Investigators say his fingerprints are all over financial crimes at Theranos. Why is he a virtual ghost?

We searched far and wide for an image of Balwani, but the best we could turn up was a grainy photo of him from his 1988 college yearbook. Then we found a…
Rebecca Robbins and Damian Garde and Adam Feuerstein

Fallen wunderkind Elizabeth Holmes is the face of the Theranos scandal. But the next act of Silicon Valley’s biggest blow-up rests on a mysterious tech entrepreneur with almost no digital footprint.

Ramesh “Sunny” Balwani is a virtual ghost — despite serving nearly seven years in the No. 2 position at the blood-testing startup that turned out to be too good to be true. While the black-turtleneck-clad Holmes graced magazine covers and spoke before adoring crowds, Balwani, her former boyfriend, stayed in the shadows. He has almost no internet presence, and the only verifiable photo that STAT could find of him was a grainy image from his 1988 college yearbook.

Now, he’s at the center of a legal showdown that could tear open a new chapter in a scandal that has rocked the business world and captivated the public imagination. And it could set up a daytime-TV legal defense: My ex-girlfriend duped me.

Balwani, 52, is accused of a massive fraud, bilking investors out of more than $700 million and lying repeatedly about what Theranos’s blood-testing technology could actually do. The 34-year-old Holmes, accused of nearly identical crimes, settled last week with the Securities and Exchange Commission. Theranos did, too.

But Balwani didn’t, and his defense could rely on throwing his ex under the bus, attorneys said.

“He’s going to have to be able to point to someone, and it seems like it will be her,” said Gabriel Nugent, an attorney who represents health care companies in criminal and civil investigative matters.

In an emailed statement to STAT, Jeffrey Coopersmith, Balwani’s lawyer, called the SEC charges “unwarranted” and said that his client “accurately represented Theranos to investors to the best of his ability.” In a bullet-pointed list, Coopersmith laid out the sacrifices Balwani made to keep Theranos afloat, painting his client as an investor who took a risk on the company and suffered losses.

READ: The full statement from Sunny Balwani’s attorney Jeffrey Coopersmith

But Theranos, once the most valuable venture-backed company in health care, operated as a duopoly, according to the SEC, with all the power in the hands of Holmes and Balwani. And their names appear next to each other in allegation after allegation in the SEC’s court filings.

“They have a lot to work with — and Balwani is all over it,” Nugent said.

A storm gathers

Balwani and Holmes met in China in the early 2000s, each a student in a Mandarin-intensive summer program. (She was reportedly a more advanced speaker.) She had recently graduated high school; he was in his mid-30s. Returning to the states, they kept in touch by email, eventually starting a romantic relationship.

Holmes famously dropped out of Stanford University to start Theranos in 2003, but by 2009, she had nearly run the company into the ground. She spent years developing a technology that could make diagnoses based on just a drop of blood, but after five years of work, Theranos was on the verge of bankruptcy with no products to sell, according to the SEC.

And so Holmes turned to Balwani, who the SEC’s complaint describes as her “then-boyfriend,” for a no-strings-attached loan to keep Theranos in business. That was the same year he joined the company as president and chief operating officer.

It was also when Theranos started breaking the law, according to the SEC.

The SEC’s court documents paint Balwani as a hyperactive manager who operated with cunning and methodical intensity. And they find Balwani’s fingerprints all over Theranos’s alleged financial crime scene. The allegations: He lied to investors and partners about the blood test’s capabilities. He falsely claimed it was being used on military helicopters. He promised $1 billion in annual sales despite booking just $100,000. He orchestrated a campaign of secrecy within the ranks of the company, instructing employees to use code names for the third-party machines used in lieu of the company’s proprietary technology to process blood tests.

While the alleged fraud was taking place, Theranos was on a multiyear winning streak. The company raised hundreds of millions of dollars from private investors, struck a big partnership with Walgreens, and earned fawning media coverage. In 2014, Theranos reached its peak valuation of $9 billion.

As the good times rolled, the public face of the company was all Holmes, all the time. Balwani is nowhere to be found in the company’s promotional material or photo ops.

Balwani even used his Twitter account for the almost exclusive purpose of promoting and lavishing praise on Holmes and the company. Balwani retweeted photos of Holmes with then-Vice President Joe Biden and with Senator John McCain; another retweet noted that Holmes was “recently named the coolest CEO in Silicon Valley.” In keeping with his low profile, Balwani’s Twitter account, which went dormant in 2015, has no profile photo.

And in the few interviews he gave, Balwani kept the focus squarely on Holmes. In April 2014, he told Fortune that Holmes is “probably the most important inventor of our time.”

The same month Balwani gave that Fortune interview, he tried to mute a young employee who would go on to blow the whistle on the company. Tyler Schultz, who spent eight months working at Theranos after he graduated from Stanford and is also the grandson of Theranos director and former Secretary of State George Shultz, told the Wall Street Journal that when he raised concerns to Holmes about troubling practices at the company, he got an email response from Balwani.

“The only reason I have taken so much time away from work to address this personally is because you are Mr. Shultz’s grandson,” Balwani wrote in an email to Schultz first reported by the Journal’s John Carreyrou.

Balwani also wrote to Shultz: “Had this email come from anyone else in the company, I would have already held them accountable for the arrogant and patronizing tone and reckless comments.”

