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An argument still hidden under the black ink of redacted court documents could make or break the criminal fraud case against former Theranos CEO Elizabeth Holmes, whose lawyers are expected to begin telling her side of the story as early as this week.
Holmes, who pleaded not guilty, is charged with wire fraud and conspiracy tied to the blood diagnostics company that achieved a $9 billion valuation before imploding under regulatory and legal investigations.
What’s publicly known about Holmes’ defense strategy is limited. Questions remain about who will testify among more than 200 potential witnesses listed by the defense. Those potential witnesses include powerful former board members, wealthy backers, former Theranos employees, and Holmes herself. It's also unclear whether she’ll raise a bombshell claim first made public in recently unsealed court documents, which alleged her onetime boyfriend and former Theranos COO Ramesh “Sunny” Balwani abused her.
Still, clues about the defense team's approach can be gleaned from court filings, hearings, and her lawyer’s opening statement. During that statement, her lawyer has portrayed Holmes as a hardworking visionary who simply failed, while painting Theranos investors as savvy individuals who knew they were taking a risky bet that could offer high rewards.
'Failure is not a crime'
For jurors, who are shielded from pre-trial matters, Holmes' side of the story is so far encapsulated in the opening summary her lawyer Lance Wade made back in September. In his statement, Wade defended Holmes as a tireless entrepreneur who relied on advice from the wrong people, and merely failed to realize her dream to revolutionize diagnostic health care by running hundreds of tests on just a few drops of blood.
“Elizabeth Holmes worked herself to the bone for 15 years trying to make lab testing more affordable,” Wade told the jury. “She failed … But failure is not a crime.”
For their part, the Theranos investors Holmes allegedly defrauded were wealthy people well aware of the risks they were taking, according to Wade. “These were sophisticated people, and they knew what they were buying,” Wade said in opening statements, according to the Wall Street Journal. “They weren’t misled or cheated by Ms. Holmes or anyone else.”
Wade also told jurors that Holmes relied on others in making representations about the company, particularly laboratory directors and Balwani. Wade held back any mention of abuse claims against Balwani, who faces the same charges as Holmes and is scheduled to be tried separately next year.
"Trusting and relying on Mr. Balwani as her adviser was one of her big mistakes," Wade said.
'The kind of abuse defense that is very difficult to establish'
White collar criminal defense attorney and lecturer in law at Columbia University School of Law Caroline Johnston Polisi tells Yahoo Finance that it's surprising that the abuse allegations have not at least surfaced in some way, especially considering the focus on the issue in pre-trial arguments and rulings. Balwani has denied the allegations.
“We thought this was going to be a big focus of the case, and they haven't really hit on it,” Polisi said.
A decision to pin abuse on Balwani is such a high-stakes gamble that Wade may have held back the story from the jurors to preserve the option of abandoning it. In order to effectively assert that defense, Holmes would likely have to take the stand to recount the allegations — which could be a risky move.
Those allegations include claims of psychological, physical, and sexual abuse that “erased” Holmes’ ability to make decisions about the company, according to a court filing from her lawyer.
“This is the kind of abuse defense that is very difficult to establish without putting the defendant on the stand, to tell the story through her own eyes,” says Robert Mintz, a white collar defense litigation lawyer.
And as much as Holmes has shown tremendous aptitude for thinking on her feet, getting tripped up, even on an extraneous issue, could sink her case, former SEC enforcement attorney and University of California Davis adjunct law professor, George Demos, told Yahoo Finance.
The defense team may be less likely to put Holmes on the stand to defend herself if they believe prosecutors didn't sufficiently make their case. For his part, Demos suspects the prosecution is missing evidence of Holmes’ direct, corrupt intent, such as a witness or a document proving she overrode advisers and directed at least one false statement.
“The calculus on whether Holmes testifies has clearly changed as the government has not presented overwhelming evidence of her corrupt intent," Demos said, "and it is now more likely that she does not take the stand.”
Prosecutors also appear to be short on testimony from real-world patients harmed by Theranos, according to Demos. Those patients could elicit more sympathy from the jurors than wealthy investors, he said.
“It is a far less compelling and sympathetic case to a jury to highlight that Rupert Murdoch and Betsy DeVos lost money than it is to present patients who were harmed," Demos said of the billionaires who each backed Theranos with $100 million.
Regardless of whether Holmes testifies, her lawyers may have to address testimony of investors who said Holmes sold them on the idea that the military was using Theranos analyzer.
“Unless there's a witness that can get on the stand and say, actually, the military did use Theranos technology in the battlefield, I don't see how they can rebut that, or crawl out of that hole,” says Polisi, the Columbia Law professor.
The only thing they can try to do, she explains, is elicit testimony that the investors did not rely on those particular statements. Another possibly devastating statement could be an internal Theranos oncology study distributed to Walgreens with a fabricated endorsement from pharmaceutical giant Pfizer.
No matter how pure Holmes’ intentions, even if backed up by credible witnesses, Polisi said, they’ll fall short if the jury decides she knowingly lied to investors or patients — and that those investors and patients relied on those misrepresentations.
A 'defense going all the way back to Enron and WorldCom'
As for Holmes’ contention that she relied on company experts for representations she made about her company, Mintz said the tactic is a common one. Still, Mintz added, that argument could be challenging because Holmes must show she relied on the information in good faith.
“We've seen this type of defense going back all the way to Enron and WorldCom, and some of the corporate CEO prosecutions, going back years," Mintz said. "People at the very top of the corporation claim that the information they received from their subordinates may have been wrong, but that they did not knowingly pass along that information."
Jurors will have a difficult time believing that Holmes was naive to the sources of information flowing within her company, according to Polisi, as prosecutors demonstrated during their case that the CEO oversaw many aspects of the company.
If jurors don't believe her, and she is convicted, Holmes could go to prison for as long as 20 years.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.