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Elizabeth Holmes, Once Darling of Silicon Valley, Begins Criminal Fraud Trial

By:
Chris Gaetano
Published Date:
Aug 31, 2021
380px-Elizabeth_Holmes_2014_cropped
Elizabeth Holmes, who had once been a rising star in the tech world, begins her criminal trial today, on federal charges of wire fraud and conspiracy to commit wire fraud, for allegedly defrauding investors by to convincing them to buy into her company, Theranos, based on technology that she knew did not actually work, CNBC reported. Holmes was criminally indicted in June 2018, after the SEC brought civil charges  against her and Theranos in March of that year. Theranos and Holmes agreed to settle those civil fraud charges: Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return 18.9 million stock shares and relinquish her voting control of Theranos.

Holmes, through Theranos, claimed to have developed a technology that could nearly instantly perform a full spectrum of blood tests using a microscopic quantity of blood.

This claim so impressed investors that the company was able to raise $700 million. However, the U.S. Department of Justice charged that the company's claims were untrue, and that leadership knew it. The criminal complaint said that, in fact, the company's proprietary analyzer, on which the success of the entire venture was staked, was able to perform only a limited number of tests and not the full range of tests that Theranos claimed it was capable of doing. For the rest, the company simply outsourced to third-party commercial analyzers, some of which had been modified to analyze fingerstick samples. 

Despite the device not being commercially ready, the company nonetheless decided to pursue retail clinical laboratory space, and used misleading product demonstrations to convince buyers of its efficacy. For example, it conducted some demonstrations on modified third-party devices while not telling potential buyers that these were not, in fact, the actual products it was developing. Theranos also instructed employees to place labs that could only be used for R&D testing in the same room as the clinical labs and then led pharmacy executives on a tour of that room without telling them of the difference between the machines. It also explicitly denied that there were any technological problems. 

The DOJ claims that the company continued making these false claims and giving rigged product demonstrations in order to raise additional investment. Potential backers were led to believe their own blood was being tested on one of Theranos' proprietary devices when, in fact, they mostly used the modified third-party devices because the actual ones weren't able to do the tests the company claimed they could do. 

Holmes is also charged with exaggerating the extent of the company's relationships with the Department of Defense and pharmacy chains. 

CNBC said that Holmes plans to mount a mental health defense, claiming that her business partner, former romantic partner and co-defendant, Ramesh “Sunny” Balwani, psychologically, emotionally and sexually abused her (he has denied the claims). According to one filing, Holmes accused Balwani of throwing sharp objects at her; controlling what she ate, when she slept and how she dressed; and monitoring her calls and text messages. Given Holmes' allegations, she plans to claim that she lacked the capacity to make decisions, and that Balwani's influence excused her conduct. Holmes plans to take the stand herself to explain her side of the story, which is seen as a risky move. 


Holmes faces two counts of conspiracy to commit wire fraud and 10 counts of wire fraud. If convicted, the charges carry a prison sentence of up to 20 years. Balwani faces the same charges, but will be tried separately.

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