Theranos founder accused of fraud 0:54
New York (CNN Business) -
Elizabeth Holmes, the discredited founder and former CEO of Theranos, will go to trial this week, more than three years after multiple federal charges were brought against her for fraud and conspiracy for allegedly knowingly misrepresenting. the capabilities of your company's blood testing technology.
For a time, Holmes was hailed as a visionary.
After dropping out of Stanford University, he founded Theranos in 2003 at age 19 with a noble mission to revolutionize blood testing.
Inspired by their avowed fear of needles, Holmes' company Theranos promised patients the ability to detect diseases such as cancer and diabetes with just a few drops of blood.
In 2013 he partnered with Walgreens and attracted a powerful board of directors made up of political titans including former Secretaries of State Henry Kissinger and George Shultz, as well as four-star general and future Secretary of Defense James Mattis.
As the company's valuation soared, reaching $ 9 billion at one point, so did its profile and net worth.
She was lauded on magazine covers as the richest woman in her own power and "the next Steve Jobs," an image she helped cultivate.
Then everything fell apart.
A damning investigation by The Wall Street Journal in October 2015 called into question the capabilities of the company's proprietary Edison blood testing machine and Theranos testing methods.
Subsequently, Theranos was sued by investors for fraud, the US government revoked her blood test license, settled charges of "massive fraud" with the Securities and Exchange Commission (SEC) and finally dissolved the business in September 2018.
After months of delay due to the pandemic and the birth of his first child, Holmes, 37, will now face the government in federal court in San José on two counts of conspiracy to commit wire fraud and 10 counts of federal wire fraud. .
Jury selection begins Tuesday and the case is expected to drag on for months.
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Here's what you need to know about the high-profile case.
The charges
Holmes and former Theranos COO Ramesh "Sunny" Balwani, who were romantically involved while working together, are accused of participating in a multi-million dollar scheme to defraud investors from 2010 to 2015, as well as a scheme to defraud doctors and patients who paid for their blood test services from 2013 to 2016. Both have pleaded not guilty and could face up to 20 years in prison, as well as a $ 250,000 fine, plus restitution for each count wire fraud and each conspiracy charge.
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The Justice Department claims that while the company never made its efforts to develop technology capable of running a full range of clinical tests on its Edison machines with a few drops of blood collected by finger stick and stored in what it called a "nanotainer", she nevertheless touted herself and her devices as capable.
Legal experts say that questions about what Holmes knew, how long he knew, and whether he intended to deceive will be central to the trial.
"Either she had a device that could never work, or it still couldn't work. The latter is a murkier situation," said Nancy Gertner, a former US federal judge and senior lecturer at Harvard Law School. .
"The hardest thing to prove is intent," said Thomas Joo, a professor at the University of California Davis School of Law who specializes in corporate governance and "white collar" crime.
"Did he intentionally lie to deceive people?"
Elizabeth Holmes, CEO of Theranos.
The defense
It's unclear what the defense's precise strategy will be, but Holmes's lawyers have paved the way for her to pin Balwani as guilty. The two managed to be tried separately, and recently unveiled court documents reveal why: Holmes plans to charge Balwani with psychological, emotional and sexual abuse, detailing the tactics he allegedly used to exert control over her and the psychological impact of such abuse. abuse. According to a document, Balwani "flatly denies" the allegations.
In a presentation by Balwani's lawyers, they acknowledge that Holmes plans to present evidence that Balwani verbally belittled her, controlled what she ate, how she dressed and who she interacted with, "essentially dominating her and eliminating her ability to make decisions." The filing calls the allegations "deeply offensive to Mr. Balwani" and "personally devastating to him."
Prior to the new disclosures of documents that had been previously sealed, Holmes's attorneys had indicated last year that they planned to introduce evidence "relating to a mental illness or defect or any other mental condition of the defendant having to do with ... question of guilt, "according to one filing.
