Breaking & updated–Time’s Up! Ninth Circuit Court to Elizabeth Holmes: proceed to Federal prison. District Court: surrender 30 May, pay $452M in restitution with Sunny.

May 17, 2023 | by

Breaking/Updated. With the bail pending appeal denied, it was back to Judge Davila and the US District Court to determine a new surrender date to a Federal penitentiary. That date is now 30 May. The Ninth Circuit Court of Appeals ruled Tuesday that Elizabeth Holmes’ appeal did not meet the standard for a further delay of her sentence–that it raised a substantial question of law or fact–and that her motion for bail pending appeal was denied. The ruling by the three-judge panel was brief and is here (PDF) with the pertinent text below:

Appellant’s motion for bail pending appeal (Docket Entry Nos. 36-38) is
denied. Appellant has not shown that: (1) the appeal raises a “substantial question”
of law or fact that is “fairly debatable,” and (2) if that question is decided in
appellant’s favor, the likely outcome is reversal, an order for a new trial on all
counts resulting in imprisonment, a sentence that includes no term of
imprisonment, or a sentence with a term of imprisonment less than time served
plus the expected duration of the appeal process. {USC and Hardy references snipped}

The existing briefing schedule remains in effect.

The appeal remains ongoing. The Ninth Circuit could require a new trial or a fresh sentence, but Holmes will be in prison serving time while the appeals court reviews it. Her chances of receiving any changes as a result of this appeal can be characterized as slim to none.

The defense requested self-surrender on 30 May (2 weeks) and Judge Davila granted it two hours later today (Wednesday). That motion is here with Judge Davila’s order is here. The judge had recommended the Federal Prison Camp (FPC) at Bryan, Texas, but a final assignment confirmation is to be confirmed by the Bureau of Prisons (BOP).  Mercury News

Also Tuesday, Judge Davila set the full amount of restitution to those defrauded by Theranos as $452 million. Both she and Sunny Balwani will be jointly liable for the restitution amount. It is higher than the $381 million the judge used for sentencing purposes [TTA 9 March] but this Editor notes that the AP stated that it is joint. There is an additional $25 million in promissory notes signed by Holmes which are part of a civil action [TTA 25 March]. How this restitution breaks out will require an examination of that restitution decision.

One wonders if Liz or Elizabeth (pictured above) will be the woman serving and paying off this amount, if one believes the incredible tale by Holmes in the New York Times two weeks ago. It’s a lot of bag lunches. Mercury News 

Theranos’ Holmes files appeal seeking to overturn ‘unjust’ conviction, ‘excessive’ sentence (updated)

April 19, 2023 | by | 2 Comments

With the clock ticking down on her freedom, the Holmes defense appeals. Elizabeth Holmes’ last-ditch appeal was filed on Monday in the Ninth Circuit US Court of Appeals. The defense filing claims that her conviction was ‘unjust’ and should be thrown out on multiple grounds, based on prosecutorial misrepresentations and actions by Judge Edward Davila in the presentation of evidence.

  • Holmes did not falsely represent the Theranos blood lab technology to investors–that ‘highly credentialed Theranos scientists told Holmes in real time the technology worked’ and that ‘Outsiders who reviewed the technology said that it worked’.

What the jury heard was that the company’s lab machines could only perform a few tests and even in those, had significant accuracy problems. Yet Holmes claimed in her testimony that the labs could perform multiple tests with high accuracy. She admitted falsifying documents with pharmaceutical company logos (Merck/Schering-Plough, Pfizer) on internal reports to add credence to these claims, which was documented in other testimony, notably from a former Schering-Plough employee. 

  • Judge Davila ‘flouted the Federal Rules of Evidence’ by allowing certain testimony to be heard and excluding other testimony, such as from Sunny Balwani during his pre-trial testimony that he was responsible for the fraudulent financial projections.

The appeal claims that the jury heard testimony from a supposed layman who was actually an expert witness, a federal regulator’s report on Theranos that was ‘unfairly prejudicial’ (CMS closing the lab in July 2016?), and that Theranos voided test results from its labs [see TTA 19 May 2016], confusing the jury in that it was an admission that the Theranos Edison labs didn’t work. Excluding Balwani’s testimony on the Theranos financials and projections given to investors was labeled abuse of judicial discretion.

