At the center of the U.S. government’s argument is the accusation that, rather than being a young, ambitious tech visionary who simply failed to pull off her dreams, Holmes crossed the line into outright fraud, misleading investors, business partners and the media about the blood-testing machines her company was trying to develop. She ultimately did it to save her faltering business, prosecutors alleged.
“This is a case about fraud, about lying and cheating to get money,” Robert Leach, an assistant U.S. attorney, told the courtroom during the prosecution’s opening statement.
Holmes’s defense shot back. In a two-hour rebuttal, her lawyers argued that the story of Theranos is not so different from those of a thousand other business ideas that didn’t work out.
“Failure is not a crime. Trying your hardest and coming up short is not a crime,” defense attorney Lance Wade said.
Theranos is no longer a company, but its founder is still in the public consciousness. Her spectacular rise to the top of the Silicon Valley hype cycle and equally dramatic fall into disgrace and charges of fraud have been covered in nearly every medium, soon including a TV series and a film starring Jennifer Lawrence.
But the ultimate question of fraud vs. failure, whether Holmes committed a crime or was simply a high-profile example of the tech start-up world’s “fake it till you make it” ethos, has yet to be decided by a court. Over the coming weeks, a jury will hear arguments from both sides to make a decision.
Jessica Roth, a professor of law at the Cardozo School of Law, said that despite the crowded courtroom and larger-than-life tale of Silicon Valley hype, the case comes down to a straightforward question: Did Holmes intend to defraud her investors and patients as she boosted her business?
“The context of it being Silicon Valley and a start-up and the disruptive premise of the technology involved, all of that makes it very interesting,” Roth said. “I think like many fraud cases the facts about what happened are not going to be terribly in dispute. What will be in dispute is her intent.”
In court, Holmes silently took notes during the opening statements and gathered with family members including her mother and her partner, Billy Evans, after the day’s proceedings ended. She wore a gray skirt suit with a blue mask, and her blond hair was down.
Holmes began her quest as a young Stanford University student with an idea for a machine that could run medical tests on just a drop or two of blood, sparing millions the difficulty of having to face needles and sterile doctor’s offices to see if they were ill. But when the company began running into roadblocks, Holmes misled investors instead of being transparent about how serious the start-up’s challenges were, the prosecution alleged during an opening statement that lasted less than an hour.
“Out of time and out of money, Elizabeth Holmes decided to lie,” Leach said. And she did so repeatedly, he said.
In 2009, the company had a few small contracts with pharmaceutical companies, but they were beginning to dry up, he said. Pfizer, which had done some work with Theranos, had decided to stop devoting resources to the partnership. Holmes was in danger of not being able to pay her workers, Leach said.
Holmes and her then-boyfriend and business partner, Sunny Balwani, looked to Walgreens and Safeway for money, two big-name pharmacy chains that could validate the company’s nascent technology and get it in front of millions of consumers.
She gave investors “exemplary reports” from pharmaceutical companies, including one from Pfizer that the drug company had not authorized despite the report’s use of its logo, Leach alleged.
“The defendant gave this to investors to give the false impression that Pfizer endorsed Theranos’s miniature blood analyzer,” he added, even though the two companies were no longer working together.
Walgreens and Safeway committed to investing millions.
Meanwhile, Holmes’s personal star was rising. She appeared on magazine covers, spoke at conferences and was breathlessly profiled by numerous news organizations who consistently hailed her as the next legendary tech founder. Her black turtlenecks, the same signature clothing item worn by Apple founder Steve Jobs, symbolized her genius, at least in the minds of many supporters.
“The scheme brought her fame, it brought her honor and it brought her adoration,” Leach said. “She had become, as she sought, one of the most celebrated CEOs in Silicon Valley and the world. But under the facade of Theranos’s success, there were significant problems brewing.”
By 2013, Holmes still hadn’t made good on her promise to investors. Instead of the machines working as they were initially supposed to by providing lightning-fast results on tiny drops of blood in dozens of locations around the United States, Theranos was shipping samples back to its own lab and sometimes using machines built by its competitors to run tests, Leach alleged.
“This was not miniaturizing the lab she had promised. This was a way to deceive Walgreens and Safeway and to stall and to buy time,” Leach said.
Wade, one of Holmes’s defense lawyers from the firm Williams & Connolly, presented a starkly different narrative and said the government’s black-and-white story of criminality just wasn’t true.
“The reality of what happened at Theranos is far, far more complicated than what you have heard about Elizabeth Holmes so far,” Wade said during his opening statement. “Far more human and real, and oftentimes far more technical and complicated and boring.”
The company was doing real scientific work, developing its own techniques and working to build its own machine, he said. Running tests in a central lab was always its initial plan before scaling out to using the distributed machines it had developed itself.
The company’s investors were wealthy and knew the risks associated with start-up investments, Wade said. Theranos was always a speculative proposition.
The deal with Walgreens pushed the company to try to do too much, too fast. It was a mistake, but Holmes never crossed over into criminality, Wade said. “Theranos certainly didn’t see mistakes as crimes; they saw them as part of the path to success.”
Mistakes also included issues with Theranos’s tests and labs. Wade said some procedures and processes weren’t followed, and some tests weren’t performing well.
Still, “she had every reason to believe that the lab operations were under control and that an appropriate system was in place,” Wade said.
Instead, he said that Balwani was in charge of the lab at the time.
Balwani, who Holmes met when she was 18 and he was 37, demanded devotion from those around him and had a temper that sometimes prompted him to lash out, Wade alleged. The defense didn’t blame him completely for Holmes’s travails, and it didn’t introduce the issues of abuse and control noted in some pretrial filings.
“Like with most personal relationships, there was another side to it that most people never saw. You’ll have to wait for all of the evidence and then decide how to fairly view that relationship in full,” Wade said.
Balwani faces the same charges as Holmes. They were charged together but later had their cases separated. Balwani also pleaded not guilty.
Balwani has denied the accusation of wrongdoing in court filings. Balwani’s attorneys declined to comment.
Roth, the law professor, said the decision to lead with a more traditional white-collar defense in which a CEO relied on information from those below her was smart.
If Holmes had bad information from those around her, she can argue that she had no intent to defraud her investors when she claimed the company could do things it wasn’t actually capable of doing, Roth said.
Depending on what evidence the government unveils during the trial, Holmes’ defense could switch between different explanations for her conduct, said Jeffrey Bornstein, a white collar criminal defense lawyer at Rosen Bien Galvan & Grunfeld LLP.
“It may be that she was aspirational, in other words, that she believed that if given time she would eventually be able to make things work,” Bornstein said. “It may be that she’s going to take a position that she didn’t know and people lied to her."
“I think it’s going to be somewhere in the middle," he said.
Prosecutors can also point to Holmes’s own words. The Wall Street Journal in 2015 first reported the problems with the lab, and the then-CEO spoke out multiple times publicly in her own defense.
In an April 2016 interview with the “Today” show, Holmes said she was “devastated” that the company hadn’t found and fixed problems earlier, and that Theranos was rebuilding its lab from scratch.
“I’m the founder and CEO of this company,” she said. “Anything that happens in this company is my responsibility at the end of the day.”