Elizabeth Holmes takes a stand in her criminal fraud trial
San Jose, California. Fallen Silicon Valley star Elizabeth Holmes has been accused of deceiving investors and patients about her startup Theranos and medical device she said would reshape healthcare, a witness stood late Friday at her trial for criminal fraud.
The sudden decision to have Holmes testify so early in her defense came as a bombshell and took a big risk. Federal prosecutors, who rested their case for months earlier on Friday, have made clear they are eager to question Holmes under oath.
Plaintiffs aren’t likely to get that chance until after Thanksgiving weekend. Holmes’ attorney Kevin Downey told U.S. District Judge Edward Davila he expects to continue guiding her through her story when she returns to the podium Monday and again Tuesday in a courtroom in San Jose, California before the trial concludes until November 29.
Prosecutors have called 29 witnesses to support their claim that Holmes is endangering patients’ lives while deceiving investors and customers about Theranos technology. Among them was General James Mattis, a former US Secretary of Defense and former Theranos board member, who explained how Holmes was first impressed and ultimately disappointed.
They also provided internal documents and occasional lewd texts between Holmes and her former lover, Sunny Polwani, who also served as Theranos’ COO. In court documents, Holmes’ lawyers assert that she was manipulated by Balwani through “intimate partner abuse” – a case expected to come up during her continuing testimony next week.
Holmes sat upright in her chair to the far right of the jury during the trial, until she sat at the podium on Friday, holding out even as her supporters once testified to their concerns about Theranos.
This combination of compelling testimonies and documentary evidence appears to prove effective in persuading Holmes to tell her side of the story to the jury of 10 men and four women (including two alternates) who will ultimately decide her fate. If convicted, Holmes – now 37 and the mother of a two-year-old son – could be sentenced to up to 20 years in prison.
Shortly after 3 p.m., Holmes walked slowly to the podium in front of a courtroom filled with spectators and jurors, all in masks.
Maskless behind a transparent screen, Holmes recounts her early years as a student at Stanford University and her interest in disease discovery. This culminated in her decision to drop out of school in 2003 at the age of 19 to found the startup that eventually became Theranos. Holmes said the name derives from the words “treatment” and “diagnosis.”
Holmes said she convinced her parents to let her use her college savings to fund her ambitions to transform the healthcare industry. “I started working all the time…trying to meet people who could help me build this,” said Holmes, in a hoarse voice that became one of her trademarks during the rise of Theranos.
As the company was formed, so was its vision. Eventually, Theranos developed a device called the Edison that allegedly could check for hundreds of health problems with just a few drops of blood. Existing tests generally require vials of blood, which makes performing more than a few patient tests at a time slow and impractical.
If it worked as promised, Edison could revolutionize healthcare by making it easier and cheaper to look for early signs of disease and other health issues. Instead, jurors listened to Holmes’ recordings bragging to investors about the alleged hacks that were later proven to be false.
Witness testimonies and other evidence presented at the trial strongly suggested that Holmes misrepresented alleged deals with big drug companies such as Pfizer and the US military while also concealing recurring problems with Edison.
But Edison’s problems did not become known to the public until the Wall Street Journal published the first of a series of explosive articles in October 2015. A review by the Centers for Medicare and Medicaid Services confirmed these problems the following year.
By then, Holmes and Balwany had raised hundreds of millions of dollars from billionaire investors like media mogul Rupert Murdoch and the Walton family at Walmart and struck deals with Walgreens and Safeway to run blood tests at their drugstores. Those investments at one point estimated Theranos at $9 billion, giving Holmes a fortune of $4.5 billion – on paper – in 2014.
Evidence presented at trial also revealed that Holmes distributed financial forecasts calling for the privately owned Theranos to generate $140 million in revenue in 2014 and $990 million in revenue in 2015 while also making a profit. A copy of Theranos’ 2015 tax return, which was filed as part of empirical evidence, showed the company generated less than $500,000 in revenue that year while reporting accumulated losses of $585 million.
Elaine Kretzberg, a Santa Clara University law professor who attended the trial, said she believes the government made a strong case.
She said, “There is no fancy or excitement in this testimony. The witnesses were very careful in their testimony. None of the witnesses seemed to carry anger or malice toward her. For this reason, they were very powerful. Eyewitnesses.”
Other witnesses summoned by the government include former managers of Theranos Laboratories who repeatedly warned Holmes that the blood-testing technology was highly unreliable. Prosecutors also questioned two part-time lab managers, including a Balwani dermatologist, who spent just a few hours examining blood-screening technology at Theranos through late 2014 and most of 2015. Holmes’ lawyers noted that part-time lab managers are allowed under government regulations.
Other key witnesses include former Pfizer employees, former Safeway CEO Steve Burd, and a group of Theranos investors, including a representative of former Education Secretary Betsy DeVos’ family investment firm. The DeVos family ended up investing $100 million.
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