Theranos trial updates: Holmes’ freedom on appeal bid opposed; Balwani files appeal to conviction

Lost between the holiday and Happy New Year merriment were two year-end court filings by legal teams for Theranos’ Elizabeth Holmes and Ramesh ‘Sunny’ Balwani, who hope to stay free for at least part of 2023.

Elizabeth Holmes: In a joint filing on 30 December, Federal prosecutors and Holmes’ defense requested a hearing by Judge Edward Davila of the District Court on Holmes’ request to remain free on bail until her appeal in the Ninth Circuit Court of Appeals is resolved. In the filing, the prosecutors agreed to file their objections to her freedom by 19 January. Holmes’ defense had filed her three-page appeal on 3 December with 10 reasons why there should be a new trial. The full legal brief is due on 3 March. Both prosecution and defense had requested that the hearing by Judge Davila take place on 17 March.

Holmes was convicted on four counts of defrauding investors, with her sentence of 11 years and three months taking place on 18 November 2022. She remains free on bail until 27 April, her surrender date. The US Bureau of Prisons has not made public where she will spend her sentence. There is also a question of restitution of $121 million yet to be decided in court. SiliconValley.com

Sunny Balwani: His appeal was filed on 20 December, on the two-week deadline after sentencing, also in the Ninth Circuit Court of Appeals. Unlike Holmes, Balwani was convicted on 12 counts, including two counts of patient fraud. The appeal reportedly will be on the grounds of Judge Davila’s rulings and decisions adverse to Balwani during the case. Other possible factors: the weakest counts are the two on patient fraud where testimony and proof were indirect–Balwani had little to do with patients–and that he left in 2016 before the collapse. His sentence was 12.9 years (155 months). Like Holmes, his restitution is yet to be decided. Balwani is currently free on bail, with his surrender date 15 March. No motion to remain free on bail while the appeal is in progress has been disclosed, nor the Federal prison location decision. Yahoo!Finance

For those craving a recap of l’affaire Theranos and perhaps to reflect on it, Yahoo!Finance has produced an hour-long video documentary, ‘Culture of Hype’, on Theranos as a product of Silicon Valley culture. It was produced before their convictions and sentencings. It ends with discussion of how the multiple conflicts between an admittedly naïve founder vision, transparency, and the need to finance said vision in multiple iterations in any startup or early stage company can lead to borderline executive behavior and company collapse. (And yes, your Editor has seen it happen firsthand.) Was Elizabeth Holmes a victim, a sociopath, or something in between? She will have time to contemplate it, as this Editor continues to maintain that her chances of reversing her conviction and going free are as small as that nanotainer she is modeling above.

10 reasons for a new trial? Elizabeth Holmes’ legal team files appeal, delay in prison start (updated)

Elizabeth Holmes and her legal team continue their campaign to keep her out of Federal prison. On 2 December, on the deadline from two weeks of sentencing but just made public, her three-page appeal was filed with the US Court of Appeals for the Ninth Circuit.  She has until 3 March to file legal briefs in the 9th Circuit Court of Appeals in California. In addition, her legal team has requested from Judge Edward Davila that she remain free until her appeal is concluded due to not being a flight risk, citing close family ties and pregnancy. Holmes was scheduled to report to Federal prison (still to be determined by the US Bureau of Prisons) on 27 April 2023.

The 10 reasons for a new trial are not fully enumerated in the SiliconValley.com article, but include purported errors by Judge Davila during the trial. These include allowing the jury to hear about regulatory action against Theranos and the company’s voiding of all test results from its Edison lab machines. The filing argues that those events took place after she made any “relevant” statements to investors. Another reason was the sudden visit by former lab director and key prosecution witness Dr. Adam Rosendorff to her home [TTA 26 Oct, 20 Oct]. Dr. Rosendorff reaffirmed in the court hearing that he testified truthfully and honestly, the visit took place during a moment of distress, and that he continued to believe that Holmes needed to pay her debt to society. 

Legal experts mostly agree that Holmes presents little to no flight risk, as she is known everywhere, and is no threat to her community. Where they are split on whether she will remain free during the full process of the appeal, which could be a year or even more. Appeals have low rates of success at the Federal level. To these observers, Judge Davila has been scrupulous–‘bent over backwards’–to be fair to both prosecution and defense during the trial. He has already heard and rejected defense arguments for new trials and acquittals. He did not permit the prosecution to run wild or overcharge either. The decision of another jury on COO Sunny Balwani on all 12 counts, the same as Holmes, also conducted by Judge Davila, may very well factor into an appeal to the judges, unfavorably for the defense. One wild card factor is that the jury convicted her on but four out of 11 counts (acquitting or deadlocking on the rest; Count 9 was dropped due to a prosecution error). The jury for her trial proved 1) difficult to select and 2) difficult to retain, going through three alternates of the five.

