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The first few alleged victims who have been called to testify in the fraud trial of Elizabeth Holmes, the founder of Theranos, might as well be called The Smartest Dupes in the Room. First came James Mattis, the retired four-star general, who testified that he invested in the failed blood-testing startup even though Holmes was his "sole source" of information about the company. And now we have Steven Burd, the former CEO of the supermarket giant Safeway, who spent yesterday on the stand explaining how he - a celebrated titan of industry - fell hard for Holmes and her high-tech schtick.
Burd - a robust septuagenarian who comes across as a hard-charging, likable-enough, Business Roundtable type - oversaw Safeway's cash investment of $30 million in Theranos. As she did with Mattis and other older men, Holmes clearly made an impression on Burd. He called her charismatic and smart and conceded that she was pretty much his only contact at the company.
Burd testified that he saw a big opportunity in Theranos: If Safeway customers who came to shop could be persuaded to get a blood test and then wait for the results, they would be likely to spend more on groceries. When Safeway added gas stations in its parking lots, for instance, it boosted sales by an average of 6%. And if Theranos later marketed those same blood-testing services to other supermarkets, Safeway would effectively profit twice from its initial investment.
Assistant US Attorney Robert Leach used Burd's testimony to flick at several recurring themes in the government's case. Had Burd, he asked, been aware of the romantic relationship between Holmes and Theranos' president, Sunny Balwani? Burd said he had not. Did he think the relationship had any relevance? "It just raises the question of what else is hidden from view," Burd replied.
Leach also placed into evidence a slide from a presentation that Holmes made to the Safeway board. It repeated the now-infamous assertion that Theranos had been "comprehensively validated over the course of the last seven years by 10 of the 15 largest pharmaceutical companies." It's a statement that's either an outright lie or a bold attempt to redefine the meaning of "comprehensively validated."
You can tell a lot about either side's case by the questions most often repeated. "Did Miss Holmes ever attribute delays to technical issues?" Leach asked Burd while discussing one of several times that Theranos missed a promised milestone. In one instance, Burd said, "I was told that stacking six machines would generate a lot of heat and they were struggling with how to dissipate the heat." But when Leach asked Burd whether Holmes mentioned technical issues as excuses for the other missed deadlines, the CEO's answer was simply, "No." Holmes, Leach seemed to be suggesting, had criminally withheld from Safeway the critical fact behind all the delays: Its product didn't work.
The lazy car buyer defense
The task of cross-examining Burd fell to the defense attorney Kevin Downey, who proved to be a good deal more gentlemanly than his colleague Lance Wade, who kept the last government witness on the stand for four full days. In a relatively brisk 2 1/2 hours of questioning, Downey pushed two lines of argument on Burd. First, he suggested, Burd's due diligence sucked. Downey characterized Burd as floating above it all. Had he asked Holmes how much money she spent to develop the technology? "I don't recall." Had Robert Edwards, Safeway's chief financial officer? "I don't know." Did Burd get any insight into the capabilities of Theranos when he introduced Holmes to Jonathan Simons, an oncologist at Johns Hopkins University? "Obviously Jonathan was in no position at a dinner meeting to evaluate the technology," Burd responded. "He thought if Theranos could do this, that would be a game changer."
Downey's attempt to paint Burd as a lazy car buyer who failed to properly kick the tires wasn't very convincing. If Holmes lied to Burd, after all, it doesn't matter how good a job Burd did in trying to learn the truth. The lie would still constitute criminal fraud. But Burd, like Mattis before him, did come across as oddly gullible for a man who spent decades at the pinnacle of his chosen profession.
Downey had better luck with his second line of argument: that Burd and Safeway knew full well that Theranos was using traditional blood-testing devices developed by third parties, rather than its own finger sticks. At one point, for example, Burd had noted his displeasure that Theranos was sending blood samples to an offsite lab. That meant patients who got their blood drawn at Safeway wouldn't get their results while they were still at the store. One solution would have been for Theranos to install blood-analysis equipment on-site at Safeway, but that prospect didn't appeal to Holmes. "We are doing this to serve the Safeway patients," she told Burd in an email the defense produced, "but it does not make sense for us to invest in a full-service dinosaur lab."
Like so much evidence at a protracted trial, such details start to blend together after a while. It's all so dreary and slow and boring that nothing really stands out - there's no Perry Mason moment, where the witness breaks down in tears. But the defense's argument was clear: If Burd knew Theranos wasn't relying on finger-stick samples, then Holmes wasn't defrauding Safeway. Sure, the startup may not have made good on its promise to develop technology that would revolutionize blood testing. But failure, as Holmes' lawyers asserted in their opening statements, isn't a crime.
At least one tricky legal move was deployed during Burd's testimony. Toward the end of his time on the stand, Burd was asked by the prosecution about an email he had written to Holmes in July 2011. In it, the supermarket executive told Holmes he wanted to "maximize my return on my $275 million remodel investment."
Leach asked Burd to clarify. "Was this money you gave to Theranos?"
"No," Burd replied. "This was money we used to remodel the stores."
Unbeknownst to the jury, the subject of what Safeway spent to create spaces for Theranos blood-draw clinics had been the subject of much lawyerly squabbling over the previous two days. In arguments before Judge Edward Davila, without the jury present, the prosecution maintained that it should be allowed to present Safeway's huge remodeling expenditures to demonstrate the full scope of its losses in the Theranos debacle. The defense objected to conflating what Safeway invested in its stores - which later housed Quest Diagnostics blood-draw sites - with what it lost on its Theranos investment.
The judge sided with the defense, ruling that the prosecution couldn't discuss Safeway's big-dollar remodeling. So Leach found a back-door way to introduce the subject. Spotting the 2011 email, which the defense had entered into evidence for another reason - and without objection, as the judge noted - he asked Burd about the $275 million. The jury heard the number, followed by the word "investment." Mission accomplished.
Burd's appearance was dry, but it did include one intriguing moment. While explaining how the Theranos relationship went south, the government displayed a November 2012 email from Burd to Holmes with the subject line "Becoming Discouraged." Burd wrote: "I can only recall having been discouraged once in the last 62 years. That said, I am getting close to my second event."
"I'm one of the most positive people you'll ever meet," Burd testified, by way of explanation. "I don't get discouraged."
Which raises the question: What is the one other time in Steven Burd's long life that left him as discouraged as dealing with Elizabeth Holmes?
Read the original article on Business Insider