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Theranos founder Elizabeth Holmes found guilty in landmark Silicon Valley fraud case

Mixed verdict included jury finding Holmes guilty on 4 of 11 charges in fraud trial

Theranos founder Elizabeth Holmes and her family leave the federal courthouse Jan. 3 during her fraud trial in San Jose. (Brittany Hosea-Small/Reuters)

SAN JOSE — A federal jury found Theranos founder Elizabeth Holmes guilty on four counts of wire fraud and conspiracy to commit fraud against investors Monday, in the most high-profile test of whether Silicon Valley’s “fake it until you make it” ethos could withstand legal scrutiny.

The decision — delivered by a jury of eight men and four women after seven days of deliberations — cements what multiple media investigations, podcasts and documentaries have highlighted over the past six years: that Holmes knowingly misled investors about her company’s blood-testing technology. It was a landmark conviction in one of the few prosecutions of a tech executive during Silicon Valley’s rise to global dominance. The jury convicted Holmes of four counts related to interactions with investors, marking a big win for the government’s years-long probe into the entrepreneur. However, Holmes was acquitted on four counts related to patients, and the jury was deadlocked on three other counts related to defrauding investors.

“She chose fraud over business failure. She chose to be dishonest with investors and with patients,” prosecutor Jeff Schenk said in his closing argument.

Holmes faces the possibility of prison time over the convictions as each count carries a maximum sentence of 20 years, although a sentencing hearing had not been set at the time of the verdict. Holmes was not taken into custody Monday following the verdict, and a mistrial was likely to be declared over the three outstanding counts.

“The guilty verdicts in this case reflect Ms. Holmes’s culpability in this large-scale investor fraud, and she must now face sentencing for her crimes,” said Stephanie Hinds, U.S. attorney for the Northern District of California.

Following the verdict, Holmes walked out of the courtroom holding hands with her mother and partner, and did not respond to questions.

Stephanie Hinds, a U.S. attorney, said on Jan. 3 that the guilty verdicts reflected Elizabeth Holmes’s "culpability in this large scale investor fraud." (Video: AP)

“What a blockbuster end to a blockbuster trial. Elizabeth Holmes made history as a rare female Silicon Valley CEO and the youngest self-made female billionaire [at least on paper]. Now she makes history again as the first Silicon Valley CEO to be convicted of a white-collar crime,” said University of Washington history professor Margaret O’Mara, author of “The Code: Silicon Valley and the Remaking of America.”

The trial opened a window into the secretive world of Silicon Valley start-ups, granting a rare peek into a place where CEOs rarely stand for trial and companies often skirt regulatory consequences. The industry is known for its “fake it until you make it” adage, which leads some founders to overhype their products. But Holmes’s story stood out as an oft-cited extreme example of that culture due to the high-profile investors she attracted and Theranos’s direct involvement in patient health care.

“This is a significant win for the government,” said Robert Dugdale, a former federal prosecutor who is a partner at Kendall Brill & Kelly and specializes in white-collar defense work. “The investor counts she was convicted of were the most serious counts in the case. On top of that, the judge can take the other conduct charged in the case into account when Ms. Holmes is sentenced, regardless of the fact that the jury acquitted her of that conduct or did not return a verdict concerning that conduct in the government’s favor.”

Theranos’s tabletop blood-testing device purported to be able to run hundreds of blood tests from just a few drops of finger pricked blood more cheaply and quickly. It also promised less pain than traditional blood draws taken from a patient’s arm and performed on traditional lab equipment. The company raised hundreds of millions of dollars from investors and inked deals with Walgreens and Safeway to test patients’ blood.

The Elizabeth Holmes trial is the hottest ticket in Silicon Valley

The downfall of Theranos, and Holmes with it, captivated people around the country when the company dissolved in 2018 after years of regulatory investigations and media scandals.

In the years prior, Holmes had become a symbol of success of young female entrepreneurs in Silicon Valley. She sported black turtlenecks, drawing comparisons to Steve Jobs, and graced the covers of magazines. But her fall came as quickly as her rise. In 2015, the Wall Street Journal published an investigation into Theranos, unveiling a dysfunctional workplace and employees concerned about the reliability of blood-test results.