Still pending are monetary damages. Updated: checking Judge Davila’s calendar, this will take place after January as his calendar is filled.

It does look like Holmes may enjoy freedom through 2023–but her chances of reversing her conviction and going free are as small as that nanotainer she is modeling. FoxNews, Ars Technica

Theranos’ Balwani gets an unlucky 13 year sentence, restitution to come

Today, in the US District Court, Northern District of California, Ramesh ‘Sunny’ Balwani, the former president of Theranos, was sentenced to 155 months, or 12.9 years, in Federal prison. Balwani had been convicted on all 12 counts of fraud and conspiracy, including two for patient fraud, in July. The prosecution had asked for 15 years, as they had with Elizabeth Holmes, who was sentenced by Judge Edward Davila to 11.25 years on four counts. Balwani will be required to surrender on 15 March. None of the coverage indicates that he will appeal. 

The hearing today was about six hours and was far less of a media ‘event’ than Holmes’ hearing. 

Like Holmes, Balwani’s defense requested a sentence of home confinement of four to 10 months, citing that Balwani was an investor ($5 million), was not CEO but COO for six years to May 2016 before the company went out of business, wasn’t involved in key decision-making by Holmes, and gave money to charitable causes. The probation officers’ recommendation was, also like Holmes, nine years. Judge Davila again went with standard sentencing guidelines to produce a result that was far less than most observers, including your Editor, expected given the 12 counts and his direct management of the Theranos lab.

US Attorney Jeff Schenk, who spoke for the prosecution, said “Mr. Balwani knew that Theranos was not generating, and would not generate, any meaningful revenue by being honest with people. So he chose a different path.” The opposite view from his defense attorney, Jeffrey Coopersmith: “Mr. Balwani never wanted anyone to be harmed. He would never harm a fly. Instead, he wanted to give…He’s deserving of a lenient sentence. He’s not Ms. Holmes. He did not pursue fame and fortune.”

However, Balwani was key in making deals and withheld what was really happening in the lab. According to TechCrunch, “During the trial, a Walgreens executive testified that he worked closely with Balwani on the deal. The prosecution also displayed evidence of a text from Balwani to Holmes stating that he deliberately didn’t tell Walgreens that they were using different machines.” He did not testify in his own defense or speak at the hearing on his own behalf.

According to reporter Dorothy Atkins, covering for Law 360, Judge Davila “won’t give Balwani a tougher sentence for leading the conspiracy, but he found Balwani recklessly put patients at risk, since he led the lab.” By his own text to Holmes, “I am responsible for everything at Theranos.” and had, according to the judge, “significant autonomy” in the lab–where the machines did not work. In the judge’s words, as she reported, “Defendant chose to go forward with deception, I’ll call it, and continued to perpetuate the fraud….” After sentencing, his defense requested that he serve in a minimum security prison. At the end, “Balwani packed his things and whispered something to his family members. He didn’t get any hugs, and there were no visible tears in the courtroom.”

On restitution, the prosecution wants Balwani to pay $804 million to defrauded investors, which happened to be the same amount requested bu the prosecution as Holmes. Judge Davila calculated total investor loss as $120 million. A final determination will be made at a later date to be determined.

Balwani is 57, which means that if he serves the typical 85% of his Federal sentence, he will emerge from Club Fed aged 68.  Washington Examiner, NBC, NBC Bay Area, Scott Budman of NBC’s Twitter feed

Breaking–The Theranos denouement: Elizabeth Holmes sentenced to 11.25 years with an investor loss of ~$121 million

Elizabeth Holmes received her sentence today by Judge Edward Davila of the US District Court of Northern California, in an over four-hour court proceeding.

The sentencing was based on Federal guidelines for four counts of a Class C (non-violent) felony, as well as the recommendations of probation officers. Your Editor watched this in real time from the NBC Bay Area feed and reporter Scott Budman’s Twitter feed from the courtroom (cameras are excluded). This started at 10am PT with last arguments made by prosecution and defense and victim statements. The actual reading of the sentence in his summation by Judge Davila took a little more than 20 minutes, delivered in a silent courtroom, concluding after 2pm PT.

