CRIMINAL CAPITALI$M
Elizabeth Holmes found guilty on 4 counts of defrauding Theranos investors
Theranos founder Elizabeth Holmes was convicted on three counts of criminal wire fraud and one count of conspiracy to commit wire fraud Monday, with a jury unanimously finding her guilty of illegally fleecing investors out of millions of dollars through her startup blood diagnostics company.
The jury deadlocked on three counts of wire fraud, and she was found not guilty on four counts of defrauding patients.
Holmes, 37, turned toward the judge and jurors as the judge's deputy read the verdict to the packed courtroom in San Jose’s federal district court. The former media darling, dressed in a gray skirt suit sat upright and poised flanked by two of her defense attorneys.
On eleven separate felony counts, each carrying a maximum penalty of 20 years in prison, the jury found Holmes guilty on 3 of 9 counts of wire fraud and 1 of 2 counts of conspiracy to commit wire fraud.
Holmes’ sentence will be handed down by presiding federal judge Edward Davila at a later date. Under California law, felony convictions must be scheduled for sentencing within 20 days of a guilty verdict, though exceptions to that rule can apply.
Holmes was free to leave the courthouse following the verdict.
The landmark case, one of the most closely watched in Silicon Valley history, establishes a new bar for the extent to which startup ventures and their founders who overhype the capabilities of their products and services can steer clear of the U.S. Justice Department’s scrutiny.
Representations made by startup founders like Holmes have not always attracted significant pressure from federal prosecutors, partially due to the typical agreements that multi-millionaire and billionaire investors attest to before they make their investments, attesting to their understanding of the highly speculative nature of such wagers.
However, Holmes was also accused of defrauding customers who paid for her company’s commercialized blood-testing service through its partnership with Walgreens. According to prosecutors, customers who spent money on the service, only to receive erroneous results, were also duped because Theranos’ tests were never reliable.
Six of the wire fraud charges (counts 3 -8) in the indictment against Holmes were based on multi-million dollar investments in Theranos made between 2013 and 2014. Two wire fraud charges (counts 10 & 11) were based upon payments made by Theranos customers in exchange for blood services, while an additional charge (count 12) pointed to a money transfer tied to Theranos’ advertisements of its services.
Each of two conspiracy charges separately alleged that between approximately 2010 and approximately 2015, Holmes conspired with her former boyfriend and Theranos COO Ramesh “Sunny” Balwani to defraud investors and patients. Balwani is facing a separate trial, scheduled to begin next year
Ag her time running Theranos from 2006 until it imploded in 2018 under legal and regulatory pressure. The charges however singled out particular investments totaling approximately $154 million made during the two years when Theranos was preparing for and rolling out its serviceA s in Walgreens stores.
The jury’s decision was based on testimony from more than 30 witnesses — including Holmes’ herself, who took the stand in her own defense — as well as arguments from each party's lawyers, and more than 900 exhibits introduced over the trial’s 15 weeks.
“Elizabeth Holmes was building a business and not a criminal enterprise,” Holmes’ attorney Kevin Downey told the jury in closing arguments.
In rebuttal, U.S. Assistant Attorney John Bostic painted a starkly different picture, telling jurors, “The disease that plagued Theranos was not a lack of effort, it was a lack of honesty.”
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Elizabeth Holmes: Silicon Valley's fallen star
Elizabeth Holmes's Silicon Valley star came crashing down under the pressure of fraud allegations
The rise and fall of Holmes, who on Monday was convicted of defrauding investors of her biotech startup, is a heavily-chronicled saga that prompted a hard look at her methods but also the unseemly aspects of startup life.
In many ways Holmes fit the image of a Silicon Valley entrepreneur, from her dark-colored turtleneck sweaters that evoked tech legend and Apple founder Steve Jobs to her dropping out of California’s elite Stanford University.
But much like in her trial, the fundamental question has been whether she was a true visionary who simply failed, as she claimed on the stand, or a skilled self-promoter who took advantage of a credulous context to commit fraud.
Her story begins in the US capital Washington, with her birth to a Congressional staffer mother and a father whose online biography says he was once an executive at Enron -- an energy company that collapsed in a massive fraud scandal.
She won admission to Stanford, and there began work on cutting-edge biomedical initiatives, founding in 2003 what would become Theranos when she was just 19.
Part of Holmes's ability to convince her backers was her apparent deep personal commitment -- she applied for her first patent while still in college and after dropping out, convinced her parents to let her use her tuition savings to build the company.
'Youngest woman self-made billionaire'
By the end of 2010 she had raised a whopping $92 million in venture capital for Theranos, which she pledged was developing machines that could run a gamut of diagnostic tests on a few drops of blood.
Over the next couple years she assembled what one news report called the "most illustrious board in US corporate history", including former secretaries of state Henry Kissinger and George Shultz as well ex-Pentagon chief Jim Mattis.
"Sharp, articulate, committed. I was impressed by her. That didn't take the place of having the device prove itself," said Mattis in a surprise appearance on the stand.
Theranos hype kicked up another gear in 2014 and in the span of just over a year, a turtleneck-wearing Holmes appeared on the covers of Fortune, Forbes, Inc. and T: The New York Times Style Magazine.
Forbes gave her a $4.5 billion net worth in 2014, which was based on her half ownership of Theranos, and noted: "Youngest woman on Forbes 400; Youngest woman self-made billionaire."
This glowing coverage had an impact on Theranos investors like venture capitalist Chris Lucas who told Holmes's trial the Fortune article made him "proud we were involved, very proud of Elizabeth."
But there were some things that didn't end up in those glowing reports that gushed with statements like "Steve Jobs had massive ambition, but Holmes's is arguably larger."
Silicon Valley sexism?
For one, she personally put the logos of pharma giants Pfizer and Schering-Plough onto Theranos reports hailing its own blood-testing technology, which were then shared with investors.
That was done without the companies' permission and was a key piece of the prosecution's argument that she deliberately tried to inflate Theranos's credibility in order to win over backers.
She also kept secret the machines' failings and the fact that once Theranos began to do diagnostics on real patients, some of the tests were done using the same equipment sold to standard labs.
Ultimately though, it was a series of Wall Street Journal reports starting in 2015 — which Holmes tried to kill by appealing to the paper's owner and Theranos investor Rupert Murdoch — that set the company's collapse in motion.
Holmes's case also raised questions about why she was prosecuted, but not other tech CEOs who engaged in the "fake it until you make it" Silicon Valley method or other bad behavior.
Ellen Pao, the former CEO of Reddit and critic of tech industry discrimination, argued in a New York Times opinion piece that sexism bears some blame.
She noted that WeWork's Adam Neumann and Uber co-founder Travis Kalanick raised billions with hype, while there have been allegations of racism and sexism at Tesla and misleading claims about vaping from Juul's leaders.
Holmes "should be held accountable for her actions as chief executive of Theranos," Pao wrote.
But "it can be sexist to hold her accountable for alleged serious wrongdoing and not hold an array of men accountable for reports of wrongdoing or bad judgement," she added.
© 2022 AFP
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