Jury finds Theranos CEO Elizabeth Holmes guilty of defrauding investors | January 7, 2022 | Almanac | Almanac Online |


News - January 7, 2022

Jury finds Theranos CEO Elizabeth Holmes guilty of defrauding investors

Lengthy trial also put Silicon Valley's entrepreneurial culture under the microscope

by By Lloyd Lee and Jamey Padojino

After more than four months on trial, former Silicon Valley CEO Elizabeth Holmes has been found guilty of four counts of defrauding investors of nearly $145 million through her failed Palo Alto blood-testing startup, Theranos.

The verdict in the federal case was reached by jurors who had deliberated since Dec. 20 and who had announced Monday morning, Jan. 3, that they were deadlocked on three of the 11 charges of wire fraud and conspiracy to commit wire fraud that had been brought against Holmes by the U.S. Attorney's Office.

Though U.S. District Judge Edward Davila sent the jurors back to try to reach unanimous agreement on those three counts, which turned out to be related to three transfers of millions of investors' dollars, they again notified Davila in the afternoon that they were hopelessly deadlocked. Davila then allowed the jury to cease deliberations and to return its verdict.

The jury also found Holmes, 37, not guilty of four charges, three of which related to fraud committed against patients whose blood had been submitted for testing by Theranos.

As the verdicts were read in the U.S. District Courthouse in San Jose, Holmes, her family and partner displayed no reactions. Holmes sat still as she had prior to the reading of the verdict.

The jury reached the verdict after a 14-week trial that captivated the nation's attention and in some ways put Silicon Valley's famed entrepreneurial culture, full of hubris and moral vagaries, on trial as well. Opening arguments in the case drew crowds of journalists from around the world as well as Holmes' groupies in black turtleneck sweaters, who lined up for hours for the chance to get inside the courthouse.

The intense interest in the case stemmed from the high profile that Theranos — and its young, female CEO — had garnered during the company's ascent. Feature stories by national media outlets focused on the support the company gained from American political and business luminaries, who'd been captivated by the pie-in-the-sky vision of lab tests done with a single drop of blood.

Holmes was indicted in June 2018 for the alleged multimillion dollar scheme surrounding the blood-testing technology of the company that she'd founded. She ultimately stood trial on 11 fraud charges: Seven counts pertained to investor-related wire fraud and the remaining four counts were tied to wire fraud against patients.

During the trial, federal prosecutors questioned numerous witnesses, most notably former U.S. Secretary of Defense James Mattis, who served on Theranos' board of directors, and journalist Roger Parloff, whose June 2014 cover story in Fortune magazine propelled Holmes and Theranos to fame.

Past employees called to the stand described quality control problems and complaints surrounding the blood test results from the company's Edison devices, among other issues. Those offering testimony included former lab directors Adam Rosendorff and Kingshuk Das and former lab associate Erika Cheung.

Investors testified to the millions of dollars they put into Theranos with the understanding that the fingerstick blood-testing technology worked, and patients and doctors spoke to inconsistent results, including one case involving a pregnant woman.

A crucial point of the trial came in late November, when Holmes took the witness stand. Over the course of seven days, her testimony touched on whether the Edison machines provided accurate results and statements she had made about Theranos' blood-testing technology. Holmes also claimed she was abused by Ramesh "Sunny" Balwani, her ex-boyfriend and alleged co-conspirator who was Theranos' former chief operating officer, and spoke to their frustration over the company's problems. Balwani is set to stand trial this month.

In the end, the jury was convinced that Holmes had defrauded Theranos' investors, finding her guilty of conspiracy to commit wire fraud against investors and of three counts of wire fraud through the transfers of three investors' funds, to the tune of $38 million, $100 million and $6 million.

Jurors, however, were not convinced that the prosecution had met the burden of proof on charges that Holmes conspired to commit wire fraud against patients and that she was culpable in sending two patients their blood-test results. A fourth charge of which the jurors found her not guilty concerned the transfer of money from a Theranos account to pay for advertising and marketing.

Davila on Monday declared a mistrial on the three charges over which the jury deadlocked. Each pertained to the wire transfers of another $10 million from three investors.

David Alan Sklanksy, faculty co-director at Stanford Criminal Justice Center, said on Monday before the reading of the verdict that the deadlocked charges can be retried.

"Then the government will be free, if it wants to, to retry Holmes on the other three counts, whatever the results are on the eight charges," he said.

However, Sklanksy noted that, in his view, it's unlikely that the government will retry Holmes for the three charges.

The trial didn't come without roadblocks. Three jurors were dismissed and a water main break shut down the federal courthouse for a few days. By the end of October, Davila updated the trial schedule to make up for lost time.

Holmes was not remanded into custody Monday, though prosecutors asked the judge to set a secured bail bond. She faces a maximum sentence of 20 years in prison, a fine of $250,000 and restitution for each count of wire fraud and for each conspiracy count, the U.S. Attorney's Office stated in a press release.

The average sentence in California for federal fraud in 2019, however, was 25 months, according to 2019 data from the United States Sentencing Commission.

Palo Alto Weekly Editor Jocelyn Dong and Bay City News Service contributed to this report.

Email Editorial Assistant Lloyd Lee at [email protected] and Digital Editor Jamey Padojino at [email protected]


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