Much of the day’s testimony focused on the financial health of the start-up when it was still in operation. The prosecution asked questions drilling into allegations the company was in financial distress, while the defense suggested it was healthier than some balance sheets would make it seem.
Danise Yam, who worked for Theranos as a corporate controller and reported directly to Holmes, testified nearly the entire second day of trial about the company’s financial state during her years there. Yam said Theranos was burning through about $2 million in cash each week during a short period in late 2013, as prosecutors pressed her on the company’s financial problems.
The first full day of testimony follows opening statements last Wednesday, when the prosecution alleged that Holmes as a young CEO misled investors and patients about the capability of her company’s technology. The defense said Holmes made mistakes while running the company that worked to miniaturize blood tests, but acted in good faith and never crossed the line into fraud.
The judge canceled trial proceedings Friday after a juror had a potential exposure to the coronavirus. At the beginning of the trial Tuesday, the judge excused one juror for financial hardship and brought an alternate into the sitting jury.
Theranos collapsed as a company in 2018, 15 years after Holmes started it as a 19-year-old Stanford student. She is accused of allegedly misleading investors and patients by saying the company’s portable blood-testing machines worked better than they really did. She faces up to 20 years in prison and up to a $3 million fine if convicted.
The case is one of the most highly anticipated tech trials in decades, and has been closely watched in Silicon Valley and across the country. Holmes became famous as a young visionary female CEO, then fell from grace when media investigations revealed concerns from employees that Theranos’s blood-testing machines were not working as advertised.
Holmes was charged with 10 counts of wire fraud and two counts of conspiracy to commit wire fraud, along with her former boyfriend and company executive Sunny Balwani. Holmes and Balwani had their trials severed after Holmes’s defense team suggested they might argue in court that Balwani allegedly abused Holmes. Balwani has denied the claims in court documents.
Holmes and Balwani have pleaded not guilty.
Cheung worked at Theranos in 2013 and 2014, and court filings show that she told prosecutors she had raised concerns about certain blood tests. She eventually quit, and told prosecutors she was threatened with litigation for allegedly violating a nondisclosure agreement.
“It was very hard to communicate information sometimes because there were so many blockades and silos and this emphasis on secrecy,” Cheung said in a 2019 HBO documentary on Theranos.
On the stand Tuesday, Cheung said that Theranos could run significantly more types of blood tests using standard lab testing equipment made by outside companies than it could on its own machine, called the Edison.
The Edison could only run between four and 12 different types of blood tests while she was there, she said.
At the end of the day’s testimony, the prosecution began asking her about an email chain that included Holmes, in which Cheung asked for advice on a certain type of blood test that would not pass the quality control check on the Edison. Cheung is expected to continue testifying Wednesday.
Before Cheung took the stand, prosecutor Robert Leach questioned Yam about Theranos’ financials during her time with the company, attempting to paint a picture of a company struggling financially despite presenting rosy projections to investors.
Yam detailed on Wednesday in the beginning of her testimony how Theranos struggled to pay all its vendors in 2009.
Holmes was paid a salary of between $200,000 and $400,000 in the few years after 2010, Yam said. Theranos had contracts with a few pharmaceutical companies that brought in several million, Yam confirmed, but did not bring in any revenue from the Department of Defense, hospital chains or the U.S. military.
During the defense’s cross examination, Holmes’s attorney Lance Wade asked Yam if she was aware of other companies struggling during the financial crisis, in about 2009. Yam said she wasn’t sure.
“Were you aware of at least one company going through hard times?” Wade asked.
“Theranos,” Yam replied.
Yam confirmed that Theranos always was able to cover its payroll.
Holmes’s defense team objected to parts of Yam’s expected testimony before she took the stand, including trying to block her from testifying about how Holmes allegedly charged a $2,000 jewelry purchase and private jet rides to the company. Yam said she approved private jet expenses for Holmes, but couldn’t recall how much they were or for what purpose Holmes used the jet.
Judge Edward J. Davila deferred ruling on the defense’s motion, saying he would consider the matter if it came up in the prosecution’s questioning.
The government also said it might call former employee Daniel Edlin, who worked on Theranos’s partnership with Walgreens.