The decision:

  • Prison sentence: 11.25 years (11 years, three months), to be followed by three years of supervised release. Holmes will be required to self-surrender on 27 April 2023. This is likely after her delivery date. This was less than the 15 years requested by the prosecution (in turn less than the 20 years maximum), more than the nine years recommended to the judge by the probation officers (what is called a downward deviation), but entirely based on the sentencing manual. Judge Davila obviously did not believe that he could justify that downward deviation.
  • The investor loss. Judge Davila estimated the total loss by 10 investors at $384 million, not $804 million. A ‘reasonable total loss’ is only $121 million. This winnowing down is a big win for Holmes. While she will never be able to pay it, below $500 million it takes down her possible sentencing, according to NBC’s legal commentator, former prosecutor Dean Johnson. The total and final amount will be settled at a later date at a restitution hearing.

Scott Budman’s tweets included the jousting between both prosecution and defense on multiple points.

There were victim impact statements directed to Holmes, which include the father of whistleblower Tyler Shultz, Alex Shultz, whose grandfather was investor, board member, and enabler George Shultz. “There’s a lot of talk about Sunny and Elizabeth. From my family’s perspective, Elizabeth is their Sunny Balwani. She took advantage of my family.” Theranos lawyers burst into their home (average for the bare-knucks tactics of one David Boies) with no chance for Tyler to defend himself. It also pitted the senior generation (now departed) versus son and grandson, ripping apart the family.

A cancer patient testified; the judge gently said he read her letter.

Holmes presented her own statement as the last word. “I am devastated by my failings. I have felt deep pain for what people went through, because I failed them. To investors, patients, I am sorry.”

Judge Davila’s formal sentencing of Holmes was well under 30 minutes. A judge’s summation must primarily justify the sentencing. It is where he speaks at length. It must detail his logic, discretion, reasoning, and thought process based on the information presented at trial and by precedent. The quotes are from Scott Budman’s play-by-play tweets:

“This case is troubling on so many levels. What went wrong? This is sad because Ms. Holmes is brilliant.”
“Failure is normal. But failure by fraud is not OK.”
“We know by the texts with Mr. Balwani that there was conspiracy.”
“What is the pathology of fraud? Is it the inability to accept responsibility? Perhaps that [is] the cautionary tale to come from this case.”

This Editor will reflect on this, with more information, next week. Will there be a genuine Silicon Valley impact in the middle of a downturn or has this all been factored in? There is the implosion of bitcoin/crypto FTX in the headlines–2022’s equivalent of the early 1930s’ fall of Swedish Match/Ivar Krueger and Ivan Boesky’s stock fraud of the Big ’80s.

Certainly there will be appeals by the defense and by the Feds. A defense appeal, for instance, may lengthen the time before she will serve her sentence.

Sunny Balwani’s attorneys will not be having a Palm Springs Weekend, either, now knowing the thought process of Judge Davila. 

With deep appreciation to the NBC Bay Area team coverage, the analysis by Dean Johnson, and warmly to Scott Budman.

The Theranos denouement: ‘Humble, hardworking’ Elizabeth Holmes sentencing Friday; prosecution and defense paint different pictures (updated)

Elizabeth Holmes finally faces the music and perhaps the mercy of Judge Edward Davila on Friday, 10 am PT. Convicted on four felony counts of 11 and defrauding investors of over $144 million, the prosecution has called for Holmes to go to Federal prison for 15 years of the maximum 20, plus three years of supervised release. Restitution of $804 million would go to investors plus a fine of $250,000 for each charge. In US Attorney Stephanie Hinds’ 46-page pre-sentencing memo to Judge Davila, the prosecution states that she was blinded by ambition. “She repeatedly chose lies, hype and the prospect of billions of dollars over patient safety and fair dealing with investors. Elizabeth Holmes’ crimes were not failing, they were lying—lying in the most serious context, where everyone needed her to tell the truth.” They called her crimes “extraordinarily serious, among the most substantial white collar offenses Silicon Valley or any other district has seen.” and that her actions damaged the trust and integrity that is needed for Silicon Valley investors to trust companies to fund ideas before profits are seen. The cut: “She stands before the Court remorseless. She accepts no responsibility. Quite the opposite, she insists she is the victim.”

