Breaking. Elizabeth Holmes, founder and CEO of Theranos, was found guilty on four charges of wire fraud of the 11 charges brought by the prosecution. The guilty charges are, according to the reports in the New York Times and the Mercury News (paywalled, but keep refreshing), all related to wire fraud against investors. Counts six through eight are fraud against specific investors. The TTA articles relating to each are linked.
- Count one of conspiring to commit wire fraud against investors in Theranos between 2010 and 2015
- Count six of wire fraud in connection with a wire transfer of $38,336,632 on or about Feb. 6, 2014. This was part of the $96 million PFM Health Sciences investment detailed in Chapter 9.
- Count seven of wire fraud in connection with a wire transfer of $99,999,984 on or about Oct. 31, 2014. This was the DeVos family trust investment (RDV Corp.) in Chapter 5.
- Count eight of wire fraud in connection with a wire transfer of $5,999,997 on or about Oct. 31, 2014, made by Daniel Mosley, a financial advisor to Henry Kissinger. Mr. Kissinger was an early investor and sat on the Theranos board (Chapter 6).
Each one of these charges carries time up to 20 years, but in Federal financial fraud cases, time is usually served concurrently. Judge Edward Davila of the US District Court, Northern District of California, will sentence at a later date to be announced.
It’s expected that Holmes will appeal. The issues of emotional and physical abuse, with Svengali-like control on her judgment, at the hands of Sunny Balwani were not enough for this jury to dismiss the key financial fraud charges. They clearly decided that Holmes was fully capable of engineering fraud, not just once but several times. But with the defense having seeded a backdrop of abuse, it may prove mitigating on appeal. (No, this Editor does not believe that Judge Davila will even refer to that during sentencing, having strictly advised the jury to not consider that during deliberations.)
Holmes was found not guilty on three fraud charges against patients and a fourth relating to advertising and marketing services to patients:
- Count two of conspiring to commit wire fraud against patients who paid for Theranos’s blood testing services between 2013 and 2016
- Count 10 of wire fraud in connection with a patient’s laboratory blood test results on or about May 11, 2015
- Count 11 of wire fraud in connection with a patient’s laboratory blood test results on or about May 16, 2015. These two counts pertained to false results on HIV and prostate cancer.
- Count 12 of wire fraud in connection with a wire transfer of $1,126,661 on or about Aug. 3, 2015 to Horizon Media for advertising and marketing services for the Walgreens launch.
Given the above, was The Verge (Chapter 15) correct in stating that patient fraud, with the concomitant distress and potential for injury, is less important than financial fraud? Or was the case less well made?
No verdict was reached on an additional three charges relating to wire transfers in December 2013 by other investors. These apparently were the charges that the jury deadlocked on earlier today:
- Count three of wire fraud in connection with a wire transfer of $99,990 on or about Dec. 30, 2013. This was part of the investments made from 2006 to 2013 by private investor Alan Eisenman detailed in Chapter 8. Eisenman was a contentious and offputting witness, and will not have any satisfaction.
- Count four of wire fraud in connection with a wire transfer of $5,349,900 on or about Dec. 31, 2013. This was an investment by Black Diamond Ventures headed by Chris Lucas, nephew of Don Lucas who was on the Theranos board (Chapter 6).
- Count five of wire fraud in connection with a wire transfer of $4,875,000 on or about Dec. 31, 2013. This was an investment by the Hall Group.
One additional charge (nine according to the Times, 10 according to the Mercury News) was dropped. The Times article also provides a preview on the next trial–Sunny Balwani. Man of Mystery, or just a lucky sod who made a bundle of money from a dot.com?
The trial started on 8 September and concluded just before Christmas. Deliberations took about 50 hours.