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Balwani Loses Bid to Bar Incriminating Evidence from Fraud Trial

by | Mar 28, 2022 | Articles, DOJ-lca, Essential, Lab Compliance Advisor

Even before the trial began, things got off to a rocky start for the ex-Theranos CEO, who faces charges of fraud and wire fraud.

With Elizabeth Holmes awaiting sentencing, things are just getting started for her former business partner and lover Ramesh "Sunny" Balwani, whose trial on charges of fraud and wire fraud is now underway. Things have gotten off to a rocky start for the ex-Theranos CEO. On Feb. 28, the federal court for the Northern District of California, the same court where Holmes was tried, denied Balwani’s pre-trial motion to exclude certain evidence.

Theranos Voids Lab Test Results

Among the key evidence that Balwani’s attorneys wanted to exclude were records documenting that Theranos had to void lab test results to cure CLIA deficiencies cited by the Centers for Medicare and Medicaid Services (CMS) in January 2016. The agency also concluded that “the deficient practices of the laboratory pose immediate jeopardy to patient health and safety” and ordered Theranos to “take immediate action” to protect patients they potentially affected. You have 10 days to let us know what you intend to do, CMS told Theranos. At that point, Theranos decided to bring in Dr. Kingshuk Das to serve as lab director and correct the deficiencies. Das concluded that to comply with the CMS directive, Theranos would have to void all test results that the CLIA deficiencies might have affected. Theranos accepted the recommendation and voided the tests. The Federal Rules of Evidence exclude evidence of “subsequent remedial measures” that defendants take to correct violations. The rule makes a lot of sense. After all, we want individuals and companies that may have done wrong to correct their mistakes. But if post-violation corrections could be used as incriminating evidence, nobody would engage in them. Accordingly, Balwani’s attorneys wanted the judge to not let the prosecutor tell the jury about how Theranos voided test results.

The Court’s Ruling

The court rejected the argument. Explanation: To qualify for the exclusion, the corrective actions must be taken voluntary. And that wasn’t the case with Theranos, the court concluded. CMS didn’t expressly order Theranos to void the test results, the court acknowledged. However, it did order the lab to take actions to fix the deficiencies without specifying how. And to the extent that it had to void test results to comply with the order, Theranos’ corrective actions weren’t voluntary.

Evidence of Reliability of Tests Theranos Ran on Other Companies’ Devices

The court also rejected the motion to exclude other evidence potentially incriminating Balwani, including with regard to the accuracy and reliability of the blood tests that Theranos ran on devices produced by other companies. Why should Balwani and Theranos be responsible for the results produced by devices that Theranos didn’t produce, the lawyers argued. The court’s answer: First, the fraud claims in this case turn on the truth of the claims made by Balwani about the capabilities of Theranos technology. The fact that Theranos used non-Theranos devices had a direct bearing on that issue. Moreover, the case was about the accuracy of all the tests run by Theranos. [United States v. Balwani, 2022 U.S. Dist. LEXIS 35139, 2022 WL 597040]

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