In all fairness, her defense has relentlessly painted Holmes as exactly that, from young, naive, battered, psychologically and sexually abused Trilby to Sunny Balwani’s Svengali. Their argument in their 82-page sentencing memo argues for mitigation to the point of no sentence at all, or a minimal sentence of no more than 18 months in home confinement plus her continuing service work. Supporting her character as a ‘humble, hardworking, and compassionate woman who deeply wants to give what she can to the world” and not motivated by greed or personal gain were character testimony letters from Billy Evans, her partner, as one would expect, but also from some unexpected places: the Senator from this Editor’s home state of New Jersey, Cory Booker, who knew her starting in 2012, and a former EPA head, William Reilly, who worked with Holmes’s father back in the George H.W. Bush administration. Their memo cited 130 letters.

Also revealed by the defense: Holmes is not only the mother of a year-old son but also pregnant. Evans’ letter contains another heartbreaking fact. Her beloved ‘wolf’ of a husky dog, Balto, was tragically killed by a mountain lion while she and Evans were living in seclusion in a rural area. While they lived in San Francisco, according to him, they were harassed by reporters, ordinary people, and threatening letters, so they hit the road for at least 6 months living in a camper.

Holmes’ ability to pay $804 million to the likes of Safeway and Walgreens seems to be a bit of a reach, as Holmes never cashed out of Theranos stock–at its peak valued at  $4.5 billion–is unemployed with no prospects, and is widely assumed to be, as they say, flat broke as are her parents. As to her sentence, what is widely expected is a multi-year sentence. If that happens, the defense will request that she remains free on bail (a motion for stay) while the filing to the Federal Appeals Court is made, a process that can take a year or more from filing to a decision. 

Judge Davila’s record has been to take in all the circumstances and to be measured in sentencing. After several years, he is intimately familiar with Theranos to the likely point of dreaming about it at night. Factors he may consider in sentencing, start of her term, where it will be served, restitution and fines: lack of flight risk, Holmes’ young child, and her current condition both physical and financial. Savvy court watchers have noted that if Federal law enforcement is in the courtroom, Holmes may initially be taken to prison and held, then freed on bail pending appeal. The jury convicted her on only four out of 11 counts (and threw out the 12th), but it remains that the prosecution proved and the jury decided that she was fully capable of engineering fraud, not once but several times, leaving Balwani’s Mesmerizing Influences aside.

Balwani’s own sentencing on 12 charges, with the same maximum of 20 years in Federal prison, is scheduled for 7 December, Pearl Harbor Day, at 10 am PT.

The Mercury News articles, while thorough, are paywalled: 11 November (defense memo), 11 November (Billy Evans letter), 14 November (prosecution filing). FierceBiotech, MedCityNews

The US Attorney, Northern District of California summary: U.S. v. Elizabeth Holmes, et al.  District Court documents here.

NBC Bay Area will cover the sentencing live here at 10 am PT, 1 pm ET, 6 pm GMT.

News updates: Theranos’ Holmes goes ‘mental’ in last ditch defense; troubled Cerebral telemental health fires another 400

Blood out of a rock? The Holmes’ defense goes ‘mental’ with Dr. Adam Rosendorff. Reduced to a limited hearing before Judge Edward Davila and the US District Court in San Jose, where Rosendorff not only reaffirmed his testimony but also explained the circumstances around his visit to the home, the Holmes defense filed a motion on Monday, citing an obscure interview published in September by the South African Jewish Report to cast doubt about the veracity and credibility of his testimony. Rosendorff, who was born in South Africa, recounted to the interviewer that the stress from blowing the whistle on Theranos led to a “breakdown, medication, hospitalization, and health problems.”

Rosendorff also stated in the interview that by the time the trials (Holmes and Balwani) were scheduled in early 2020, he was off medication. The trials finally took place in 2021 (Holmes) and this year. When questioned last week by defense lawyer Lance Wade about his mental state, his response was that “I’m finding this line of questioning to be invasive.” and that his “mental state was solid” when he drove to Holmes’ home wanting to speak with her. The prosecution objected to the questioning and Judge Davila upheld it.

The prosecution’s response to the defense filing is that the court record “contains no indication whatsoever that Dr. Rosendorff suffered from a mental health issue that affected his ability to serve as a reliable witness,” and that “newly raised and uncorroborated insinuations about Dr. Rosendorff’s mental health do not justify discounting his testimony or granting a new trial.”

