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Prosecutor grills Elizabeth Holmes on Theranos’s ‘aggressive’ response to investigation, relationship with ex-partner

The former CEO took the stand for the fifth time Tuesday

Theranos founder Elizabeth Holmes is facing charges of wire fraud and conspiracy to commit wire fraud in San Jose. (Ethan Swope/Getty Images)
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SAN JOSE — A prosecutor Tuesday questioned Elizabeth Holmes extensively about her relationship with her ex-business and romantic partner Sunny Balwani, asking her multiple times to confirm that she was in the loop on issues at Theranos.

“He’s speaking openly with you about problems?” prosecutor Robert Leach asked, showing text messages between Holmes and Balwani discussing various issues at the company.

“Yes,” Holmes responded.

Holmes’s start-up, Theranos, promised technology that would run hundreds of tests on just a few drops of blood, helping drive her to fame as a young female entrepreneur. But the company came crashing down as media investigations revealed issues with the technology’s capability — and led to allegations that Holmes misled investors about it.

It’s the prosecutor’s first chance to pick apart Holmes’s defense strategy as the former biotech CEO took the stand for her fifth day of testimony. Leach drilled into Holmes’s responsibility at the company and a previous public statement she made that he suggested sidesteps the fact that Theranos was running only a dozen tests on its own devices in its clinical lab.

Part of Holmes’s defense strategy has been highlighting the responsibility that other employees who oversaw the lab and other parts of the company had, saying that she believed her employees when they told her that things were going well. Leach pressed Holmes to confirm that as CEO and founder she held significant responsibility at the company.

Holmes’s defense team finished its direct questioning of her Monday, after days of building an argument that she was acting in good faith — saying that Holmes truly believed what she was telling investors and business partners and did not intend to mislead them.

She also unveiled a cornerstone of her defense: that her former partner and the company’s president had allegedly abused and controlled her. He sexually assaulted her and controlled what she ate and how much she slept, she testified Monday.

She appeared to tear up at times Tuesday when Leach asked Holmes to confirm that she and Balwani were at times “loving” with each other, then instructed Holmes to read aloud some of their text messages.

“All my love and hugs for my queen,” one from Balwani read.

Elizabeth Holmes is having her days in court. Here’s her defense.

Holmes is facing 11 charges of wire fraud and conspiracy to commit wire fraud here for allegedly representing to investors and patients that her company’s blood testing was more successful than it really was. She has pleaded not guilty.

Theranos made a small device that purported to run hundreds of tests from just a few drops of blood pulled from a patient’s fingertip. But in reality, prosecutors and former employees who served as witnesses say, the technology gave inconsistent results, could be used for only a dozen or so blood tests and never achieved the promises it made.

Leach pointed out that Holmes held about 51 percent ownership in Theranos and was the CEO from the time she founded the company until 2016.

“You take responsibility for the company, is that your testimony?” he asked.

“I do,” Holmes answered.

Holmes led Theranos for nearly 15 years and raised about $900 million from investors to fuel the growing company. The Wall Street Journal published an investigation in 2015 about the issues within Theranos, prompting a spiral for the company.

Leach on Tuesday began by asking Holmes about Theranos’s response to the Journal’s investigation. He questioned her about what she remembered of Theranos’s “aggressive” response to a media investigation that exposed dysfunction within the blood tech start-up.

“You wanted to get ahead of the story, didn’t you?” Leach asked Holmes.

“We wanted to make sure our trade secrets weren’t exposed,” Holmes said.

Holmes admitted Theranos tried to control the story. The company employed a law firm to tell former employees to stop spilling trade secrets and reached out to Journal staff. Prosecutors showed an email Holmes wrote about her concerns with the still-unpublished story to Rupert Murdoch, who was a Theranos investor and is also executive chairman of the company that owns the Journal.

Leach displayed a text message Holmes sent to her former business partner during a conversation about the upcoming Journal story.

“Need to get ahead of all of it,” the message read.

Leach asked Holmes if she remembered that.

“I have memory of this, but I don’t know exactly what I meant by getting ahead of it,” she responded.

Holmes admitted Tuesday that she wished she had handled the company’s response to the Journal’s report differently. She also said she “sure as hell” wishes she treated whistleblower Erika Cheung better.

Cheung was a source for the Journal story and went on to report Theranos to a regulatory agency. The former lab worker testified earlier in the trial about how the technology’s issues could affect patients who received blood tests.

Holmes confirmed on the stand Tuesday that Theranos’s device was being used for 12 blood tests in its clinical lab during the time period in question. Leach played a clip of an interview Holmes gave on “Mad Money with Jim Cramer” in 2015, shortly after the Journal investigation was published. Host Cramer asked her specifically about the claim that the Theranos device could run only 15 tests or so.

She did not give that number in her answer to him, instead speaking about a Food and Drug Administration clearance process.

“I didn’t hear the number 12 in that clip, did you hear it?” Leach asked after the clip played.

“You did not,” she said.

Holmes has kept a low profile in the years since the company crumbled, but she took the stand in November to defend herself and the company she started when she was a student at Stanford.

Holmes gave emotional testimony Monday about her ex-partner’s alleged physical and verbal abuse while she was running Theranos. Balwani, her former romantic partner, who also served as a Theranos executive, did not pressure her to say allegedly misleading things to investors and business partners, she testified. But the abuse affected her deeply, she said.

Elizabeth Holmes testifies her ex-partner was controlling, sexually assaulted her

“He impacted everything about who I was,” Holmes said Monday. “And I don’t fully understand that.”

Balwani has denied the abuse allegations in court filings. He is charged with the same counts as Holmes and is scheduled for a separate trial in January.

On the stand Monday, Holmes detailed how Balwani allegedly controlled her in the name of making her a successful entrepreneur, including setting out what she should eat and how much she should sleep.

“He told me that I didn’t know what I was doing in business, that my convictions were wrong, that he was astonished at my mediocrity and that if I followed my instincts I was going to fail, and that I needed to kill the person that I was to become — what he would call a ‘new Elizabeth,’ who could be a successful entrepreneur,” she said.

She said he also encouraged her to be more masculine to be successful in business.

“Again, that Sunny felt that I was too feminine, that I was like a little girl, and that I needed to be more like a man if I wanted to be in business,” she said.

Theranos failed, but other blood-tech companies are still trying to make testing faster and easier