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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 will decide the restitution Holmes must pay to defrauded Theranos investors at future court date; Ex-COO Ramesh “Sunny” Balwani to be sentenced next month

Clinical laboratory leaders and anatomic pathologists who closely followed the fraud trial of Elizabeth Holmes may have wondered how the Theranos founder and ex-CEO would be punished for her crimes. Now we know.

On Friday, a federal court judge sentenced Holmes to 135 months—11.25 years—in prison in the culmination of her conviction on three felony counts of wire fraud and one count of conspiracy, according to NBC Bay Area News.

Late into the four-hour sentencing hearing, Holmes tearfully spoke, according to a twitter post by NBC reporter Scott Budman, who was in the courtroom. “I am devastated by my failings,” Holmes said. “I have felt deep pain for what people went through because I have failed them … To investors, patients, I am sorry.”

Davila ordered Holmes to surrender to authorities on April 27 to begin her time behind bars. She is free until that time. Her upcoming prison term caps off one of the biggest downfalls ever of an American entrepreneur.

[We first published this article in our Dark Daily E-Briefings newsletter. Sign up for free here to stay informed on the lab industry’s most important news and events.]

Elizabeth Holmes

Elizabeth Holmes (above), founder and former CEO of Theranos, the now defunct clinical laboratory company, as she enters the federal courthouse in San Jose, Calif., prior to her sentencing on Friday. In January, Holmes was convicted on three counts of wire fraud and one count of conspiracy. Last summer, Theranos’ former CLIA laboratory director, pathologist Adam Rosendorff, MD, expressed remorse over his testimony which led to Holmes’ defense team requesting a new trial. The judge denied that request and allowed the sentencing of Holmes to proceed as scheduled. (Photo copyright: Jim Wilson/The New York Times.)

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Defense Lawyers Plan to Appeal

Dean Johnson, JD, a California criminal defense lawyer, told NBC Bay Area News during live coverage of the hearing on Friday that Holmes’ defense team will appeal her conviction.

“I have no doubt there will be an appeal in this case,” Johnson said.

Judge Edward Davila, who oversaw Holmes’ trial and sentencing hearing in US District Court in San Jose, Calif., estimated that the total loss for Theranos investors was $121 million. Investors had committed funds to support the company’s flawed Edison blood testing technology. A separate restitution hearing for Holmes will be scheduled for a later date.

Beyond the sentencing, Holmes, 38, will be saddled by infamy for the rest of her life, with her past reputation as a charismatic innovator ruined.

In “Theranos Ex-CEO Elizabeth Holmes Convicted on Three Counts of Wire Fraud and One Count of Conspiracy to Commit Fraud after Seven Days of Jury Deliberations,” we covered how a jury convicted Holmes in January on four charges of investor and wire fraud after a four-month trial. She faced up to 20 years in prison on each of those counts.

Another Theranos executive, former Chief Operating Officer and President Ramesh “Sunny” Balwani, faces sentencing on Dec. 7. A jury found Balwani guilty of two counts of conspiracy and 10 counts of wire fraud in July.

“The judge [said] evidence shows Elizabeth Holmes was leader of the company, but not necessarily the leader of the criminal acts,” Budman tweeted. Those words clearly pointed to Balwani, who Holmes’ defense team had painted as exerting control over her and the company.

Prosecutors Sought a Stiffer Sentence for Holmes

Prosecutors had asked Davila to sentence Holmes to 15 years in prison, arguing that her conviction represented “one of the most substantial white collar offenses Silicon Valley or any other district has seen,” according to NBC Bay Area News, which cited court documents. The government also wanted her to pay $803 million in restitution.

Holmes’ defense team, however, wished for no prison time at all, instead asking that Holmes serve time under house arrest. “If a period of confinement is necessary, the defense suggests that a term of 18 months or less, with a subsequent supervised release period that requires community service, will amply meet that charge,” her lawyers wrote in a court filing.

Prior to the sentencing, Davila received 130 letters supporting Holmes and asking for leniency, NPR reported. Among them was a note from William “Billy” Evans, Holmes’ partner.

“If you are to know Liz, it is to know that she is honest, humble, selfless, and kind beyond what most people have ever experienced,” Evans wrote, NPR reported. “Please let her be free.”

Holmes and Evans have a 16-month-old son together, and she is pregnant with the couple’s second child. Her first pregnancy caused her trial to be rescheduled. Prior to last week’s sentencing, some reporters covering the trial speculated that because Holmes was the mother of an infant—and now pregnant again—the judge might be more lenient in sentencing. The 11-year, four-month sentence indicates that the judge was not much influenced by that factor.

Last Minute Pitch for New Trial Failed

Holmes’ legal wranglings continued until the very end.

On Nov. 7, Davila denied her motion for a new trial. Holmes’ lawyers had argued that key prosecution witness Adam Rosendorff, MD—a pathologist who was former laboratory director at the company—expressed remorse about his own 2021 testimony during an attempt to visit Holmes’ residence on August 2022. Dark Daily covered this event in “Clinical Pathologist Once Again at the Center of a National News Story as Theranos Founder Elizabeth Holmes Seeks New Trial.”

