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SAN JOSE, California—At Theranos CEO Elizabeth Holmes’ criminal trial on Wednesday, federal prosecutors underscored the fallen wunderkind’s desperate bid to pump millions into her sinking startup, which she vowed would revolutionize blood-testing with technology that could screen for hundreds of diseases with just the prick of a finger.
But Holmes’ lawyer deflected blame for Theranos’ shortcomings, pointing instead to the company’s former lab director, along with its former president, Ramesh “Sunny” Balwani, who was allegedly tasked with overseeing the lab and its employees. (In recently unsealed court filings, Holmes’ team signaled their defense would rely on Holmes’ accusations that Balwani physically and emotionally abused her. He denies those claims.)
Federal prosecutors say Holmes—a 37-year-old Stanford dropout once hailed as the next Steve Jobs—duped consumers and investors for years by claiming Theranos’ devices could run scores of tests using a few drops of blood. And investors weren’t the only victims in the alleged $700 million fraud. Multiple patients received flawed lab results from the Silicon Valley shop, and some of that blood work came with potentially dire consequences, assistant U.S. Attorney Robert Leach said.
One patient’s lab work falsely indicated he had prostate cancer; follow-up testing revealed the opposite. Another patient, who was pregnant at the time, received erroneous results showing she had miscarried. The woman then altered her medications since the Theranos blood test suggested she was no longer carrying a baby.
Even Holmes’ brother Christian, a fellow Theranos employee, raised concerns about the company’s portable blood analyzers. Leach said the sibling warned “the test was causing serious issues with patients.”
“This is a case about fraud, about lying and cheating to get money,” Leach said.
“By making false and misleading representations to investors and patients,” Leach added, “Elizabeth Holmes became a billionaire.”
Holmes and Balwani, 56, are charged with nine counts of wire fraud and two counts of conspiracy to commit wire fraud in connection to the Theranos scandal. If convicted, they each face 20 years behind bars. Balwani, who dated Holmes for years, including while serving as Theranos’ president, will be tried separately next year.
The bombshell trial comes three years after a grand jury indictment, and nearly six years after investigative reporter John Carreyrou exposed troubles with Theranos’ devices in a series of explosive stories in the Wall Street Journal.
Holmes’ lawyers argue, however, that she committed no crimes—rather, she was a young CEO who made mistakes and naively underestimated the challenges her company faced.
Defense attorney Lance Wade said that when Holmes said goodbye to her Palo Alto startup in September 2018, she lost her college savings and billions in stocks. “If Ms. Holmes intended to defraud these incredibly wealthy investors to get their money, as the government alleges, why didn’t she cash in on her stocks?” Wade said.
And contrary to the government’s narrative, Wade said, many patients and doctors shared glowing reviews of Theranos’ blood tests. “Many who never could have otherwise afforded a test, got their test at Theranos where prices were the same, whether you had health insurance or not,” Wade said, before displaying a positive critique from one physician.
Holmes believed that Theranos blood tests were so reliable that she and her relatives used them, too, Wade said.
“Elizabeth Holmes did not go to work every day intending to lie, cheat and steal,” Wade told jurors. “The government would have you believe her entire life is a fraud… That is wrong, that is not true.”
“She poured her heart and soul into that effort,” the attorney continued. “In the end, Theranos failed and Ms. Holmes walked away with nothing, but failure is not a crime. Trying your hardest and coming up short is not a crime.”
On Wednesday, Holmes walked into court with her husband, hotel heir Billy Evans, who was seated behind her during opening statements. Her mother, Noel, and Evan’s father, William, were also present. Before the morning’s testimony began, a small group of women wearing matching black blazers (and described in social media posts as Holmes’ fans) waited outside the courthouse for a glimpse of the tech founder.
According to prosecutors, it was Holmes who misled executives of national chains Walgreens and Safeway by, among other tactics, forging letters of approval from Pfizer about Theranos’ technology. Pfizer was actually underwhelmed by her devices, Leach told jurors, calling them “unconvincing” and “noninformative and invasive.”
In 2009, Leach continued, Theranos was so short on cash that the startup struggled to meet payroll. “Out of time, out of money, Elizabeth decided to lie,” Leach said, adding that Holmes pitched the Theranos machine using phony reports claiming pharmaceutical firms Pfizer and Schering-Plough endorsed the devices.
Holmes allegedly spun incredible tales about her business, including that the military’s medevacs and helicopters were utilizing Theranos tech to save soldiers’ lives on foreign battlefields; in reality, Theranos only had a $250,000 contract in 2010 with the U.S. Army’s burn center for a research study, Leach said.
In September 2013, Theranos’ mini blood labs were still malfunctioning and the firm was burning through at least $1 million a week. To continue misleading investors, Holmes allegedly utilized third-party, commercially available machines—the ones she vowed to outclass—at Theranos headquarters.
Holmes also embarked on a media blitz about her vision, landing a piece in the Wall Street Journal promoting her technology a day before issuing a press release on the Walgreens partnership. According to Leach, Holmes worked closely with the late WSJ scribe Joe Rago and approved his article before publication.
In June 2014, Holmes appeared on the cover of Fortune and parroted similar talking points to reporter Roger Parloff, who is listed as a potential government witness. “Her deceit of reporters was an important way she executed her fraud,” Leach said.
Although Theranos kiosks were installed in Walgreens, the startup’s technicians simultaneously collected blood through finger pricks and traditional needle draws. Leach said that by August 2014 Walgreens warned Holmes the chain wouldn’t expand the Theranos program if the startup’s staff continued using conventional needles for tests.
Around this time, Leach said, “insiders blew the whistle.”
Former Theranos staffers, including then lab director Adam Rosendorff and lab associate Erika Cheung, were growing alarmed about the accuracy of the tests. Cheung was so disturbed, Leach said, that she reported Theranos to the Centers for Medicare & Medicaid Services.
For his part, Wade hinted at troubles with Balwani’s management style, saying he “demanded devotion, hard work and expected long hours from those working with him.” Balwani’s temper, Wade added, drove employees to leave the company.
The attorney suggested Balwani’s relationship with Holmes was also troubled: “Like with many personal relationships, there’s another side to it that people never saw.”
Throughout the opener, Wade showed jurors a family photo of Holmes as a child, played a Theranos commercial and said the company was more than Holmes’ “vanity project,” and flashed photographs of Theranos’ major investors including Rupert Murdoch, the Walton family of Walmart fame, and former Education Secretary Betsy DeVos and members of her family.
Wade said the power players who dumped millions into Theranos were highly sophisticated and “knew what they were buying,” adding that “you needed to be at least a multimillionaire” to have invested in Holmes’ company.
The lawyer told jurors that investors who plan to testify, including San Francisco hedge-funder Brian Grossman, “knew it was a gamble” but now had a motivation to turn on Holmes. Grossman had to answer to those who invested in Theranos on his firm’s recommendation and were bitter about losing money.
After the proceeding closed for the day, Holmes walked into the sunshine holding Evans’ hand, as reporters chased her and tossed questions her way. Both wore COVID masks, which disguised their reactions.
“Do you feel like people started to get a full picture of who you are today?” one journalist asked, before slinging another query: “Is it true that you still steadfastly believe in this technology, even after all this?”
Holmes didn’t answer.