Theranos founder Elizabeth Holmes, set to be sentenced Friday, should go to prison for 15 years and pay back investors she defrauded, federal prosecutors argued in a blistering sentencing memo.
Holmes, pregnant and the mother of a young son, last week asked in her own sentencing memo for a maximum of 18 months — or no prison time at all. She was convicted in January on four felony counts of bilking investors in her now-defunct Palo Alto blood-testing startup out of more than $144 million. Legal experts expect she will receive a multi-year prison sentence.
Prosecutors said in their memo that Holmes “repeatedly chose lies, hype, and the prospect of billions of dollars over patient safety and fair dealing with investors,” and called her crimes “extraordinarily serious, among the most substantial white collar offenses Silicon Valley or any other district has seen.”
Judge Edward Davila should impose a sentence that sends a message to Silicon Valley, the prosecution argued. “Holmes’ criminal scheme was committed in Silicon Valley. This region is known for innovation, where companies rely upon investments to fund ideas before they become profitable,” the memo said. “Holmes’ crimes damaged the trust and integrity that are necessary for this community to thrive.”
Holmes founded Theranos in 2003 at age 19, and propelled the company and herself into nationwide prominence through false claims that her machines could conduct a full range of tests using just a few drops of blood. A series of Wall Street Journal exposés led to the firm’s downfall and federal charges in 2018 against Holmes and her former romantic partner Sunny Balwani, who was Theranos’ chief operating officer.
Dramatic revelations from Holmes’ four-month trial in U.S. District Court were highlighted in the prosecution memo, filed late Friday. Jurors heard that Holmes stole logos from pharmaceutical companies and affixed them to internal Theranos reports to falsely signify the companies had validated her technology, a deception prosecutors referred to in the third sentence of their memo.
Holmes’ insinuations to investors that her testing machines were in battlefield use by the U.S. military also received prominent attention in the memo. Texas real estate magnate Craig Hall, who invested nearly $5 million in Theranos, submitted a victim-impact statement mentioning Holmes’ deceptive claims about military use of the machines, saying her sentence should take into account her “intentional decision” to prey on investors’ “reverence” for military servicemembers. “Holmes’s actions were loathsome and un-American,” Hall wrote.
Prosecutors also focused in their memo on Holmes’ false claims and outlandish projections about Theranos’ finances.
The prosecution argued that Holmes, who took the witness stand in her trial, blamed the company’s failings on Balwani, her board of directors, company scientists, business partners, investors and the media.
“She stands before the Court remorseless,” the sentencing memo said. “She accepts no responsibility. Quite the opposite, she insists she is the victim.”
Holmes, in her own sentencing memo, emphasized that she had never “cashed out” by selling any of her Theranos stock, valued at one point at $4.5 billion. Prosecutors argued that she was nevertheless motivated to commit fraud by a desire for fame, fortune and a high-flying lifestyle.
“She took home hundreds of thousands of dollars in annual salary,” prosecutors’ memo said. “She traveled in a Theranos-paid private jet. She and Balwani ruled Theranos from a $15 million mansion in Atherton. She dined at the White House … and at the peak of the fraud was named by Time as one of the 100 Most Influential People in the World.”
Holmes was found not guilty of defrauding patients, but prosecutors want her sentence to account for her purported recklessness with patient safety. “As money was drying up, she went to market with an unproven and unreliable medical device,” prosecutors said in the memo. “Women received wrong tests about their pregnancies, Theranos generated wrong results for cancer tests, and one victim was led to believe she had the virus that causes AIDS.”
The sentencing memo described an exchange between Holmes and a consultant, Kevin Hunter, hired by drugstore giant Walgreens as it was going into partnership with Theranos.
“Eventually, Hunter’s frustration with the lack of substantiation for Theranos’ claims moved him to confront Holmes during a video teleconference,” the memo said of the 2010 incident. “He admonished her that her company was going to offer lab tests that people would use to make medical decisions, and warned her of the risk that she could be responsible for killing someone if the lab put out bad tests, and that she might go to jail as a result. Holmes reportedly responded with something to the effect of, “They don’t put pretty people like me in jail.”
The prosecution memo argued that Holmes’ sentence should account for the entirety of investors’ losses, even though she was not charged in connection with all investors, and the jury returned no verdict on three investor fraud counts. Holmes was found guilty of conspiring with Balwani to defraud investors, the memo noted. In seeking to hold Holmes accountable for total losses, and for threatening patients’ health, the prosecution cited a U.S. Supreme Court ruling that a sentencing judge can consider “conduct of which defendant has been acquitted, so long as that conduct has been proved by a preponderance of the evidence.”
Prosecutors demanded that Holmes pay restitution of $804 million to cover the entirety of investors’ losses, but acknowledged that “the amount of restitution may dwarf Holmes’ ability to pay.” Holmes, in her sentencing memo, said she had gone bankrupt and did not have money for restitution. Investigators have determined that Holmes has “modest assets” that are outweighed by $450,000 in loans taken out to pay her $500,000 settlement with the U.S. Securities and Exchange Commission, and her “liability for legal fees in excess of $30 million,” prosecutors said. The investigators could not find out whether any third parties are liable or expected to pay Holmes’ legal fees.
Holmes, in her sentencing memo, requested that if Judge Davila must impose a prison sentence, it should not exceed 18 months and could be served under home confinement.
This is a developing story. Check back for updates.
Source: www.mercurynews.com