They indicated that they planned to use the testimony of a clinical psychologist whose work focuses on the psychosocial consequences of violence, trauma, and victimization.
In response, federal prosecutors were given the opportunity to have Holmes vetted by two experts, a psychologist and a psychiatrist, for two consecutive days and no more than 14 hours in total.
An attorney for Holmes did not respond to a request for comment for this story.
The court has dismissed certain defenses in response to the government's request to do so. For example, Holmes cannot argue that the government was "influenced by the 'coordination' with journalists or competitors", but he can argue about the "details, thoroughness or good faith of the criminal investigation."
The court also ruled out the idea of using naivety or being gullible as a defense, according to a court order.
The government expressed concern that Holmes would argue that she conducted her business in a way that was in line with the broader practice of Silicon Valley startups of exaggerating their businesses to get funding and that she had been singled out, according to the order.
The court said in the order that Holmes promised not to argue that it was singled out and that it will allow a "fair general comment" on the startups' marketing strategies.
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According to Gertner, the defense of "exaggeration", that is, the attempt to pass off the statements as corporate optimism or hyperbole, may be used, which often arises in cases where a company is accused of lying. to investors.
If that's the case, jurors will ultimately have to decide whether there is a "substantial distance" between what was claimed and what was true, he said.
Who are the possible witnesses
The prosecution submitted a proposed witness list of nearly 280 people, which includes some of Holmes' best-known associates.
Among others: media mogul Rupert Murdoch, once reportedly the company's largest investor with more than $ 100 million;
David Boies, the prominent attorney who represented Harvey Weinstein and was a former investor, board member, and legal advocate for Holmes and Theranos for a time;
as well as Mattis and Kissinger.
Some 11 patients who say they have been affected by the inaccurate Theranos test results, as well as nine doctors whose patients received inaccurate tests, are also expected to testify, according to the court order.
One of the women on the list has already spoken about being misdiagnosed with an abortion.
"Certainly, the more likable the witness, the more likely they are to connect with jurors. High-profile witnesses with very high net worths often do not attract sympathy from jurors if they have lost money to fraud," said George Demos, former prosecutor. from the SEC and Adjunct Professor of Law at the University of California Davis School of Law.
Holmes requested that the testimony of the patients be excluded, citing the lack of evidence on the causes of the inaccurate results.
In particular, the access to the database that Theranos used to house all patient test results and quality control data, which was cited by the Justice Department, will not be cited in the lawsuit as inaccessible. .
After Theranos handed over the database in July 2018 with a password, but not the private key required to access the encrypted database, it dismantled the physical server that was hosting the database and put it in repository, according to another. court order.
Patients who testify will not be able to speak of "any physical, financial or emotional harm they may have experienced," the court ruled.
Will Elizabeth Holmes take the stand?
In the heyday of the company, Holmes was the subject of great fascination and media attention that glorified her and her efforts.
In its decline, that attention has not diminished: from documentaries, an upcoming limited series and a planned feature film to at least two podcasts dedicated to covering the trial.
Whether or not Holmes takes the stand remains an open question and is likely not to be decided anytime soon.
"Most criminal lawyers would tell a client not to do it, but the client is the boss," Joo said.
"You can have a very, very strong belief in your innocence. You can insist, above the advice of lawyers, that you want to testify," he said, adding that in the case of a mental illness defense, there could be a bias to take the stand so that the jury can hear her directly.
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According to the newly released documents, Holmes is "likely" to testify about the abuses he allegedly suffered at the hands of Balwani.
"If the jury believes him and considers him a sympathetic figure (and if the expert testimony further supports his claims of a mental defect), the defense could turn the outcome of the trial in his favor," said Miriam Baer, professor. in law at Brooklyn Law School, to CNN Business.
"On the other hand, if the jury does not believe him, or if the prosecutor manages to damage his credibility, the defense could make his situation worse," he added.
Elizabeth HolmesTheranos