Government prosecutors allege destruction of LIS database and point to Holmes’ extravagant lifestyle as evidence of fraud motive

There is a new twist in the federal criminal fraud trial of Elizabeth Holmes, co-founder and former CEO of now defunct clinical laboratory testing company Theranos. Once again, the trial has been delayed. In the meantime, however, dueling court filings between prosecutors and defense lawyers have shed additional light on the allegations against Holmes and co-defendant Ramesh Balwani, the company’s chief operating officer. The revelations will be of interest to medical laboratory leaders.

According to The Mercury News, United States District Judge Edward J. Davila cited the ongoing COVID-19 pandemic in his December 18 ruling that postponed the start of Holmes’ trial to July 13, 2021.

In his ruling, Judge Davila wrote, “The court notes sadly, the impact on our lives is grim. California is in the midst of an unprecedented surge in cases and hospitalizations.”

The judge also noted the prospects for widespread public vaccination in the coming months. “All of this supports continuing the trial [of Holmes] to a time when our community is safer,” he added. “The court recognizes that a continuance of the trial will cause great inconvenience to victims who would like their day in court, as well as Defendant, who wishes a speedy opportunity to defend against the charges. All of these rights are important, but paramount to the court is the safety and health of the community.”

On February 9, Law360 reported that Balwani’s trial was delayed even further, with jury selection now set to begin on January 11, 2022.

Wall Street Journal Exposé of Theranos and its Flawed Clinical Lab Testing

As Dark Daily reported in “For Embattled Medical Laboratory Company Theranos, Bad News Keeps on Coming After Two Federal Inspections Show Problems in Certain Lab Practices,” back in the fall of 2013 Holmes became a star of the business world with claims that Theranos had developed ground-breaking blood-testing technology.

In “Elizabeth Holmes: The Breakthrough of Instant Diagnosis,” the Wall Street Journal (WSJ) put Holmes squarely in the public eye. It could be credibly asserted that the paper’s fawning coverage helped boost her credibility when no one knew who she was. Thus, it is ironic that just two years later it was the WSJ that, in a series of articles, exposed the alleged misrepresentation and fraud committed by Holmes, Balwani, and Theranos.

By 2015, the company had a stock valuation of $9 billion, but it all came crashing down after WSJ investigative journalist John Carreyrou revealed serious problems with the company’s management and technology.

In a public notification from the US Attorney’s Office Northern District of California, the government alleged that Holmes and former Theranos president Balwani promoted the company’s blood-testing technology despite knowing that it was likely to produce unreliable results.

The defendants now face 12 federal felony counts related to wire fraud. They have pleaded not guilty. According to The Mercury News, if found guilty of all charges, “Holmes faces a potential 20-year prison sentence, up to $2.75 million in fines, and possible restitution to investors the government alleges lost more than $700 million.”

Elizabeth Holmes walking outside with her lawyers.
Elizabeth Holmes (above), former CEO of now defunct clinical laboratory testing company Theranos, will now stand trial starting in July. Due to risk of infection from the SARS-CoV-2 coronavirus, jurors will be required to wear masks and to socially distance during the trial, CNBC reported. What will be of great interest to clinical laboratories are statements by federal prosecutors that testing data stored on the company’s laboratory information system was destroyed before it could be accessed by investigators, even though it had been subpoenaed months earlier by a federal grand jury. (Photo copyright: Forbes/Yichuan Cao/NurPhoto via Getty Images.)

Missing Clinical Laboratory Data

Though the trial has been delayed, attorneys on both sides have been busy. Last November, after failing to have the charges dismissed, defense attorneys filed a flurry of motions seeking to exclude much of the government’s evidence, The Mercury News reported. This included expert witnesses, testimony about inaccurate test results, and numerous news articles about the company and its tests.

Prosecutors responded to the motions in January, further illuminating their case while providing more fodder for media coverage.

In a January 11 filing [doc-682], the government alleged that a Theranos laboratory information system (LIS) containing patient test results and quality control data was destroyed “on or about August 31, 2018—three months after a federal grand jury issued a subpoena requesting a working copy of this database.” News of the allegation was first reported by The Register, a UK-based IT publication.

Previously, the prosecutors alleged, Theranos, with assistance from an IT contractor, had provided a backup copy of the database to the government but without a password needed for decryption. “All subsequent efforts by the government to access the data on this hard drive have failed,” even with assistance from a computer forensics expert, they wrote.

Then, the original database was permanently destroyed in August when Theranos moved out of its facility in Newark, Calif., the government alleged in its filing. “On or about August 31, 2018—three months after a federal grand jury issued a subpoena requesting a working copy of this database—the LIS was destroyed. The government has never been provided with the complete records contained in the LIS, nor been given the tools, which were available within the database, to search for such critical evidence as all Theranos blood tests with validation errors,” the filing read.

The January 11 filing was in response to a Theranos motion [doc-563] seeking to exclude evidence of “anecdotal test results.”

“The data disappeared. Defendant should be barred from arguing the government’s case is anecdotal when Theranos (and others) destroyed this data,” the prosecutors argued.

Furthermore, prosecutors wrote, “the government’s case is hardly ‘anecdotal.’ The reliability and accuracy problems in Theranos’ clinical lab were well-documented when the Centers for Medicare and Medicaid Services (CMS) investigated the lab, discovered the accuracy and reliability problems, and determined Theranos could not safely administer its tests on patients. Whistleblowers will also testify about Theranos’ accuracy and reliability problems. And patients themselves experienced these problems, receiving incorrect results that affected their treatment and deprived them of the benefit of the purportedly reliable blood tests for which they had paid.”

And Then There’s Her Lifestyle

Prosecutors also claimed in their filing that Holmes’ activities—which included “travel on private jets, stays in luxury hotels, and access to multiple assistants … [who] handled a range of non-business tasks for Defendant, including personal clothes and jewelry shopping, home decorating, food and grocery buying, and other items”—shows that Holmes was “funding an extravagant lifestyle … through company money,” CNBC reported.

And so, the saga of Theranos continues. Will Elizabeth Holmes succeed in her defense? Could a clinical laboratory phoenix bird rise from the ashes of this failed lab test company? Who knows? Probably not. But until there is a resolution, we will keep reporting on the case.

—Stephen Beale

Related Information:

Prosecutors Allege Theranos Fraud Fueled Elizabeth Holmes’ Lifestyle

Theranos Destroyed Crucial Subpoenaed SQL Blood Test Database, Can’t Unlock Backups, Prosecutors Say

Theranos Founder Elizabeth Holmes’ Criminal Fraud Trial Delayed Again

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

Theranos Founder Holmes’ Lawyers Claim Profane Chants in Company Meetings Are ‘Normal’

Theranos Founder Holmes Fights to Bar Jurors from Hearing Lavish-Lifestyle Claims

Theranos Founder Elizabeth Holmes Tries to Block Evidence

Theranos Case: Feds Hit Back at Elizabeth Holmes’ Bid to Nix Charges

Theranos: Scientist Who Worked for Elizabeth Holmes Fired from New Job Over Trial Subpoena, Lawsuit Claims

Theranos Founder Elizabeth Holmes’ Scattershot Bid to Nix Charges Goes Down Hard

Theranos Founder Elizabeth Holmes to Claim Mental Condition Affecting ‘Issue of Guilt’

For Embattled Medical Laboratory Company Theranos, Bad News Keeps on Coming After Two Federal Inspections Show Problems in Certain Lab Practices