The Mercury News’ money quote from New York defense lawyer Jennifer Kennedy Park: “I think the judge already made the decision that this is not relevant.” Another lawyer quoted, former Santa Clara County prosecutor Steven Clark, said that the stress can be difficult but that it apparently didn’t affect Rosendorff’s capacity to testify–and that he was consistent across two trials.

Unless Judge Davila decides to delay–not likely given the above and the pending sentencing for both Holmes and Balwani–or there are additional magic ‘rabbits out of hats’, Holmes’ sentencing remains scheduled for 18 November, Balwani’s later this year.

And speaking of mental health, beleaguered telemental health provider Cerebral let go of 400 more staff, or another 20% of their remaining workforce. This follows a layoff of ‘hundreds’ of contractors, including nurse practitioners who did counseling and support staff, at end of May. Cerebral is ‘restructuring’ under a new CEO, David Mou, who replaced CEO and co-founder Kyle Robertson  forced out by the Cerebral board after the first round of investigations by the Department of Justice (DOJ) on over-prescribing of controlled substances and the subsequent defection of CVS Health and Walmart, as well as Truepill on mail fulfillment. Their statement cites “operational efficiencies while prioritizing clinical quality and safety across the organization.” Cerebral had at its peak in the spring 4,500 employees.

In addition to the DOJ investigation, the FTC is investigating Cerebral for deceptive advertising [TTA 1 June] and a former VP of product and engineering, Matthew Truebe, is suing for wrongful dismissal, further exposing the inner workings of the company [TTA 16 June]. Employees have gone public with tales of pushing prescriptions to 95% of patients, disregarding state regulations, and generally Running Wild over any semblance of clinical probity [TTA 29 June]. Certainly Softbank cannot be delighted at the rolling crackup of their once-valued $4.8 billion baby for which they’ve led funding of over $426 million. TechCrunch, Healthcare Dive.

Rosendorff stands pat on Theranos’ Elizabeth Holmes: “She needs to pay her debt to society”

Monday’s limited hearing in US District Court on Adam Rosendorff’s Mysterious Visit to Casa Holmes is likely to be a Defense Dud. Rosendorff walked Judge Edward Davila through the circumstances of his visit, what he said–which differed from Holmes’ partner Billy Evans’ recollection–and reaffirmed his testimony in the Holmes trial plus his sworn declaration given prior to the hearing.

  • He recounted his feelings of distress that Holmes’ and Evans’ son would “spend his formative years” without his mother in prison. The surprise contained here is his testimony that “It’s my understanding that Ms. Holmes may be pregnant again.” Follow-up by reporters outside of court was not answered by either Dr. Rosendorff or Evans.
  • Rosendorff reaffirmed that he testified “truthfully and honestly” on Theranos. “At all times the government has encouraged me to tell the truth and nothing but the truth.” 
  • Regarding telling Evans that the prosecution made the situation at Theranos sound worse than it was, Rosendorff did not recall that. He reconfirmed that he didn’t believe the prosecution did that. Rather, the prosecution “was trying to paint an accurate picture of Elizabeth Holmes.” 
  • As to another Evans statement that Rosendorff regretted that the prosecutors made people at Theranos look bad, he countered that “to the extent that other people looked bad, it was because of their association with Elizabeth.”
  • Overall, “I don’t want to help Ms. Holmes. At this point she needs to pay her debt to society.”

For anyone who has been through a legal process, Dr. Rosendorff’s all-too-human reactions after the extraordinary strain of two trials as well as the destruction of his career, his wanting to square things with, and confront, the cause of years of tsuris is understandable. That, of course, was ill-advised in the extreme. One only hopes that he has family and friends to comfort, counsel, and help him in moving toward a satisfying future, perhaps well away from California. He can also reflect that the four counts for Holmes and 12 for Balwani were on fraud, proved by the testimony of others who certainly aren’t running to Casa Holmes banging on her door.

