Within three years, Elizabeth Holmes has faced the court of public opinion, as countless books, articles, documentaries and TV shows have squeezed every last drop of the story of the blood-testing startup. Theranos. Now, a de facto court has made the final verdict. On Monday, after seven days of deliberation, a jury in San Jose, California, found her on four counts of telephone fraud and conspiracy to commit electronic fraud. The jury returned a verdict of not guilty on the other four counts, and could not agree on three.
The four charges all involved Theranos investors, who said they misinterpreted Theranos’ capabilities and lost millions of dollars following the company’s collapse. Holmes now faces up to 20 years in prison for each count. (The judge has yet to set up a hearing for sentencing.)
In the past three months, the prosecution make its case that Holmes had intentionally “chosen fraud over business failure,” persuading her investors to pour more money into the company despite its failure. 29 witnesses, including former employees, testified that when Theranos’ technology didn’t work as promised, Holmes encouraged them to cover it up. A former product manager said the company faked demos and removed unusual results when sending reports to investors. Another revealed that Holmes had exaggerated partnerships with pharmaceutical companies, created nonexistent military contracts and plastered pharmaceutical logos on Theranos reports, confusing investors. potential investors and partners on who is the validator for blood testing technology. A journalist from Luck, who wrote one cover story about Theranos in 2014, Holmes said Holmes failed to correct many of the errors in the report, because it was in the company’s interest to appear more competent than it really is.
A flood of evidence — including text messages, emails, and company documents — suggests Theranos’ technology was faulty and failed to meet its founder’s vision for the future of blood testing. But the case hinges on whether Holmes, as the company’s CEO, knowingly misled investors and patients, or whether she acted in good faith as an entrepreneur. are having difficulty. “Battle is Holmes’ mental state: whether she has it or not intent James Melendres, a former federal prosecutor and partner at the business law firm Snell & Wilmer. “You have 12 juries — 12 people on the street — who sit in a room and decide what’s on Holmes’ mind.” The jury found Holmes not guilty of the charges involving the patients, two of whom received bogus test results from Theranos’ blood-testing technology.
The defense called three witnesses, including Holmes himself, who spent seven days in the stands scattering the blame to many of Theranos’ scientific advisors and board members. Many of Theranos employees have many years of experience working in the biotechnology sector; Holmes, for comparison, dropped out of Stanford in her sophomore year.
She testified that Ramesh “Sunny” Balwani, her former business partner and ex-boyfriend, was responsible for preparing the forged financial reports and for overseeing Theranos’ laboratories. Holmes also states that Balwani controlled and abused her, affecting her mental state during her later years in Theranos. Balwani faces his own criminal trial later this year.
Holmes’ case is seen as Silicon Valley’s trial of the decade, as well as an indictment of startup culture: When does a founder’s arrogance turn into a scam? Melendres called the decision a “consensus,” noting that it could turn out to be a landmark case in the Justice Department’s handling of startups.
For the rest of Silicon Valley, this case could be a reminder that there’s a limit to how much startups can raise — and the government is watching. “Government usually wins these things,” said Jennifer Kennedy Park, a partner at Cleary Gottlieb Steen & Hamilton. She also notes that vast resources and subpoena powers can give prosecutors an edge. This case shows that founders are not out of bounds.
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