In a stunning climax to Silicon Valley’s most dramatic and closely watched startup crash, Theranos founder Elizabeth Holmes was found guilty Monday of four counts of defrauding investors, each carrying a maximum penalty of 20 years in prison.
The verdicts closed a four-month trial in which jurors were presented with a mountain of damning evidence against the failed startup founder but also heard Holmes’ own side of her story for the first time publicly. The proceedings captivated the nation and drew throngs of early-rising spectators to the federal courthouse in San Jose for a glimpse of the charismatic founder accused of lying to patients and investors in her failed Silicon Valley blood-testing startup.
The jury’s decision came at the end of the seventh day of deliberations by the eight men and four women on the panel. Earlier Monday, jurors had told the judge that they were deadlocked on three of the counts against Holmes before being instructed to continue deliberations. Four hours later, they returned with unanimous verdicts on the eight other counts — convicting her of four counts of investor fraud and acquitting her of four counts of defrauding patients. The judge declared a mistrial on the three counts where the jury could not agree, offering prosecutors the possibility of trying her again.
When the jury was discharged, Holmes, in a charcoal skirt-suit, arose and briefly hugged her partner, Billy Evans, her mother, Noel, and her father, Christian, one after another. She left the courtroom with an expression of distress — and when asked on her way out of the courthouse whether she planned to appeal the verdict and whether she believes she committed fraud, Holmes declined to answer. Holmes’ lawyers also declined to say Monday whether they planned to appeal.
U.S. District Court Judge Edward J. Davila did not say when Holmes would be sentenced. She will remain “at liberty” under her current release conditions, though a hearing will be set for next week to reconsider Holmes’ bail. The government has asked that Holmes put up cash or property — rather than just her signature — to cover the $500,000 bail amount.
Monday’s news caps a saga that began nearly two decades ago when Holmes at age 19 launched a purportedly revolutionary biotechnology firm and dropped out of Stanford University to build it. Her rise and subsequent fall drew breathless media coverage, as Holmes shattered ideas about Silicon Valley’s glass ceiling, attracted investors among America’s wealthiest families and pulled an array of high-profile dignitaries onto her company’s board.
For 12 years her star grew brighter and her on-paper wealth larger — $4.5 billion at its peak, when Theranos was valued at $9 billion — before a 2015 newspaper exposé sent Holmes crashing down. Lawsuits followed, and a federal regulator forced Holmes to agree to a $500,000 fine and a 10-year ban on serving as an officer or director of a public company. In 2018, the U.S. Department of Justice charged her and former company president Sunny Balwani with felony fraud and conspiring to commit fraud.
Holmes was accused of bilking investors out of hundreds of millions of dollars and misleading patients by claiming her company could conduct all the tests of a major lab with just a few drops of blood from a finger stick, though Theranos’ machines could in reality only perform a dozen tests and suffered from serious accuracy problems.
Federal lawyers painted Holmes as a reckless, fame-seeking schemer whose “lying and cheating to get money” robbed investors and threatened patients’ health. Her defense team, meanwhile, presented her as a true believer in Theranos’ technology who trusted others in the company too much but “worked herself to the bone” to deliver on her promises. Jurors were left to wade through more than 900 pieces of evidence and testimony from 32 witnesses.
Explaining the split verdict, Stanford University law professor Robert Weisberg said the prosecution’s case arguing that Holmes’ claims harmed investors was clearer than its case that she defrauded patients.
“The main thing is that this was a crime of deception,” Weisberg said. “There were direct communications with investors who clearly read the brochures, listened to the phone calls, read the releases, read the company statements and relied on them. Patients may have relied on their doctors telling them that the device was helpful. The doctors themselves may have been naïve about that. But it’s not clear that they were directly deceived by the statements Holmes made.
“I think the jury would’ve had to be convinced that there was really clear proof of actual physical harm to the patients,” he added. But “tracing their illness to defects in the device would have been very difficult. The main thing is it’s the directness of the communication to the defrauded party — and they were the investors.”
Indeed, a parade of investors testified that Holmes claimed to them that her technology was in use on military helicopters, after the jury heard from Theranos insider Daniel Edlin, who spent five years at the company in management roles close to Holmes, that he was not aware of the company’s technology being used clinically in war zones or military aircraft. Former U.S. Secretary of Defense James Mattis, an investor who served on the Theranos board with former U.S. secretaries of state Henry Kissinger and the late George Shultz, also testified that he was not aware of the U.S. Defense Department using Theranos machines.
Investors also testified that Theranos had sent them reports they believed were from pharmaceutical giants validating Theranos’ technology in glowing terms, when they were actually created by Theranos and emblazoned with stolen pharma-firm logos.
Holmes’ 10-lawyer team sought to distance her from lab operations and highlight the sophistication of the company’s investors. And in a twist that defied common legal convention, Holmes herself took the stand as the principal witness in her defense.
Speaking confidently and with a frequent small smile, Holmes spoke directly to the question of intent, claiming she believed her company had developed technology that could perform any test and later suggesting that the allegedly misleading statements she had made about her technology were forward-looking, describing her vision of what Theranos would ultimately become.
Over seven days on the stand, Holmes blamed others, particularly laboratory directors and Balwani, her ex-lover and Theranos’ former chief operating officer, for problems with the technology, while also expressing regret for some of her actions and acknowledging that she was ultimately responsible for what occurred in her company. Balwani is set to be tried this year on the same set of fraud charges.
One analyst predicted Monday that the guilty verdicts will resonate powerfully in the tech industry.
“It’s a pretty significant statement to Silicon Valley now that you’re going to be held accountable to the representations you make,” legal analyst and former San Francisco prosecutor Michele Hagan said of the Holmes verdict. She added that she expects Holmes will “absolutely” appeal.
(Staff Writers Jason Green and Marisa Kendall contributed to this report.)
Source: www.mercurynews.com