Barring any other defense rabbits out of hats, Holmes is scheduled to be sentenced by Judge Davila on her four counts on 18 November to begin paying her debt to society. Mercury News

Theranos’ Holmes sentencing now 18 November, defense wants to expand hearing scope; Balwani can’t join in

Elizabeth Holmes will be receiving a limited hearing concerning The Mysterious Visit of Dr. Adam Rosendorff and her defense is attempting to expand the hearing. But Sunny Balwani won’t be joining in. The highlights of their recent District Court activities under Judge Edward Davila:

  • Holmes’ sentencing on her four counts has been reset to 18 November at 10am PT. This is despite the limited hearing on 17 October to determine whether Adam Rosendorff was really regretful about his testimony (as the Holmes defense maintains) and what he said and did. 
  • In a separate order, Judge Davila rejected Balwani’s defense move to join in the hearing. Rosendorff’s statements to Evans “related exclusively to his testimony during Ms. Holmes’ trial, not Mr. Balwani’s trial,” and provide “no basis for Mr. Balwani to examine” Rosendorff at the hearing.
  • In a filing, Rosendorff’s legal team asked Judge Davila to quash a subpoena sent by Holmes’ defense to obtain additional information from Rosendorff to use in next week’s hearing. “(Holmes) has sought to transform that limited inquiry into a free-for-all in which Dr. Rosendorff would be required to search through more than a year’s worth of sensitive emails, text messages, and other communications with family, friends, and others so that (Holmes) can try, yet again, to make him look like a liar.”
  • In that filing, the legal team also provided explanations of Dr. Rosendorff’s actions on that day. Driving around the area, he saw that the Theranos building had been torn down and a residential development complex built in its place, and the Palo Alto Walgreens where the first pilot took place had been replaced by a rug store. He wanted to “forgive her for the pain and suffering her actions have caused in his life” and to express his condolences on the child growing up without a mother. Unfortunately, he didn’t stop there on Memory Lane but took a drive up to the well-known location of her rental house, where recollections do differ and increased his tsuris as a result. 

Mercury News, Palo Alto Online

Elizabeth Holmes’ three swings and a miss in overturning her trial verdict reveal a crafty strategy

Putting off the inevitable? Elizabeth Holmes’ legal team in the past two weeks has filed a flurry of motions in US District Court to have her verdict thrown out prior to sentencing on Monday 17 October.

  • The filing on 1 September sought to have the verdict of guilty on four counts [TTA 4 Jan] tossed with no new trial. This was denied in a preliminary ruling by Judge Edward Davila, stating that the verdict by the jury was supported by the evidence. A final ruling is pending arguments by the defense and prosecution.
  • The three filings on Tuesday 6 and Wednesday 7 September seek to have Judge Davila rule, on the basis of new evidence, for a new trial.

According to the Mercury News, the first motion on Wednesday, which states that arguments presented in the Sunny Balwani trial could have acquitted her, has little chance of being successful and in fact may be counterproductive in annoying the judge in that case–also Judge Davila. The second motion filed has a better shot, including on appeal. It centers on the “Brady rule” that requires prosecutors to disclose and turn over information that could be helpful to the defense. This was the database of patient test results that the prosecution failed to preserve. It didn’t factor in the trial, but could in the expected appeal. 

The filing on Tuesday is straight out of an episode of Perry Mason. Holmes’ partner (and father of her one-year old son) Billy Evans declared that former Theranos lab director Dr. Adam Rosendorff showed up at the door of her home in a ‘desperate and disheveled’ state. In the declaration, Evans stated that “He said he wants to help her. He said he feels guilty. He said he felt like he had done something wrong. He tried to answer the questions honestly but that the prosecutors tried to make everybody (in the company) look bad” and that prosecutors “made things sound worse than they were.” Legal experts interviewed by the Mercury News believe it’s not the remorse, but the pressure prosecutors may have put on the witness. A hearing on this would be extensive and involve both prosecution and defense. Of course, this neglects that during the trial, the defense attempted to rip apart Dr. Rosendorff’s testimony as self-serving and essentially incompetent.

Net-net, Elizabeth Holmes has a best-money-can-buy legal strategy designed to delay her serving time, if not negate it, on the four of 12 counts on which she was convicted.  Mercury News 1 Sept, Mercury News 10 Sept  Adam Rosendorff’s testimony during trial summarized in Chapters 1 and 2

Thursday news roundup: RVO Health JV combines Optum-RV Health consumer health assets; Holmes sentencing for Theranos fraud delayed

Red Ventures, Optum combine consumer savings, digital health coaching, education assets into RVO Health. Quietly announced via Moody’s Investor Services (PDF) and appearing on LinkedIn, this offloads media holding company Red Ventures’ RV Health, consisting of Healthline health news/education media (Healthline, Medical News Today, Psych Central, Greatist, and Bezzy), plus the Healthgrades doctor rating, FindCare doctor locator and PlateJoy meal planner services. Optum contributes their Perks prescription savings card, Store shopping service, and coaching platforms Real Appeal, Wellness Coaching, and QuitForLife. For Red Ventures, this moves 20% of their company earnings into the JV, leaving media such as Bankrate.com and CNET. For Optum, this expands their coaching and consumer savings capabilities into an established digital audience–Red Ventures claims 100 million monthly users of its health media and other services. For Red Ventures, it opens up new solutions available through Optum’s parent, UnitedHealth Group.