However, Rosendorff later told the court that he stood by his testimony about problems with Theranos’ blood testing technology.

In denying the request for a new trial, Davila wrote, “The court finds Dr. Rosendorff’s statements under oath to be credible,” according to The Washington Post.

From Teen Founder to Disgraced Entrepreneur

Holmes founded Theranos in 2003 at age 19 while she was attending Stanford University as a chemical engineering major. She dropped out of Stanford as a sophomore to focus on her new company.

Theranos claimed its technology—known as Edison—could perform diagnostics tests using a finger prick and a micro-specimen vial instead of a needle and several Vacutainers of blood. The company said it could return results to patients and clinicians in four hours for about half of the cost of typical lab test fees.

However, the promise of this technology began to unravel in 2015 following an investigative article by The Wall Street Journal that revealed the company ran only a handful of tests using its technology, instead relying on traditional testing for most of its specimen work.

Following The Journal’s exposé, the Centers for Medicare and Medicaid Services (CMS) sanctioned Theranos and Holmes in 2016. Meanwhile, the US Securities and Exchange Commission (SEC) investigated Holmes for raising hundreds of millions from investors by exaggerating or making false statements about the company’s technology and financial performance.

In 2018, the US Department of Justice (DOJ) indicted Holmes and Balwani, and Theranos closed shortly after.

Convictions Validated Pathologists’, Hospital Lab Leaders’ Concerns

Fortunately, the Theranos saga has not stunted investment in healthcare technology startups. Spending was in the tens of billions in 2021, although that number has dropped this year as the COVID-19 pandemic has waned, according to TechCrunch. Nevertheless, it is safe to assume that healthcare tech investors are scrutinizing scientific data from startups more thoroughly because of the Theranos fraud case.

Meanwhile, the saga of Theranos continues to leave a bad taste in the mouths of many clinical laboratory managers and pathologists. That’s because, during the peak period of adulation and spectacular news coverage about Elizabeth Holmes and her plans to totally disrupt the clinical laboratory industry, hospital and health system CEOs believed that they would be able to downsize their in-house medical laboratories and obtain lab tests from Theranos at savings of 50% or more. Consequently, during the years 2013 through the end of 2015, some hospital lab leaders saw requests for capital investment in their labs denied or delayed.

One example of how hospital CEOs embraced news of Theranos’ blood testing technology took place at the Cleveland Clinic. Elizabeth Holmes did such a good job selling the benefits of the Edison technology, then-CEO, Toby Cosgrove, MD, placed Theranos at number three on its list of top ten medical innovations for 2015.

In later years, Cosgrove admitted that no one at Cleveland Clinic or its pathologists were allowed to examine the analyzers and evaluate the technology.

It was for these reasons that the demise of Theranos was welcomed by many hospital lab administrators and pathologists. The fact that two of Theranos’ senior executives have been convicted of fraud validates many of the serious concerns that medical laboratory professionals had at that time, but which most major news reporters and media ignored and failed to report to the public.

Scott Wallask

Related Information:

Theranos Founder Elizabeth Holmes Sentenced to More than 11 Years in Prison

Elizabeth Holmes Is Sentenced to More than 11 Years for Fraud

Theranos Ex-CEO Elizabeth Holmes Convicted on Three Counts of Wire Fraud and One Count of Conspiracy to Commit Fraud after Seven Days of Jury Deliberations

Prosecutors Push 15-year Sentence for Theranos’ CEO Holmes

Elizabeth Holmes Sentenced to 11 Years in Prison for Theranos Fraud

Clinical Pathologist Once Again at the Center of a National News Story as Theranos Founder Elizabeth Holmes Seeks New Trial

Bid for New Trial Fails, Elizabeth Holmes Awaits Sentencing

Ramesh “Sunny” Balwani Convicted by a Jury on 12 Counts of Fraud in Theranos Trial

Hot Startup Theranos Has Struggled with Its Blood-Test Technology

Skeptical Missouri Pathologist Played a Key Role in Wall Street Journal Reporter John Carreyrou’s Expose´ Of Medical Lab Test Company Theranos

Fawning media coverage Theranos’ blood-test claims ended once experts spoke out, showing the importance of strong relationships between pathologist and journalists

Wall Street Journal (WSJ) reporter John Carreyrou’s investigation into former Silicon Valley darling Theranos is credited with turning the spotlight on the blood-testing company’s claims and questionable technology. However, Carreyrou’s investigation may never have happened without the assistance of Missouri pathologist Adam Clapper, MD, who tipped off the reporter to growing skepticism about Theranos’ finger-stick blood testing device.

Clapper’s involvement in Theranos’ fall from grace provides a lesson on why anatomic pathologists, clinical pathologists, and other medical laboratory leaders should cultivate strong working relationships with healthcare journalists who seek out expert sources when covering lab-related issues.

