony from their expert witness “puts the lie to that,” CNBC reported.
Before Theranos was dissolved in 2018, Holmes rose to rock star status in Silicon Valley. She graced magazine covers, rubbed elbows with VIPs, and became known for her Steve Jobs-like signature black turtleneck.
Holmes’ presentation, Michel noted, was met with suspicion as her credibility with the media and clinical laboratory scientists eroded. “Holmes did not fool many in the audience.”
One clinical chemist who attended the AACC meeting said, “I came to see scientific data about this remarkable technology that could do up to 70 medical laboratory tests on a single drop of capillary blood. Instead, I heard her talk about the new corporate strategy at Theranos, including the details as to how their analyzer works. The data that followed had nothing to do with anything but their new analyzer.”
Prosecutors Claim Fraud Paid for Holmes’ Extravagant Lifestyle
Holmes’ celebrity status helped fuel Theranos’ rapid valuation growth, which reached a high of $10 billion in 2015. But her gold-plated lifestyle became a point of contention during the recent pre-trial hearing. Prosecutors maintained that Theranos’ fraud propelled Holmes’ extravagant spending.
“In addition to her salary, the company provided for her luxurious travel on private jets and expensive lodging,” Assistant US Attorney John Bostic told CNBC. “The point here is the so-called success of Theranos was entirely the product of fraud.”
But according to CNBC, the judge “pushed back” on the government’s argument, stating Holmes’ benefits likely were on par with other CEOs. “What’s the value that she’s at the Four Seasons or a Motel 6?” the judge asked the prosecutors.
CNBC reported the two sides also sparred over whether jurors will learn about Holmes’ private text messages and regulatory reports.
Holmes and former Theranos President and Chief Operating Officer Ramesh Balwani have both pleaded not guilty. Balwani will face a separate trial after Holmes’ court case concludes.
Clinical laboratory scientists will watch with interest as the Holmes and Balwani trials finally get under way, since the accuracy of Theranos’ blood tests will be under the microscope along with Holmes’ participation in the alleged fraud.