According to Moody’s analysts, this is part of Red Ventures’ de-leveraging: “Under the terms of the JV arrangement, in exchange for the contributed assets, RV received cash proceeds, which were used to pay down the term loan. UHG will consolidate the financials of RVO Health in its future financial statements.” Based on LinkedIn, it will be located in Charlotte, North Carolina. Unannounced is who will be managing RVO Health.  FierceHealthcare, Becker’s 

Ironically, Healthline Media’ main competitor, WebMD, bought the former data analytics part of Healthgrades, Mercury Healthcare, on 29 June (release).

Elizabeth Holmes gets a three-week extension on her freedom. Her sentencing, originally scheduled for 26 September at the US District Court, Northern District of California, in San Jose has been moved to 17 October. No reason was given by the court for the extension. Judge Edward Davila will be presiding over the sentencing on four of the original 11 Theranos wire fraud charges [TTA 4 Jan]. Each one of these charges carries a penalty of up to 20 years, but generally in financial fraud, sentences are carried out concurrently. Judge Davila, known as a tough sentencer according to the Mercury News (mercifully not paywalled) may be considering factors such as that Holmes was, after all the founder and CEO but that Theranos did not start as a scam, proceeding to fraud when the technology was oversold and financially started to go under; and that she is a mother of a child not yet out of diapers. (This Editor will add the smoke around Sunny Balwani’s emotional abuse.) She will also be in a Federal facility for women likely located not far from San Jose. It is expected that she will appeal the verdicts and the sentences.

There is also the Balwani Factor. Sunny Balwani was convicted on 12 wire fraud charges and as Theranos’ president, was depicted as the ‘enforcer’. That book, when thrown after Holmes’ sentencing, will not be a paperback. Although he will want to stock up on reading for his expected long stay in Club Fed. Also CBS News.

The Theranos Trials, ch. 2: bail tightened for Holmes, previewing the Balwani trial, and ‘The Dropout’

Ms. Holmes will have to pony up cash or property for her bail. Back in January, Judge Edward Davila of the US District Court ruled that Elizabeth Holmes would be free on a $500,000 bond secured by personal property. As is typical in federal cases of this type, this was based on her signature. The prosecution, perhaps being extra cautious on the possibility of flight during the time leading up to Holmes’ sentencing to 26 September, motioned Judge Davila to have it converted to cash or the equivalent in personal property. The defense agreed, perhaps mindful of the appeal deadline of 4 March with hearings in June.

Ms. Holmes does own property, though it is unknown what her remaining assets are since she never sold her Theranos holdings. Her partner and family can help her with the requirement. Mercury News (paywalled, but refresh)  The Trial, ch. 1

Meanwhile, Sunny Balwani’s trial in the same Federal District court and with Judge Davila starts next Wednesday 9 March with jury selection. Balwani was indicted in 2018 on the same charges as Holmes’ but his trial was severed from Holmes’ when her defense raised charges of abuse. Judge Davila is making moves to ensure the trial moves along and does not suffer from the juror problems experienced with the Holmes trial. Six alternate jurors will be seated versus five in the Holmes trial, where three jurors were lost at the start, raising the possibility of mistrial. Hours will be longer, 9am to 3pm Tuesdays, Wednesdays, and Fridays — including some Mondays and Thursdays. Concessions were made to Holmes with a young baby to attend to, which is not Balwani’s situation. Yahoo!News, KPIX5 San Francisco

And to those craving a true crime fiction take on l’affaire Theranos, Hulu is airing an eight-part series, entitled ‘The Dropout’, and starring Amanda Seyfried and a ‘wondrously vile’ Naveen Andrews. According to the WSJ review (free registration required) Seyfried gets the weird baritone and facial tics correctly (and correctly timed). But the reviewer notes that it’s hard to tell even from Seyfried’s excellent performance of a troubled girl/woman how she got so many older ‘sage’ men to believe in her Fraud Tech. Perhaps it was the fevered time in health tech, or as this Editor has said previously, fear of missing out or wanting to believe. We now have a generation of con artist millennials in the zeitgeist. The reviewer sums it well: “What the fraudsters also share is a counterfeit benevolence: Everyone is doing what they’re doing–and stealing what they’re stealing—for the benefit of mankind.” Yet there comes a time when the fever breaks, and the fraudsters get their comeuppance. For a lighter take, the NY Times article on clothing as reflective of character development on the show, Silicon Valley values, and Holmes’ ‘costuming’, is recommended.

