After more than 50 hours of deliberation, a jury in California convicted Theranos founder and CEO Elizabeth Holmes of four criminal fraud charges on Monday, January 3rd. Holmes, a longtime name in Silicon Valley, founded Theranos on the promise of revolutionary blood-testing technology. But it seems that despite warnings from her own employees that the technology did not work, Holmes continued to solicit investors.
In 2003, 19-year-old Holmes dropped out of Stanford University’s chemical and electrical engineering programs to found Theranos, Inc. She claimed that the company’s “Edison” testing technology could run a multitude of tests on a single droplet of a patient’s blood—dramatically cutting the costs and time associated with blood testing.
Holmes raised millions of dollars from investors, and by 2010 the company was valued at $1 billion. By 2015, that number jumped to $10 billion.
But it all came crashing down in October 2015 when the Wall Street Journal released a scathing investigative piece by John Carreyrou, who reported dubious business practices by Theranos. Notably, the company was using traditional blood-testing equipment instead of the touted Edison devices. Theranos dissolved in September 2018, after several years of scandal and legal challenges from investors, medical authorities, and the Securities and Exchange Commission.
By the time the company met its end, both Holmes and former Theranos president and COO Ramesh “Sunny” Balwani faced indictment on multiple counts of wire fraud and conspiracy to commit wire fraud.
Holmes took the stand for six days in her own defense, expressing regret and claiming that she never intended to mislead anyone. She also accused Balwani, with whom she was romantically involved for over a decade, of abusing her both emotionally and physically. Holmes cast Balwani as the true bad actor at Theranos—but jurors weren’t convinced. One juror, Wayne Kaatz, told ABC News that the group ranked Holmes’ testimony a two out of four on their credibility scale.
Prosecutors dedicated most of their time to proving that Holmes had defrauded big-name investors, giving the patients who received inaccurate test results a smaller stage at the trial. Considering the heightened burden prosecutors were under to prove that Holmes intentionally defrauded patients, it’s not surprising.
In closing arguments, Assistant U.S. Attorney Jeffrey Schenk told the jury that Holmes chose fraud over business failure. “She chose to be dishonest with her investors and patients,” Schenk argued. “That choice was not only callous, it was criminal.”
After seven days of deliberation, the jury convicted Holmes of defrauding $144 million from three major investors:
- Lakeshore Capital Management, a fund connected to the family of former U.S. Secretary of Education Betsey DeVos;
- PFM Healthcare Master Fund, a San Francisco-based hedge fund; and
- Mosley Family Holdings, an LLC incorporated by former real estate attorney Daniel Mosley.
They also reached a guilty verdict on one charge of conspiracy to commit mail fraud. However, the jury found Holmes not guilty of fraud charges against patients and failed to reach a verdict on three fraud charges relating to other Theranos investors.
When the jury first reported their deadlock, Judge Edward J. Davila read the jury the “Allen charge.” Named for the Supreme Court’s 1896 decision in Allen v. United States, the Allen charge attempts to push hung juries toward a verdict by encouraging jurors in the minority to reconsider their position. The practice is embodied in Model Jury Instruction 7.7, which instructs jurors that they have a duty to discuss the case with each other and to deliberate to reach a unanimous verdict.
But the jurors nonetheless had a hard time convicting Holmes. According to juror Kaatz, they “respected Elizabeth’s belief in her technology, in her dream.”
What Does Holmes’ Conviction Mean for Silicon Valley?
Many Silicon Valley startups operate under a “fake it ’til you make it” mentality: making plans and obtaining funding while products are still in development in the hopes that they’ll take off, and often exaggerating the potential of a product.
It seems Holmes’ actions were based at least in part on this mentality. She testified that she believed the company’s blood-testing technology was headed for success. But it’s hard to say how much of an impact her conviction will have on the culture of Silicon Valley. Even Tyler Shultz, a key source for the Wall Street Journal story that exposed Theranos and Holmes, told NPR he’s under pressure to exaggerate technology claims at his own biotech startup. And he sees the irony of that fact. But, until investors start insisting on more detailed information (which seems unlikely in the current climate), it’s likely another Theranos could rise—if it hasn’t already.
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