Things started to unravel for Theranos the next year — and they got worse and worse in the months that followed. Facing sanctions from federal regulators and a darkening storm of bad press, Balwani left the company in May 2016.

A legal gambit

Now Balwani is in a precarious legal situation.

The SEC didn’t disclose how much money it wants out of Balwani. Holmes’s settlement of just $500,000 looks lenient considering her alleged $700 million-plus fraud, but the government could have much steeper demands for Balwani.

Settlement amounts are tied to the value of defendants’ assets, said Renee Jones, a Boston College law professor who studies securities fraud. Holmes may have depleted her wealth in earlier settlements with jilted Theranos investors, leading to a reduced payment to the SEC. But Balwani, who made a fortune in the dot-com bubble, might have a lot more for the government to go after.

It’s an unusual decision for Balwani to fight the SEC. More than 90 percent of people facing charges of securities fraud choose to settle, in part because doing so doesn’t require admitting guilt, Jones said. But Balwani’s decision to fight the case could be a gambit: If prosecutors balk at the time and money it would take to go trial, they might offer Balwani more friendly settlement terms, Jones said.

Balwani has to worry about more than just the legal battle with the SEC: The U.S. attorney’s office in San Francisco is still conducting a criminal investigation into the company, according to the Wall Street Journal, which means that Holmes and Balwani could still be indicted.

Criminal and civil investigators often work closely together and it’s fairly common for SEC charges to be followed by a criminal indictment, said Thomas Cullen, a former federal prosecutor who now represents individuals and companies in white-collar investigations in health care, among other fields.

The specter of “federal prosecutors lurking behind the scenes” on the criminal side may shape Balwani’s decisions in his civil case, Cullen said. In a civil deposition, for example, he could be more cautious and choose to plead the Fifth Amendment instead of answering questions.

Then there’s the matter of Balwani’s defense. If he’s going to argue that he bears no responsibility for Theranos’s alleged frauds, the question becomes: Who does?

“He could argue, ‘Look, [Holmes] was the wrongdoer; she was the brains behind the operation, and I took her word for things,’” Jones said.

And that could be complicated by the fact that Balwani was in a romantic relationship with Holmes. It’s not clear when Holmes and Balwani broke up, but he made an appearance at her 30th birthday party at George Shultz’s home, mingling with members of her family and Theranos’s big-name board. Holmes’s security detail also reportedly came up with a code name for Balwani: “Eagle 2.”

“He could say that this is a person he invested his emotions in and trusted, and he put himself in a vulnerable place to be misled,” Nugent said. “On the other hand, it’s harder for him to deny it with the ‘I was not at the scene of the crime’ defense.’”

In another layer of intrigue, it’s possible that Holmes could be forced to testify in Balwani’s civil case. She could either be subpoenaed or have an agreement with the SEC to do so as a condition of her settlement, Nugent said.

Balwani has an initial case management conference scheduled in a San Jose, Calif., courtroom on July 12, according to court documents.

Getting rich, staying hidden

Googling the No. 2 executive at most prominent companies turns up endless hits: buttoned-up corporate headshots, video footage from the speaking circuit, and talking points distilled into blog posts.

Not Balwani. “Navy SEALS have less anonymity,” one blogger remarked.

STAT had to crack open the 1988 University of Texas, Austin, yearbook to get a glimpse of Balwani: Wearing acid-washed jeans and a striped rugby, he stands posing for a group photo with other members of the Pakistani Students Association.

Balwani went on to earn his undergraduate degree there, in information systems. He spent the ’90s working in the burgeoning dot-com sector, with stints at Lotus Development Corporation and Microsoft, according to his official bio.

Then he got rich.

Balwani’s main source of wealth: millions of dollars made from a well-timed sale of a business software firm at the peak of the dot-com stock bubble.

In 1998, Balwani and a partner founded CommerceBid, a Santa Clara, Calif.-based developer of software that helped businesses buy and sell products over the internet. That may seem like a pedestrian startup idea today, but most corporations were barely present on the internet in the late 1990s and even fewer were conducting any meaningful electronic commerce.

In 1999, Commerce One, another business software developer with a soaring stock price, acquired CommerceBid. The deal price: $227.5 million, paid almost entirely in Commerce One stock. After the deal closed, Balwani and his partner joined Commerce One as vice presidents, according to an SEC filing.

They also sought to cash out their extensive holdings of Commerce One stock. In July 2000, Balwani and his CommerceBid co-founder each registered for sale more than 1.5 million shares of Commerce One stock, according to a filing with the SEC.

On the date of the filing, Commerce One shares were trading at $57.34, valuing Balwani’s stake at just shy of $90 million.

SEC records do not indicate when Balwani sold his Commerce One shares or at what price, but his intent to sell came just months after the popping of the dot-com bubble had started to send tech stocks crashing.

A LinkedIn profile that appears to belong to Balwani notes his departure from Commerce One in January 2001. One year later, Commerce One’s business e-commerce marketplaces were losing customers and sales. The company filed for bankruptcy in 2004.

A multimillionaire tech executive in the second half of his 30s could have done just about anything. But Balwani went back to the classroom.

Balwani earned his MBA at the University of California, Berkeley’s Haas School of Business; he got the degree in 2003, according to his LinkedIn profile. He went on to spend about four years in a computer science graduate program at Stanford University, but — just like Holmes — ended up dropping out, in 2008.

Then he joined Theranos.