SAN JOSE, California. Over the past 11 weeks, prosecutors have uncovered emails from desperate investors. They kept falsified documents next to the originals. They called dozens of witnesses who charged with deceit and evasion.
And on Friday, after questioning the 29th witness, prosecutors completed their case against Elizabeth Holmes, the founder of the failed blood test startup Theranos. Ms Holmes pleaded not guilty to 11 counts of defrauding investors about Theranos’ technology and business in a case that was called a referendum on Silicon Valley’s startup culture.
The prosecution’s retreat is a major turning point in the trial of Ms. Holmes, whose rise and fall has fascinated the public and is considered a symbol of the tech industry’s arrogance and culture of fraud of the past decade.
For weeks, prosecutors tried to portray Ms. Holmes, 37, as the liar who turned Theranos into a $ 9 billion startup, all the while knowing that the company’s blood tests, which were hailed as revolutionary, were not working. Prosecutors have methodically identified six major areas of deception for Ms Holmes, including lies about Theranos’ work with military and pharmaceutical companies, the effectiveness of her business, and the accuracy of her blood tests.
Her lawyers are now expected to argue that Theranos was simply a failure and not a fraud, raising the question of whether Ms Holmes would come forward to defend her own defense. In the documents, her lawyers indicated that she was likely to testify.
The stakes are high. If Ms Holmes is found guilty, she faces up to 20 years in prison on each count of fraud, and prosecutors may muster the courage to pursue new startups that spread the truth to raise funding. Justification can signal that Silicon Valley startups that have rapidly gained strength and wealth over the past decade are difficult to hold accountable.
“When prosecutors drop a case, they basically say they have enough funds to ask the jury to convict on the spot,” said Andrei Spector, attorney for Bryan Cave Leighton Paisner and a former federal attorney for the Eastern District of New York. He said he expected the defense to present the case, and not just let the jury decide if prosecutors could not prove theirs.
Ms Holmes, a Stanford University dropout who founded Theranos in 2003 and raised $ 945 million from investors, was charged with fraud in 2018. For years, her case was plagued by delays: first the trial, then the pandemic, and finally Ms. Holmes. Holmes gives birth to a baby in August.
When the trial finally began in September, prosecutors called on former Theranos investors, partners and employees to testify. Jim Mattis, a retired four-star Marine general and former secretary of defense who was the director of Theranos, took the position, as did the former director of the Theranos laboratory, who endured six grueling days of interrogation. In one surreal moment, a medical examiner read text messages between Ms Holmes and her then-boyfriend and business partner at Theranos, Ramesh Balwani, known as Sunny.
Alan Eisenman, an early investor in Theranos, said this week that Ms Holmes interrupted and threatened him when he asked her for more information about the company. However, even after this treatment, Mr. Eisenman invested more money in the startup, believing that his seemingly fast-growing business would bring wealth to sponsors like him.
When asked about his understanding of the value of his shares in Theranos today, Mr. Eisenman said, “This is not an understanding, this is a conclusion. It costs nothing. “
The most compelling prosecution evidence included a series of due diligence reports that Ms Holmes sent out to potential investors and partners, giving the impression that pharmaceutical companies including Pfizer and Schering-Plow had endorsed Theranos technology. Representatives for each company said they disapproved of Theranos blood test and were surprised to see their company logos added to the report.
Daniel Edlin, who worked at Theranos and was brother in brotherhood to Mrs. Holmes’ brother, Christian, testified that the startup faked a demo of its machines to potential investors, covered up technology glitches, and threw out abnormal blood test results.
Mr Mattis testified that he was not aware of any contracts between Theranos and the military to install their machines on helicopters for medical evacuation or on the battlefield, as Ms Holmes often told investors.
The prosecution ended their story with the testimony of Roger Parloff, the journalist who wrote the cover story about Miss Holmes, which helped win her confession. Mr. Parloff’s article was sent out to numerous investors as part of Mrs. Holmes’ proposal.
However, some of the most prominent witnesses on the prosecution’s list were conspicuously absent from the courtroom. Ms. Holmes’ rise has been fueled by her connections with business titans such as media tycoon Rupert Murdoch, senior statesmen such as Henry Kissinger and Admiral Gary Roehead, and lawyer David Boyes. The Theranos company was partially destroyed by informants such as Tyler Schultz, the grandson of George Schultz, a former secretary of state who served on Theranos board of directors. None of them testified.
Also absent was Mr. Balwani, who, along with Mrs. Holmes, was charged with fraud and was brought to trial the following year. His role as the fierce protector of Theranos, haunting anyone who questioned the company was in most of the testimonies.
At almost every step, Mrs. Holmes’s lawyers sought to limit testimony and evidence. They attacked investor confidence, using legal clauses to show that investors knew they were betting on a fledgling startup. Lawyers also found gaps in the limited investor due diligence of Theranos claims. At one point, they asked Erica Chung, a key whistleblower who worked at Theranos lab, to read the entire organizational chart of the staff working in the lab to show that she played a minor role in the overall operation.
The defense successfully pushed for the dropping of one fraud charge against Ms Holmes. The patient, who took a suspicious test from Theranos, was banned from testifying earlier this month.
Ms. Holmes’s lawyers are likely to try to shed light on her relationship with Mr. Balwani. The two met in secret. In court records, Ms Holmes argued that he was emotionally abusive and bossy. Mr. Balwani’s lawyers denied the claims.
Holmes’s testimony is likely to revive the media circus surrounding the early days of the trial, which died down as weeks of testimony dragged on. It would also open her up to potentially dangerous cross-examination by prosecutors or perjury.
“Most criminal defendants do not testify, especially in white-collar cases where the government has many challenges to overcome, such as proving intent, and sometimes even just proving that a crime has taken place,” he said. Mr. Spector. Holmes’s case is different, he said, because the crime is clearly delineated and the evidence is fairly easy to understand.
Throughout the trial, Ms Holmes remained silent in the courtroom, whispering only to her lawyers or family members. But the jury heard her vigorously defended Theranos from fraud charges in a video interview played in court. They also heard her take the blame on herself.
“I am the founder and CEO of this company,” she said in one of the videos. “Everything that happens in this company is my responsibility.”