Home 5 Articles 5 Federal Jury Convicts Theranos Founder Elizabeth Holmes of Fraud

Federal Jury Convicts Theranos Founder Elizabeth Holmes of Fraud

by | Jan 26, 2022 | Articles, Essential, False Claims-lca, Lab Compliance Advisor

Arguably the most famous/infamous lab scandal of all time is reaching its climactic stage. A federal jury has found Theranos founder Elizabeth Holmes guilty of four counts of fraud, each carrying a maximum prison sentence of 20 years. Her former business partner and lover Ramesh “Sunny” Balwani is scheduled to go to trial on parallel charges starting Feb. 15. The Theranos parable First exposed by The Wall Street Journal reporter John Carreyrou, the story of how Holmes’ reputed game changing bloodstick “lab-on-a-chip technology” seduced investors, journalists, and partners like Walgreens has transcended the lab industry to become a national parable of Silicon Valley corruption and greed. The retribution began in Nov. 2016 when Walgreens filed a $140 million breach of contract lawsuit against its former business partner, eventually settling for an undisclosed amount rumored to be less than $30 million. In addition to the private lawsuits, Theranos, Holmes, and Balwani faced government fraud charges across a number of fronts. In April 2017, Theranos settled Medicare fraud charges with the Centers for Medicare & Medicaid Services by agreeing to a $30,000 fine and two-year Medicare exclusion. In March 2018, Holmes settled massive stock fraud charges with the US Securities and Exchange […]

Arguably the most famous/infamous lab scandal of all time is reaching its climactic stage. A federal jury has found Theranos founder Elizabeth Holmes guilty of four counts of fraud, each carrying a maximum prison sentence of 20 years. Her former business partner and lover Ramesh “Sunny” Balwani is scheduled to go to trial on parallel charges starting Feb. 15.

The Theranos parable

First exposed by The Wall Street Journal reporter John Carreyrou, the story of how Holmes’ reputed game changing bloodstick “lab-on-a-chip technology” seduced investors, journalists, and partners like Walgreens has transcended the lab industry to become a national parable of Silicon Valley corruption and greed. The retribution began in Nov. 2016 when Walgreens filed a $140 million breach of contract lawsuit against its former business partner, eventually settling for an undisclosed amount rumored to be less than $30 million. In addition to the private lawsuits, Theranos, Holmes, and Balwani faced government fraud charges across a number of fronts. In April 2017, Theranos settled Medicare fraud charges with the Centers for Medicare & Medicaid Services by agreeing to a $30,000 fine and two-year Medicare exclusion. In March 2018, Holmes settled massive stock fraud charges with the US Securities and Exchange Commission. The price tag: A $500,000 penalty, 10-year ban on serving as an officer or director of a public company, and promise to relinquish voting control over Theranos and return the remaining 18.9 million shares she obtained as a result of the fraud.

The Holmes Trial

In July 2018, a federal grand jury indicted Holmes on 11 counts of fraud, wire fraud, and conspiracy to commit wire fraud. Balwani, too, was indicted for his role in the scam. Days later, Theranos called off its attempts to make a go of it on a reduced basis and shuttered permanently. After repeated delays, the Holmes trial finally began on September 8, 2021. For nearly four months, a federal jury in Northern California heard testimony from dozens of witnesses, including doctors, Theranos board members, employees, and patients. Notably absent from the witness list was Balwani, who invoked his Fifth Amendment rights against self-incrimination to avoid having to testify and absorb the attempts of Holmes’ attorneys to shift the blame to him. The star witness was Holmes herself. Testifying was a risky strategy but the defense team reckoned that Holmes could charm the jury just the way she had countless investors. During her seven days of testimony, Holmes admitted to wrongdoing, like adding pharmaceutical companies’ logos to Theranos reports they hadn’t signed off on, secretly swapping in modified Siemens analyzers in its blood-testing partnership with Walgreens after the company’s own MiniLab and Edison machines couldn’t perform as promised, and other mistakes. But she insisted that her belief in the Theranos vision was sincere and that her greatest failure was failure itself. However, this time the famous Holmes charisma didn’t work. After deliberating for more than seven days, the jury found her guilty on four counts of misleading investors. It also found her not guilty on four counts related to defrauding patients and deadlocked on the three other charges. On Jan. 4, Judge Edward Davila declared a mistrial on those charges. However, it was a hollow victory because Holmes still faces the risk of being indicted and retried on those same charges.

Holmes awaits sentencing

Judge Davila has scheduled sentencing for Sept. 16. Each of the convictions carries a maximum fine of $250,000 plus restitution as well as up to 20 years in prison. But based on similar cases, any prison sentence would likely be concurrent rather than consecutive, meaning that 20 rather than 80 years would be the most she’d serve. And that doesn’t count parole. Holmes is also expected to appeal the verdict, which would delay the start of her prison term.

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