The Theranos Story, ch. 62: Holmes’ attorneys request breaking ‘shelter in place’ orders for trial prep, charges shrink–and a coronavirus testing patent twist

Even the ‘Bad Blood’ trial has a Coronavirus Twist. The trial of Theranos former CEO Elizabeth Holmes surfaced last week in the midst of the Public Health Emergency in the US District Court in San Jose, where Holmes is scheduled to go on trial in August. Williams & Connolly lead attorney Lance A. Wade filed a motion with Federal Judge Edward Davila to permit Holmes’ attorneys to travel, serve subpoenas and meet with potential witnesses, which would include health care professionals and testing laboratories, all in preparation for the trial. Judge Davila basically swatted it aside, stating “I have to tell you sir, I read [the document] and I was a little concerned,” the judge said. “You’re basically filing a motion in essence asking the court to violate orders in the midst of a national crisis.” Wade stated that it would be nearly impossible to prepare Holmes’ defense without violating shelter-in-place orders and public health warnings. While both the judge and the lead counsel agreed that much could be done remotely to prepare for trial, Wade maintained that it would be ‘almost impossible’ to complete it. 

The trial date may change at the next hearing on 15 April, since the judge has requested both the prosecution and defense to propose alternative trial schedules. Jury selection is scheduled to start in late July. 

A prosecutorial deteriorata? In February, the nine counts of wire fraud and two counts of conspiracy were reduced by the judge, who dismissed the two conspiracy charges related to defrauding patients and directing doctors to misrepresent Theranos to patients. He also severed Holmes’ trial from former president and live-in Sunny Balwani’s. One wonders that, between the reduction of charges and the delay which has made The Biggest Healthcare Fraud of the 21st Century old news, whether Holmes and Balwani will serve any significant Club Fed time at all. Law360. CNBC, Observer

Another Corona Twist is that a SoftBank/Fortress Investment shell company, Labrador Diagnostics LLC, which happens to own several Theranos patents, sued a small company, BioFire, developing COVID-19 tests. Labrador now states that the patent infringement doesn’t entail the COVID tests but others over the past six years. Our Readers will recall that SoftBank/Fortress was a ‘last ditch’ investor in Theranos in December 2017, collateralized by the patent portfolio. The Verge

The Theranos Story, ch. 46: “F for Fake.” SEC’s fraud charges force Elizabeth Holmes out (finally).

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]Our New Year’s 2018 prediction (after December’s $100 million loan from Fortress Investment Group): “Ms. Holmes will be removed and replaced, then the company will be reorganized and/or renamed.”

Fortress did not have to wait long or get their hands dirty. Today, the Securities and Exchange Commission (SEC) charged both founder and now former CEO Elizabeth Holmes and past CEO/president Ramesh ‘Sunny’ Balwani with securities fraud. While Mr. Balwani will fight the charges, Ms. Holmes escaped trading her black turtleneck for an orange jumpsuit by agreeing to pay a penalty of $500,000 to the SEC, give back 18.9 million shares to the company, give up her uniquely Silicon Valley perk of super-voting equity rights, and is now barred from serving as a public company director or officer for 10 years. From the Theranos release: “As part of the settlement, neither the Company nor Ms. Holmes admitted or denied any wrongdoing.”

This penalty may seem puny in the light of other securities fraud cases, but it appears that Ms. Holmes took little salary out of the company, with most of her long-gone billions in presently worthless remaining stock. 

The exact meaning of fraud, as determined by the SEC in cases like these, is not casual. We can say that we never believed the Edison or miniLabs would work despite the press hype. We can observe that patients and doctors were misled in test results, resulting in major human cost (our Ch. 22).  The fraud here is directly tied to representations made to investors that enabled Theranos’ massive funding, in multiple rounds, of over $700 million between 2013 to 2015. These misleading representations included demonstrations, reports on the functioning of its analyzers, inflating its relationships such as with the DOD, and its regulatory status with the FDA.

It also does not matter that all the funds were privately raised. The SEC in its statement firmly stated that it will treat private equity as it does public when it comes to investments (pay attention, health tech companies): (more…)