Dark Daily has written extensively about Theranos—once valued at nine billion dollars—and its founder and former CEO Elizabeth Holmes, whose criminal trial on nine counts of wire fraud and two counts of conspiracy to commit wire fraud is scheduled to begin this summer, noted the WSJ.

In 2018, Holmes and former Theranos President Ramesh “Sunny” Balwani settled a civil case with the Securities and Exchange Commission (SEC). Holmes agreed to pay a $500,000 penalty and relinquished control of Theranos. She also was barred from serving as Director of a public company for 10 years.

Theranos Investigation Would Not Have Occurred without Clapper

Holmes founded Theranos in 2003 when she was 19 years old. By 2013, Holmes had become a media sensation based on her claims that Theranos had developed a medical technology that could run thousands of clinical laboratory tests using the blood from a tiny finger-prick. And, she claimed, it could do so quickly and cheaply.

By 2015, Carreyrou’s exposé in theWall Street Journal revealed Theranos’ massive deceptions and questionable practices. His series of stories kickstarted the company’s downfall. However, Carreyrou acknowledges his investigation would not have occurred if it were not for pathologist Clapper.

“Without Adam Clapper, I am almost 100% sure that I wouldn’t have done anything,” Carreyrou told the Missourian. “It was the combination of him calling me and telling me what he had found out and how he felt and my feelings about the New Yorker story that really got me on the call of this scandal,” he said.

Anatomic and clinical pathologist Adam Clapper, MD (above), became skeptical about Holmes’ claims after reading a profile on her in The New Yorker. In December 2014, Clapper ended a post on his now defunct Pathology Blawg by saying, “Until proven otherwise, I’m going to be skeptical of Theranos’ claims.” That comment became a starting point for Carreyrou’s later investigation into Theranos. (Photo copyright: Missourian.)

According to the Missourian, Clapper turned to Carreyrou because the reporter had impressed him as “very fact-oriented and fact-driven” during telephone interviews for a series Carreyrou had written the year prior on Medicare fraud.

“I could hear his wheels spinning in his head as we were talking the first time, then he definitely sounded interested and intrigued,” Clapper told the Missourian. “And then I could tell he was even more so because very soon thereafter—like half an hour after that initial conversation—he’d already started to do some research into Theranos.”

Ten months later, the WSJ published Carreyrou’s first installment of his series on Theranos.

“The fact that this tip originated from a guy in Columbia, Missouri, thousands of miles from Silicon Valley—who never spoke to Elizabeth Holmes, who had no connection to the company or even to Silicon Valley other than he read about her claims in a magazine and knew a lot about this by virtue of being a pathologist—tells you that the people who put in all the money in [Theranos] didn’t spend enough time talking to experts and asking them what was feasible and what wasn’t,” said Carreyrou.

Benjamin Mazer, MD (above), an anatomic and clinical pathology resident in pathology and lab medicine at Yale New Haven Hospital, argues pathologists’ voices were noticeably—and critically—absent from media coverage during Theranos’ decade-long ascension. “For many of us in the pathology community, the writing was on the wall long before Carreyrou’s article was published,” he wrote in Health News Review. “Had journalists consulted pathologists as expert sources, the news coverage of Theranos might have been less fawning and more skeptical. Patients might have been spared erroneous tests.” (Photo copyright: Yale University.)

The lawyers defending Holmes against criminal fraud charges are contending Carreyrou “went beyond reporting the Theranos story” by prodding sources to contact federal regulators about the company’s alleged frauds and “possibly biased the agencies’ findings against [Theranos],” Bloomberg News reported.

The Wall Street Journal, however, stands behind Carreyrou’s reporting, which later was published as book, titled, “Bad Blood: Secrets and Lies in a Silicon Valley Startup.”

Carreyrou told New York Magazine he doesn’t blame reporters for hyping Holmes and the technology she touted.

“You could make a case that maybe they should have done more reporting beyond interviewing her and her immediate entourage,” he said. “But how much is a writer/reporter to blame when the subject is bald-face lying to him, too?”

Nonetheless, the Theranos scandal offers a lesson to pathologists and clinical laboratory professionals in the importance of building good working relationships with healthcare journalists who not only must accurately report on healthcare breakthroughs and developments, but also need someone they can trust for an unbiased opinion.

—Andrea Downing Peck

Related Information:

Blood, Fraud and Money Led to CEO’s Fall from Grace

Theranos Founder Elizabeth Holmes to Face Trial Next Year on Fraud Charges

Theranos, CEO Holmes, and Former President Balwani Charged with Massive Fraud

Hot Startup Theranos Struggled with Its Blood Test Technology

The Pathologist and ‘The Inventor’: How a Columbia Doctor Helped Take Down Theranos

Blood Simpler

Elizabeth Holmes Blames Journalist for Theranos Troubles

Pathologists Predicted the Theranos Debacle, but their Voices Were Missing from Most News Coverage

The Reporter Who Took Down a Unicorn

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