Update (November 21): Elizabeth Holmes has been sentenced to just over 11 years in prison, followed by three years of supervised release, for defrauding Theranos investors, The New York Times reports. Holmes, who plans to appeal her sentencing, must surrender to custody by April 27, 2023.
Update (July 7): Ramesh “Sunny” Balwani was convicted today on 12 counts of fraud related to his role in the Theranos scandal, a verdict more severe than that handed down to the company’s founder, Elizabeth Holmes, The New York Times reports. Balwani is expected to appeal.
Elizabeth Holmes, the former CEO of the blood testing company Theranos, was found guilty yesterday (January 3) of fraud, the latest development in a headline-grabbing saga that has spanned nearly two decades and been the subject of a book, a podcast, and a documentary. Her trial, held over almost four months in San Jose, California, was seen as a referendum on Silicon Valley’s “fake it till you make it” ethos, as prosecutors alleged that Holmes solicited almost $1 billion from investors by touting a device that never lived up to the company’s claims.
Of the 11 charges Holmes was facing at trial, she was found guilty of four: three counts of wire fraud and one of conspiracy to commit wire fraud. The jury found her not guilty of conspiring to defraud patients, two other patient-related charges, and one count of lying in paid advertisements, according to STAT, and were unable to reach a consensus on three counts of misleading investors. Nevertheless, the US attorney for the Northern District of California, Stephanie Hinds, tells The Washington Post that “the guilty verdicts in this case reflect Ms. Holmes’s culpability in this large-scale investor fraud, and she must now face sentencing for her crimes.”
A sentencing date is expected to be set at a hearing on the last three charges, which Judge Edward J. Davilan has indicated will be declared as mistrials, during the week of January 10, according to The New York Times.
The story of Theranos stretches back to 2003, when Holmes, a Stanford University dropout, founded the company with the goal of revolutionizing blood testing. Having long struggled with a fear of needles, Holmes often spoke of designing a machine capable of running hundreds of routine tests on just a few drops of blood collected via a finger prick. She was able to pack her board with a panoply of powerful figures, including former Secretaries of Defense James Mattis and William Perry, former Secretaries of State George Shultz and Henry Kissinger, and William Foege, a former director of the Centers for Disease Control and Prevention.
Their support lent Holmes an air of legitimacy that, prosecutors argued, she leveraged to solicit capital from investors. In evidence presented at the trial, they detailed instances in which they said Holmes lied to investors about nonexistent partnerships with the US military and the drug company Pfizer, and about how she misled executives at Walgreens—whose former CFO testified against Holmes at the trial—in order to negotiate a deal to put Theranos devices into 40 of the chain’s locations.
The device, first dubbed the Edison and later called the miniLab, was touted as being able to run hundreds of tests on-site at each Walgreens location, but could in fact run only a small handful, and often gave bad results. Several patients took to the stand during the trial to share their experiences, including one man whose test results suggested he was at high risk for developing prostate cancer and a woman, Erin Tompkins, who thought she might have HIV after a Theranos test detected one of four HIV antibodies. “I was quite emotional at the time,” she said during the trial, in comments quoted by The Wall Street Journal.
In truth, almost all of the samples were being run on modified third-party machines at the Theranos lab in Palo Alto, California. Researchers and technicians would later describe lax safety protocols, including a lack of PPE and improper hazard disposal. Speaking to reporter John Carreyrou, whose investigative series of stories for the Journal ultimately unraveled Holmes’s deceptions, former clinical lab technician Lina Castro detailed in a podcast episode how members of the lab often threw vials of blood into biohazard bags on the floor. “But if you throw things, they tend to splatter,” she said, adding that she often cleaned blood from the sides of instruments. “I remember we had a girl that actually had some fluids from one instrument splash in her eyes because she didn’t have the proper PPE.”
Holmes’s lawyers are expected to appeal the ruling, according to the Times. While each count of fraud carries a maximum sentence of 20 years, legal experts tell the Associated Press that it’s likely Holmes will be sentenced to less time, or that her sentences will be served concurrently. Former federal prosecutor Robert Dugdale notes to the Post, however, that “the judge can take the other conduct charged in the case into account when Ms. Holmes is sentenced, regardless of the fact that the jury acquitted her of that conduct or did not return a verdict concerning that conduct in the government’s favor.”
Ellen Kreitzberg, a Santa Clara University law professor who attended the trial, tells the AP that the guilty verdict “will send a message to CEOs that there are consequences in overstepping the bounds,” although she admits that it’s unlikely to dampen the allure of big Silicon Valley money entirely. “Investors are still going to want to make more money on a promising idea. They will always go in for the golden ring.”