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Jury finds Theranos founder Elizabeth Holmes guilty on four of eleven criminal charges


After more than 50 hours of deliberation, a jury in California on Monday, January 3, convicted Theranos founder and CEO Elizabeth Holmes of four criminal fraud charges. Holmes, a longtime name in Silicon Valley, founded Theranos with the promise of revolutionary blood testing technology. But it appears that Holmes, despite warnings from its own employees that the technology is not working, has continued to recruit investors.

In 2003, 19-year-old Holmes left Stanford University’s chemical and electrical engineering programs to pursue Theranos, Inc. to establish. She claimed that the company’s “Edison” test technology could perform a multitude of tests on a single drop of a patient’s blood — dramatically reducing the cost and time associated with blood tests.

Holmes raised millions of dollars from investors, and by 2010 the company was valued at $ 1 billion. By 2015, that number had risen to $ 10 billion.

But it all collapsed in October 2015 when the Wall Street Journal released a scathing issue investigative piece by John Carreyrou, which reported dubious business practices by Theranos. The company mainly used traditional blood testing equipment instead of the popular Edison devices. Theranos dissolved in September 2018, after years of scandal and legal challenges from investors, medical authorities and the Security and Exchange Commission.

By the time the company reached its end, both Holmes and former Theranos president and chief operating officer Ramesh “Sunny” Balwani had stood trial on several charges of wire fraud and conspiracy to commit wire fraud.

The court case

Holmes took a stand in her own defense for six days, expressing regret and claiming that she never intended to deceive anyone. She accused Balwani, with whom she had been romantically involved for more than a decade, of abusing her both emotionally and physically. Holmes rolled Balwani as the real bad actor at Theranos, but jurors were not convinced. A juror, Wayne Kaatz, told ABC News that the group ranked Holmes’ testimony as two out of four on their credibility scale.

Prosecutors have spent most of their time proving that Holmes deceived big-name investors, giving patients who received inaccurate test results a smaller stage during the trial. Given the greater burden that prosecutors were under to prove that Holmes deliberately cheated patients, this is not surprising.

In closing, Assistant U.S. Attorney Jeffrey Schenk told the jury that Holmes preferred 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.”

The Verdict

After seven days of deliberations, the jury found Holmes guilty of the $ 144 million fraud of three major investors:

  • Lakeshore Capital Management, a fund linked to the family of former US 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 were also convicted on one charge of conspiracy to commit postal fraud. However, the jury found Holmes not guilty of fraud charges against patients and did not rule on three fraud charges related to other Theranos investors.

When the jury first reported their deadlock, Judge Edward J. Davila read out the “Allen charge” to the jury. Named after the Supreme Court’s 1896 ruling in Allen v. United States, the Allen indictment seeks to push hung juries to a verdict by encouraging minority jurors to reconsider their position. The practice is embodied in Model Jury Instruction 7.7, which instructs jurors to have a duty to discuss the matter with each other and to deliberate to reach a unanimous verdict.

But the jurors nonetheless had a difficult 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 hope that they will rise, often exaggerating the potential of a product.

It seems that Holmes’ actions were based at least in part on this mentality. She testified she believes the company’s blood test technology is on its way to success. But it’s hard to say how much of an impact her beliefs will have on Silicon Valley culture. Even Tyler Shultz, a key source for the Wall Street Journal story that exposed Theranos and Holmes, told NPR he is under pressure to exaggerate technological demands at its own biotechnology 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 that another Theranos could rise – if it has not already.

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