Theranos’ Balwani seeks to remain free during appeal, argues he owes nothing in restitution (updated for Holmes appeal)

February 22, 2023 | by

12.9 year Federal sentence set to begin 15 March. On Friday 17 February, Ramesh ‘Sunny’ Balwani, former Theranos president/COO, his defense attorneys, and the prosecution were in Judge Edward Davila’s Federal District courtroom to argue that Balwani should remain free during appeal, and–surprisingly–should owe nothing in restitution to investors.

Balwani is scheduled to report is scheduled to report to the minimum security Federal prison at Lompoc, California to begin his 155-month sentence on 15 March. During the hearing, Judge Davila did not issue a decision on Balwani’s freedom through appeal, nor about restitution. In play are the parallel sentences and appeals of Balwani’s boss and lover, Elizabeth Holmes, with her delay of surrender based on appeals being filed and restitution being decided in the same court.

Balwani’s defense is taking a different tack than Holmes’ defense regarding restitution. His attorney, Amy Walsh, presented that the company was still valuable at the time of Balwani’s dismissal in May 2016. Theranos still had $350 million in cash and intellectual property worth $100 million. Judge Davila seemed skeptical of that:  “Are you saying his conduct was completely divorced from Theranos’ demise?” The prosecution is seeking a far higher restitution–$900 million–than the $120 million Judge Davila estimated at the time of Balwani’s sentencing.

Elizabeth Holmes is also seeking to remain free while appealing her 11.25 year sentence in the Ninth Circuit Court of Appeals, with filings in December and January [TTA 24 Jan, 10 Jan] with Balwani’s filings on a similar timetable. Her defense team also filed for a new trial [TTA 15 Jan] based on purported errors by Judge Davila during her trial. Her restitution hearing on the $121 million Judge Davila has estimated during her sentencing is now scheduled for 17 March. As with Balwani, the prosecution is seeking a far higher restitution–$804 million.

Holmes’ surrender date is scheduled for 27 April to the Federal prison in Bryan, Texas–a change by the Federal Bureau of Prisons from Dublin, California, as rumored in November [TTA 30 Nov]. The women-only minimum security Bryan facility is considered in the Federal system to be ‘heaven’ compared to the Dublin satellite camp, though the latter is only about an hour from her home, partner Billy Evans, and her soon-to-be two children. The selection is important because Federal inmates serve in general 85% of their sentence.

Updated  Holmes’ second child has been born, according to a court filing on Thursday. Her defense continues to press for postponing her surrender during the appeals process. Defense and prosecution continue to wrangle on Holmes’ flight risk, based on the never-taken January 2022 Mexico trip and one-way ticket, now on the basis that she has never directly denied that she intended to flee nor explained her lack of a return ticket [TTA 24 Jan].  Mercury News

Balwani’s defense also maintains that government misconduct during the trial makes success for appeal likely, that he is not a flight risk based on his behavior since 2018, and has no history of violence. The clock is ticking down on both Balwani and Holmes. AP

The Theranos Story, ch. 66: Walgreens and Safeway aren’t investors, they’re business partners!

October 8, 2020 | by

The difference is not hair-splitting in the defense effort to have charges tossed. In Federal District Court on Tuesday (6 October) in San Jose, Elizabeth Holmes’ defense made the case to Judge Edward Davila on dismissing some of the prosecution’s charges against her. As petitioned in late August, the defense maintains that two of the entities, Walgreens Boots and Safeway (a Western regional supermarket chain), were unfairly classified as investors versus ‘business partners’. As investors, the prosecution could charge Holmes with fraud crimes with a longer statute of limitations. If they were to be classified as business partners and ‘transactions’, while there were crimes committed, the statute of limitations has expired.

The prosecution’s rebuttal is that Walgreens and Safeway could be considered as both investors and partners. The defense response was that the government took too much time to file the charges and failed to get the proper consent, which may be the hair that splits the ability of the prosecution to use these charges.

Let’s look back at both companies’ involvement with Theranos. 

  • Walgreens reportedly invested over $140 million in Theranos. This consisted of direct funding (a $40 million loan convertible into equity), and an “innovation fund’ designed to fund the rollout of Theranos Wellness Centers in Walgreens US locations starting in 2013. Walgreens filed suit against Theranos in November 2016 to recoup that investment based on breach of contract, after civil lawsuits were filed against them jointly, halted development, and settled for $25 to 30 million in late July 2017 when Theranos assets were dwindling to barely breathing status [TTA 3 Aug 17]. More details on their Partnership from Hell are recapped here from the 2016 lawsuit.
  • Safeway’s involvement as the exclusive supermarket partner was planned to be even more extensive. Their 2012 deal was $350 million for building 800 clinic locations in Safeway stores. This was dropped in November 2015 [TTA 20 Nov 15], around the same time as Walgreens halted the expansion of the Theranos Centers. According to reports at the time, Safeway had already built out the 800 locations, later repurposing them for flu shots and similar. Direct investment was estimated at $10 million (WSJ). Safeway settled with Theranos for $30 million in June 2017. 

The publicly available history shows that both funded Theranos directly in addition to being business partners. Both took substantial additional risk investments from building out facilities to showcase Theranos’ services for their customers. Both settled civilly for amounts far below the fair recoupment of their investment.

While this sounds like legal nitpicking, the defense strategy, in this Editor’s layperson’s calculation, is to erode the number of charges against Holmes and their seriousness so that her inevitable sentence becomes lighter. Another move in this vein is the mental defect defense [TTA 18 Sept] alleging Holmes’ psychic inability to discern right from wrong in her business dealings. Start with something over the top like ‘insanity defense lite’, and then chip away at the rest of the charges. Fox Business, Mercury News.