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Federal Prosecutors Seek $878 Million Restitution from Former Theranos Founder/CEO Elizabeth Holmes

New lawsuit contends that the promissory notes Holmes allegedly issued on behalf of defunct clinical laboratory company Theranos are now overdue

Just weeks before Elizabeth Holmes is scheduled to begin her prison term for conviction in the federal investor fraud case related to now-defunct clinical laboratory company Theranos, the long-running legal saga of the former company founder/CEO continues to bring new twists.

This time, news emerged via a lawsuit that Holmes allegedly owes $25 million to Theranos creditors. CNBC obtained a copy of the suit and detailed its contents in a March 17 case update.

Theranos ABC, a company set up on behalf of the creditors, alleged in the lawsuit that “Holmes has not made any payments on account of any of the promissory notes,” CNBC reported. The suit was filed in Superior Court of California Count of Santa Clara.

Elizabeth Holmes and Billy Evans

Elizabeth Holmes (above), founder and former CEO of clinical laboratory company Theranos with husband Billy Evans of Evans Hotels. Holmes lives with Evans and the couple’s two children in the area near San Jose, California. Holmes gave birth to her second baby in February, according to People. In January, Holmes was convicted on three counts of wire fraud and one count of conspiracy. In addition to restitution, Holmes has been ordered to spend up to 11 years and three months in prison. (Photo copyright: Axios.)

Holmes Allegedly Issued Three Promissory Notes

The complaint stated that Holmes allegedly executed the following three promissory notes while she was still CEO at Theranos:

  • August 2011 in the amount of $9,159,333.65.
  • December 2011 in the amount of $7,578,575.52.
  • December 2013 in the amount of $9,129,991.10.

A promissory note is a written promise to pay a party a certain sum of money with a specified due date for the repayment of principal and interest.

“Theranos ABC has demanded payment of promissory note one and promissory note two from Holmes, but Holmes has failed to pay any amounts on account of promissory note,” according to the lawsuit, CNBC reported. The first two notes are overdue, and the third note is due in December.

Elizabeth Holmes’ Prison Term Could Be Delayed

News of the lawsuit, which was filed in December 2022, came to light at a court hearing on March 17. During that hearing, Judge Edward Davila heard arguments about whether Holmes should remain free pending her appeal. She is otherwise scheduled to report to prison on April 27 to begin her sentence after being convicted in January 2022 of defrauding Theranos investors.

Dark Daily covered the ruling in “Disgraced Theranos Founder Elizabeth Holmes to Serve 11 Years, Three Months in Prison, Ending the Latest Chapter in the Story of the Failed Clinical Laboratory Company.”

Davila, who oversaw Holmes’ criminal case, is expected to issue a decision about her freedom during the appeal early this month. The judge is also weighing options for Holmes to pay restitution to her victims.

Prosecutors have asked that she pay back $878 million to Theranos’ former investors and other victims, according to court records reviewed by Dark Daily. The government has argued in court papers that Holmes continues to live a wealthy lifestyle despite her claiming she has no meaningful assets since the collapse of Theranos and her trial.

“Defendant has lived on an estate for over a year where, based upon the monthly cash flow statement defendant provided to the US Probation Office, monthly expenses exceed $13,000 per month,” according to court documents filed by prosecutors ahead of the March 17 hearing. “Defendant asserted that her partner pays the monthly bills rather than her but also listed her significant other’s salary as ‘$0.’”

Holmes’ attorneys argued that the government cannot take an “all or nothing” approach to restitution, and that payments should only be made to investors who testified during the trial, the Associated Press reported.

For Victims, Full Restitution Can Be Rare

The federal Department of Justice (DOJ) acknowledges in its overview of restitution that victims often never collect what they are owed by guilty parties.

“The chance of full recovery is very low,” the DOJ notes. “Many defendants will not have sufficient assets to repay their victims. Many defendants owe very large amounts of restitution to a large number of victims. In federal cases, restitution in the hundreds of thousands or millions of dollars is not unusual. While defendants may make partial payments toward the full restitution owed, it is rare that defendants are able to fully pay the entire restitution amount owed.”

Clinical laboratory professionals will note the irony that one of the biggest convicted fraudsters in US history is now largely attempting to avoid punishments associated with her crimes. If Judge Davila agrees to let Holmes remain free pending her appeal, she could stay out of prison for years and perhaps not have to pay restitution for that length of time as well.

The coming weeks will prove to be pivotal in the final outcome of the case. 

—Scott Wallask

Related Information:

Elizabeth Holmes Owes over $25 Million to Theranos, Lawsuit Says

Elizabeth Holmes Returns to Court in Bid to Avoid Prison

Disgraced Theranos Founder Elizabeth Holmes to Serve 11 Years, Three Months in Prison, Ending the Latest Chapter in the Story of the Failed Clinical Laboratory Company

Judge Decides Elizabeth Holmes’ Prison Term