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.
Holmes’ lawyers maintain the former CEO of Theranos has not waived right to be charged by indictment and therefore argue the added charge is ‘unconstitutional’ and should be dismissed
Clinical laboratory leaders needing a break from nonstop coronavirus pandemic news will be interested to learn a familiar name is again making headlines. Disgraced Theranos founder Elizabeth Holmes—who went from paper billionaire to criminal defendant—is now facing a 12th felony fraud charge, with the additional count tied to a patient’s blood-test result.
Holmes founded the blood testing company in 2003 after dropping out of Stanford University. Though Theranos reached a peak valuation of $9 billion in 2015, according to Investopedia its unicorn-startup status began unraveling that same year when a Wall Street Journal (WSJ) investigation exposed the company’s massive deceptions and questionable practices related to its finger-prick blood-testing technology.
Holmes and codefendant Ramesh “Sunny” Balwani, former Theranos President and Chief Operating Officer, claimed Theranos had developed a medical technology that could run thousands of clinical laboratory tests using a finger-prick blood test that would return results in two hours and at a price that was 50% of Medicare’s fees for lab tests.
sanctions from the Centers for Medicare and Medicaid Services, investor lawsuits, consumer lawsuits, and a settlement with Walgreens over claims about Theranos’ Edison portable blood analyzer, CNBC reported. Theranos ceased operations in September 2018.
Elizabeth Holmes is seen above entering the Northern District of California courthouse with attorneys Kevin Downey (left) and Lance Wade (right) of the law firm Williams and Connolly. (Photo copyright: Jason Doiy/ALM)
The 12th Felony Charge Against Elizabeth Holmes
Earlier in 2018, David L. Anderson, US Attorney for the Northern District of California indicted Holmes and Balwani on 11 counts of wire fraud and conspiracy to commit wire fraud.
Now, an additional wire fraud charge has been added to that list. The 12th felony charge was included in Superseding Information federal prosecutors filed with the court on May 8. Superseding Information is a charging document that does not require a grand jury proceeding.
In the filing, the latest allegation of fraud is alleged to have occurred on October 12, 2015, in the states of California and Arizona and is described as a “telephone call from Patient B.B. to Theranos regarding laboratory blood test results.”
The Superseding Information states: “Knowing that the accuracy and reliability of Theranos test results was questionable and suspect, Holmes and Balwani oversaw the electronic wiring of test results to patients, including persons known to the Attorney for the United States as Patients B.B, E.T., and M.E. These wires … travelled between one state and another.”
The amended charging document also more than doubles the length of time the pair are alleged to have conspired to defraud investors, adds additional categories of alleged victims, and revises the dates of two of the other prior wire fraud charges, changing them from 2014 to 2015.
“In particular, Holmes and Balwani knew that Theranos was not capable of consistently producing accurate and reliable results for certain blood tests, including but not limited to bicarbonate, calcium, chloride, cholesterol/HDL/LDL, gonorrhea, glucose, HbA1c, hCG, HIV, LDH, potassium, PSA, PT/INR, sodium, testosterone, TSH, vitamin D (25-OH), and all assays conducted on Theranos’ TSPU [Theranos Sample Processing Unit] version 3.5, including estradiol, prolactin, SHBG, thyroxine (T4/free T4), triiodothyronine, and vitamin B-12,” the Superseding Information states.
According to Law.com, Holmes’ lawyers at Williams and Connolly responded by filing a motion to dismiss the Superseding Information. Because grand jury proceedings have been suspended in the Northern District of California since mid-March due to COVID-19, they argue that Holmes, who hasn’t waived the right to be charged by grand jury indictment, is unable to be arraigned. They maintain the prosecutors’ actions violate her rights under the US Constitution and Federal Rules of Criminal Procedure Rule 7, which requires crimes punishable by a prison sentence of more than a year to be charged by indictment unless the defendant waives that right.
“Because Ms. Holmes does not waive prosecution by indictment, convening an arraignment on this information would be pointless and a waste of the Court’s time because no arraignment could actually occur,” her lawyers wrote in their motion. “The Court should dismiss this unconstitutional information without scheduling an arraignment.”
On May 26, prosecutors filed their opposition to the defendants’ motion to dismiss. They maintained that US District Judge Edward Davila should either deny the defense request outright or hold off ruling until a “reasonable time after the Court lifts the suspension of grand jury hearings.”
They wrote, “Defendants’ claim that an information must be ‘dismissed immediately’ because it is not the constitutionally required indictment proves too much,” adding, “Criminal charges are initiated all the time through preliminary proceedings like a complaint or an information. They are not ‘patently unconstitutional merely because a defendant has indicated she will not waive her right to be prosecuted by indictment.”
COVID-19 Delays Court Proceedings
Holmes’ trial originally was set to begin in August, but the COVID-19 pandemic has resulted in the case being postponed to October 27, reported CNBC. According to Davila, “We’re in unchartered waters and unchartered territories. We need to make sure the environment is safe for all parties, including the jury that’s called to hear the matter.”
The Theranos scandal continues to serve as a reminder to clinical laboratory leaders
and pathology groups that questionable or deceptive business practices eventually will draw the attention of federal regulators, prosecutors, and consumers, and that the penalty for fraud can be severe. The frustration for medical laboratory professionals and pathologists is that it generally takes years for federal investigators to bring charges against such frauds.
