The Trial of Theranos’s Elizabeth Holmes Opens

SAN JOSE, California – The defendant, dressed in a gray suit, sat quietly at a table surrounded by attorneys, her expression hidden behind a blue medical mask. Every now and then he looked around. Her boyfriend and members of her family were sitting, also masked, in the crowded gallery of Room 4.

A roaring undercurrent of laptop keyboards began when Robert Leach, a deputy federal prosecutor, testified that the defendant had lied and cheated to obtain money.

“That is a crime on Main Street and it is a crime in Silicon Valley,” he said.

So began the trial Wednesday of Elizabeth Holmes, who dropped out of Stanford University to create the blood testing startup Theranos at age 19 and turned it into a $ 9 billion valuation and became the billionaire woman herself. World’s youngest self-made woman, only to be turned off in disgrace after Theranos technology was revealed to have problems.

In 2018, Ms. Holmes and Ramesh Balwani, her former romantic and business partner, were charged with 12 counts of wire fraud and conspiracy to commit wire fraud. According to federal prosecutors, Ms. Holmes and Mr. Balwani misrepresented Theranos technology capabilities and the company’s business performance to investors. Both have pleaded not guilty.

Ms. Holmes’s trial, in federal court in San Jose, California, began just one month after she gave birth to a son, but more than three years after Theranos dissolved and six years after it The Wall Street Journal exposed the problems with the beginning for the first time. -up’s blood test. The trial is expected to last 13 weeks and possibly present as witnesses for former board members and high-profile investors, such as former Secretary of State Henry Kissinger and media mogul Rupert Murdoch.

If convicted, Holmes, 37, faces up to 20 years in prison. Balwani’s trial is scheduled to begin in January.

Part media show, part modern business parable, the case was the culmination of a decade of Silicon Valley glut, where a seemingly endless source of capital for money-losing start-ups created immense wealth for its founders and investors and led to an environment where some were willing to look at the other side when companies stretched the truth.

During its rapid rise, Theranos was celebrated as a model of Silicon Valley’s disruptive business magic, the precise kind of magic that spawned Apple, Facebook, Google, and Tesla, four of the world’s most valuable companies. But since the dramatic collapse of Theranos, the company has become a symbol of the dark side of the hustle and bustle of “pretend until you do” tech culture. The startup industry has struggled to distance itself from Theranos.

Ms. Holmes’s trial is also noted for its weirdness. Criminal prosecutions in Silicon Valley have declined markedly in recent years.

“The eyes of the world are watching this trial,” said Jessica Roth, a law professor at Cardozo School of Law and a former federal prosecutor in the Southern District of New York. “Legally, faking it when you know you haven’t succeeded is still a fraud,” added Ms. Roth. “Did they know they were faking it or did they think they were doing it?”

Interest in the trial was so high that a line began to form to enter the federal courthouse before 5 a.m. Entering the windy alley in front of the courthouse at around 8 am, Ms. Holmes found herself invaded by camera crews. She was escorted through the scrum by her boyfriend, Billy Evans, and members of her family.

Curious members of the public also appeared, as did a team of three blonde women in black suits who resembled the defendant. At one point, Mr. Evans and the women in black went through a padded seat to the hard benches of the courtroom.

The case depends on whether Ms. Holmes intended to mislead investors and others and whether she was manipulated by Mr. Balwani. Prosecutors and defense immediately drew the battle lines in their opening statements.

In defense of the government, Leach methodically described the moments when Theranos came close to shutting down. “Out of time and out of money, Elizabeth Holmes decided to lie,” he said, in what became a refrain.

Mr. Leach showed a picture of the Theranos blood testing machine, known as the Edison and MiniLab, and said that it was “not doing anything that couldn’t be done in an ordinary central blood testing laboratory.” He described Theranos’s false claims that their technology was being used on the battlefields. It showed apparently falsified reports that Ms. Holmes gave to investors in pharmaceutical companies that were backing Theranos technology. He said that she had sold wildly exaggerated income projections and used the media to execute her fraud.

“The plan brought him fame, it brought him honor and it brought him adoration,” Leach said.

The defense responded by arguing that Ms Holmes, who had encouraged comparisons of herself to Steve Jobs, including adopting a black turtleneck uniform, was a hardworking, albeit naive, entrepreneur who was unsuccessful but did not commit any crime. .

“The villain the government just introduced is actually a living, breathing human being who did the best he could every day,” said Lance Wade, a Williams & Connolly attorney representing Ms. Holmes. “Doing your best and falling short is not a crime.”

Mr. Wade argued that the reality of the Theranos failure was more complicated than the government filing and that the company had built valuable blood testing technology.

The Theranos reality, he said, was “much more human, real and often much more, I hate to say it, but technical, complicated and boring” than what the government presented.

The media coverage made it challenging for prosecutors and the defense to find a 12-person jury who had not heard about Ms. Holmes, Theranos, or the trial. Many potential jurors had read “Bad Blood,” a book on Theranos by former Wall Street Journal reporter John Carreyrou; I had listened to “The Dropout,” a podcast about Theranos; or he had seen “The Inventor”, a documentary about Theranos.

Both parties frequently mentioned Mr. Balwani, but Ms. Holmes’s attorneys deliberately focused on the relationship.

“Trusting and relying on Mr. Balwani as his main advisor was one of his mistakes,” Wade said.

Ms. Holmes’s attorneys have said in the documents that Mr. Balwani emotionally and mentally abused her, and that the abuse denied her ability to intentionally mislead investors. They also said that Ms. Holmes was likely to testify about this.

Such an argument is extremely rare in white-collar criminal trials, Roth said, possibly because there are so few female CEOs.

In court documents, Mr. Balwani has denied any abuse. In text messages revealed by prosecutors on Tuesday, Holmes showered Balwani with affection. In May 2015, while Theranos was dealing with Mr. Carreyrou’s questions, she wrote Mr. Balwani a series of messages: “You are a breeze in the desert to me / My water / And the ocean / I was pretending to be just a tiger together”.

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