One of Silicon Valley’s prominent business tycoons was found guilty of fraud in the trial of the century.
On Monday, January 3, 2022, the former CEO and founder of the now inoperative healthcare company, Theranos, was found guilty of 4 out of 11 charges against her. The trial, U.S. v. Holmes et al., started in August 2021 and ended in January 2022.
With Holmes convicted of defrauding some of her company’s biggest investors.
Story Behind the Trial
As a person with an innate fear of needles. Holmes had the idea to “obtain vast amounts of data from a few droplets of blood. She derived from the tip of a finger”.
After dropping out of Stanford University at the age of 20 in 2003. Elizabeth founded Real-Time Cure (later Theranos) in Palo Alto, California, to “democratize healthcare”.
She convinced her advisor and dean at the School of Engineering. Channing Robertson, to support her idea, was initially skeptical of it. Later became one of the first board members of her company and also was the one who introduced her to venture capitalists.
Holmes Venture Capital
- Holmes had raised around $6 million as funds by December 2004.
- By 2010, the company had around $92 million in venture capital.
- In 2013, Theranos had partnered with Walgreens to set up in-store blood sample collection centers.
- By 2014, Holmes was recognized for giving rise to “the most illustrious board in U.S. corporate history”.
- In 2014, Holmes ranked #110 in the Forbes 400 and was recognized as “the world’s youngest self-made billionaire”.
- By the end of 2014, she had 18 U.S. patents and 66 foreign patents in her name.
- Theranos had more than $400 million in venture capital and was worth $9 billion in that year.
Her downfall began when John Carreyrou of The Wall Street Journal published an article in October 2015. This is about how Edison, a Theranos device, gave inaccurate results. He published more articles throughout the years detailing the problems regarding the company.
Its CEO’s conduct, which was all denied by Holmes by calling Journal a “tabloid”. When she appeared on CNBC’s Mad Money. She commented, “This is what happens when you work to change things.
First, they think you’re crazy, then they fight you, and then all of a sudden you change the world.”
Bad Blood: Secrets and Lies in a Silicon Valley Startup
In 2018, John Carreyrou published a book named “Bad Blood: Secrets and Lies in a Silicon Valley Startup”, in which he described his investigations of Theranos.
In that article, a series of investigations were launched on the company. After subsequent denials and reassurances by Holmes that she will “solve the problems and prove the accuracy of her company’s device”.
Doubts emerged about the company’s technological claims. and that Holmes has been deceiving the investors and the government.
In 2018, the SEC (U.S. Securities and Exchange Commission) charged Theranos and Holmes of misleading the investors. Which she settled by paying a $500,000 fine.
Elizabeth also relinquished her company’s voting rights and gave back 18.9 million shares to the company. She was also banned from acting as a public company director for ten years.
In June 2018, Elizabeth Holmes and former Theranos Chief Operating Officer, Ramesh “Sunny” Balwani (also Holmes’s ex-boyfriend). They were charged with nine counts of wire fraud. Two counts of conspiracy to commit wire fraud against investors, doctors, and patients.
They both pleaded not guilty. After the indictment, Holmes stepped down as the CEO, and in September 2018, Theranos formally dissolved.
The Trial of the Century
The trial, delayed for a year due to the pandemic, and Holmes’s pregnancy finally started in August 2021. It was held in the US District Court in San Jose, California, with Holmes defended by Williams & Connolly.
During the months-long trial, jurors heard testimonies from both sides. And sat through the presentation of various pieces of evidence, which were sometimes complex.
There were ex-employees of Theranos, patients big-name investors like Rupert Murdoch and Henry Kissinger in the witness list.
Although some of those investors did not show up. A surprise was the presence of ex-Pentagon chief Jim Mattis on the stand and Elizabeth Holmes herself.
The ex-employees testified that they left because they were growing cryptic about the company’s operations. They ignored even after repetitively voicing doubts regarding the discrepancy of the blood-testing device.
They said they did not want to be a part of something deliberately deceiving the public in health matters.
Jim Mattis testified that he was interested in the blood-testing device’s “possible military application”.
Fall From Grace Journey
During her turn on the stand, Holmes was majorly calm and even smiling on occasion. When talking about her former romantic flame, Ramesh Balwani. She got emotional and revealed how she was sexually and emotionally abused during her relationship. which the accused denied.
After over two dozen witnesses and weeks of trial, the jury panel finally gave a partial verdict after seven days of deliberation. Elizabeth was found guilty on three counts of wire fraud and one in a conspiracy to commit wire fraud against investors.
She was declared not guilty of wire fraud against patients. A jury reached a “no verdict” on three counts of wire fraud against individual investors.
Holmes is now on bail and awaiting a sentence set on September 12. Possibly faces 20 years in prison for each fraud. The trial of her co-defender is set for March 2022.
The New York Times stated, the case “symbolizes the pitfalls of Silicon Valley’s culture of hustle, hype, and greed”.
Published By: Khushboo Mehta
Edited By: Shivani Tandel