The government filed charges against Holmes for allegedly misleading investors and patients about the capability of her company’s blood-testing device. She pleaded not guilty.

Blood, labs and fraud: Theranos’s Elizabeth Holmes is on trial

Over the course of a three-month trial, prosecutors presented nearly 30 witnesses, including former employees, business partners and investors, to show that Theranos had significant issues within its labs and that Holmes was aware of the problems. The company was relying on third-party lab machines, the prosecution said, and its own technology was functioning erratically.

One former employee, Erika Cheung, told jurors how she tried to bring concerns with the quality of lab tests to managers at the company, only to feel sidelined. Theranos’s tests weren’t passing quality-control checks, she said.

“It was starting to get very uncomfortable and very stressful for me working at the company, and I was attempting to tell as many people as I could,” she said on the stand in September.

Investors told jurors that they felt misled by Holmes’s representations of the company and said they didn’t know that Theranos was relying on third-party lab machines to run blood tests, rather than its own technology.

After the prosecution’s parade of insiders and expert witnesses, the defense called just two witnesses before it turned to its best weapon to woo the jury: Holmes herself.

The entrepreneur testified for more than 20 hours over the course of seven days, alternately stony-faced and emotional. She told jurors that she always acted in good faith while leading the company.

She relied on what her employees were telling her — and that they presented a rosy picture, which she believed. She then took that information to investors and business partners like Walgreens and Safeway, never intentionally deceiving them, she testified under questioning from her defense lawyer.

“They weren’t interested in today or tomorrow or next month,” she said on the stand. “They were interested in what kind of change we could make.”

Holmes arrived at the courthouse nearly every day holding her mother’s hand, often flanked by her partner Billy Evans. She now sports a softer look from her days as CEO — wearing her blonde hair down in loose curls with a dress or skirt in grays and blues. Her attention stayed focused on the trial at all times, sitting up stick-straight in her chair, and carefully watching the jury file in past her each day she was on the stand.

As the verdict was read, Holmes sat up straight and gazed in the jury’s direction. She hugged her family and left the courtroom after it was delivered.

Holmes, known for her charisma in past media interviews, was composed and measured while testifying, often smiling and giving simple, declarative responses. At times, she became emotional, including when she testified that her ex-romantic and business partner Sunny Balwani physically and emotionally abused her.

She confirmed that Balwani did not force her to say allegedly misleading things to investors. But she said his influence was deeply felt.

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

Balwani, who faces a separate trial for the same charges in February, has denied the allegations.

In cross-examination, prosecutor Robert Leach pushed Holmes to admit that she was ultimately responsible for the company.

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

“I do,” she responded.

Holmes founded Theranos in 2003 as a student at Stanford, growing it afterward to a massive company with hundreds of employees.

The start-up raised roughly $900 million from a star-studded list of investors including Oracle co-founder Larry Ellison, media moguls Rupert Murdoch and the Cox family, and the family of former education secretary Betsy DeVos. Holmes even attracted big-name statesmen such as Henry Kissinger and Jim Mattis to her board of directors.

The Journal investigation in 2015 cited former employees who revealed that Theranos was using its own technology on only a small piece of its total number of tests, instead relying on outside traditional lab machines to test patients’ blood.

A federal regulator of laboratories found deficiencies at the company’s lab that “pose immediate jeopardy to patient health and safety.” Theranos’s license to operate a lab in California was revoked. Shortly after, Holmes was barred from owning or operating a medical lab for at least two years. And in 2018, she was charged with massive fraud by the Securities and Exchange Commission, which she paid a hefty fine to settle.

She left the company in 2018, and Theranos shuttered soon after.

What to know about Theranos and Elizabeth Holmes

After a more than three-month proceeding, a federal jury found Theranos founder Elizabeth Holmes guilty on four counts of wire fraud and conspiracy to commit fraud against investors.

Holmes was accused of misleading investors and patients about the capability of her company’s blood-testing technology.

She testified that she believed the information she was providing to her prospective business partners.

For some, the trial was a chance to get the full story of what happened inside the company, and an opportunity for the Silicon Valley ethos to be held in front of a public mirror.

Fellow Silicon Valley entrepreneurs and backers say Holmes represented only the worst of start-up culture.

Robin Givhan: Elizabeth Holmes used every trope in the book

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