The Theranos Trials, ch. 1: Holmes sentencing to be 26 September, three mistrial charges dropped, appeal dates set

Yesterday, Elizabeth Holmes’ next few months were outlined for her.

Her sentencing for the four charges on which she was convicted [TTA 4 Jan] will be 26 September by the trial judge, Judge Edward Davila. The delay in sentencing due to the ‘ongoing proceeding’ of the Sunny Balwani trial (scheduled to start 15 March) was revealed in a joint filing by the prosecution and Holmes’ defense. The filing confirmed that the prosecution would file a motion today (Friday) to dismiss the three deadlocked charges and that she will remain out of custody on a $500,000 bond secured by personal property, increased by request of the prosecution.

Judge Davila also set a deadline of 4 March for filing post-trial motions he will hear, such as an appeal by Holmes’ defense, with the hearing set for 16 June.  Fox News, Yahoo!News

Meanwhile, the Silicon Valley Home Town Newspaper, the Mercury News, waxed on how difficult life will be for Holmes’ baby after her incarceration, even in a minimum-security Federal prison (colloquially known as Club Fed). It is highly unlikely that she will face the extreme hardships of women facing hard time, imprisoned thousands of miles away from their families, or losing their children to foster care because there are no family caregivers. The Federal Bureau of Prisons tries to place low-risk prisoners like her within 500 miles of home. There is visitation time. Also cushioning this is Holmes’ own family and an affluent partner, Billy Evans, who has stayed by her side. Reportedly, they live with their son at a home rented on an estate in an affluent San Jose suburb, Woodside. But after the appeals (and money) are exhausted, the long sentence will likely be served, and then will come the tough part for the child growing up without a mother. 

Breaking–The Trial of Elizabeth Holmes, ch. 16: guilty on four charges of 11

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.

  1. Count one of conspiring to commit wire fraud against investors in Theranos between 2010 and 2015
  2. 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.
  3. 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.
  4. 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. 

Also CNBC and ABC News. Let the opinion slinging begin!

The Theranos Story, ch. 67: the Holmes/Balwani indictments stay, Holmes’ defense strategy fails

What Elizabeth Holmes needs is Perry Mason and a good scriptwriter from the 1960s. On Tuesday, Judge Edward Davila hit the ‘REJECT’ button on Holmes and ‘Sunny’ Balwani’s six motions since August to have the July indictments by a grand jury–a second indictment of 14 July, then a third and operative charging document of 28 July, dismissed. In a single compact, well-reasoned order, all six motions were denied for both cases:

  1. Pre-indictment delay. The first indictment was made in June 2018. The findings were that the delays were due to defense motions which were agreed to by the government and the judge, then the pandemic which suspended all in-person court proceedings and then became remote. The separate trial dates were moved to October 2020 and then at defense requests due to preparation and witness travel, moved to March 2021. 
  2. Statute of limitations on the fraud counts from investors. Even the definition of investor was narrowly defined here as securities purchasers. However, the broader interpretation, for example business partners such as Safeway [TTA 8 Oct] and board members, are also included as investors. 
  3. The indictments did not provide fair notice of the charges. Fair notice was found. Again, investors include business partners and even their board members who had promissory or convertible notes.
  4. Duplicity of the multiple counts was not found.
  5. Failure to omit doctors as victims of the Theranos scheme; doctors were omitted after the first indictment. The judge did find some lapses in prosecution language.
  6. All the dismissal requests for the first indictment applied to the later two.

It seems as if the defense, particularly Holmes’, threw a lot at the wall to lessen charges against their clients, and none of it stuck. One wonders how Holmes (who did marry a wealthy man) but particularly Balwani, are affording all this legal churn.

Unless there are publicly released findings on Holmes’ mental defect defense, alleging her inability to discern right from wrong (a/k/a insanity defense lite, Twinkie Defense II, High Anxiety) [TTA 18 Sept], hold off on popcorn purchases till next spring. San Jose Mercury News (which incorrectly reverses the analogy, sorry), Wall Street Journal, and the Register (UK), which helpfully provides a PDF of the court order.