“These errors—together with the exclusion of prior testimony from Holmes’ co-defendant taking sole responsibility for the company’s financial model—produced an unjust conviction,” the appeal reads.

The problem with this part of the appeal is that all these ‘misrepresentations’ were factual. Holmes as CEO was well acquainted with both the faulty labs and the financials. With that CEO title comes a sign that The Buck Stops Here.  

Plan B–the ‘excessive’ prison sentence. If the appeals court does not throw out the conviction, the appeal turns to over-sentencing. Returning to Judge Davila, he used the wrong legal standard about the number of victims and the amount of investor losses, using a “preponderance of evidence” standard instead of “clear and convincing”. The sentence was also excessive for a woman whom “unlike other white-collar defendants–neither sought nor gained any profit from the purported loss and was trying to improve patient health.” To this Editor’s recollection, Judge Davila bent over nearly backward to exclude from the trial the prosecutorial desire to highlight Holmes’ fame and high flying lifestyle, including expenses for air, hotel, and clothing.

The Ninth Circuit Court of Appeals will need to get eye prescriptions updated, since there are 10,000 pages of trial transcripts and 16,000 pages from other court records to review. This review may take months, a year–or more–and has only a small chance of success. Mercury News (may be paywalled)    Updated. The full appellant filing of 132 pages is located here.

To this Editor, who is not a lawyer nor plays one on TV, the effort to throw out the conviction is absurd. The prosecution piled high the fraud evidence to support each count. It was not difficult as there were a lot of investors. In the run-up to the trials, Judge Davila was meticulous and even-handed with both prosecution and defense. He was conservative in all aspects, from conduct during the trial to preventing over-aggressiveness by both sides in witness questioning to reining in the ‘Sunny as Svengali’ defense tack. Aside from this trial (but outside the appeal), there are other Theranos fraud cases at the Federal and state levels where awards were made to plaintiffs when the company still had money (see below; also Walgreens settled, see our Ch. 44). The appeals court might seriously consider the sentence issues. On the face of it, she was convicted of but four counts versus Balwani’s 12, yet is receiving very nearly the same length of sentence; however, these four counts were the heaviest (Ch. 16).  Though Judge Davila strictly considered the Federal sentencing guidelines and steered a middle course of 11.25 years between the 15 years (of 20 maximum) recommended by the prosecution and the nine years recommended by the probation officers, to be served concurrently, the appeals court may see an error, somewhere around losses–but it is unlikely, and even if there are errors, they may make no difference.

But to this Editor, one testimony says it all about the fraud. It was from Brian Grossman, then and now chief investment officer and CIO of PFM Health Sciences, a San Francisco firm that manages billions in public and private funds for early-stage healthcare investment. It is particularly damning. The firm invested $96 million based on the projections, the claims that it was a miniaturized lab capable of replacing thousands of feet of lab space into a box (the ‘steak’), of four-hour turnaround on lab results in retail, one hour in hospitals, and that a Stanford researcher of some prestige vetted it. From our article:

While Balwani nixed Grossman speaking with Walgreens and UnitedHealth, Channing Robertson of Stanford, who helped Holmes start Theranos, vetted their labs as extremely advanced technology–one with which competitors would spend years catching up–for a serious investor, sauce, potato, vegetables, and trimmings on that sizzling steak.

Unlike the picture the defense is painting of Balwani controlling Holmes, Grossman took care to note that Holmes, not Balwani, did most of the talking at the time. While he found the company highly secretive, he, unfortunately, discounted it. So in went PFM’s $96 million in February 2014, which included $2.2 million from a designated ‘friends and family fund’ which had investments from low-income people.

Three years later, PFM also won its own fraud case against Theranos, settling its lawsuit for about half–an estimated $40-50 million….The timing was good–it was while the company still had some money to claw back. 

Holmes is scheduled to surrender herself to the US Bureau of Prisons (BOP) on 27 April, less than two weeks from now. She will not be able to remain free while this appeal is pending, unless the defense files with the Ninth Circuit Court for a delay (expected) and the court agrees to stay the surrender for some time. A similar appeal was denied for Sunny Balwani, who surrendered on 20 April, a month later than his original date, to Terminal Island and will be held there indefinitely. Another major issue for the Balwani defense and being appealed is his assignment to the scandal-plagued Atlanta Federal Penitentiary. Judge Davila recommended that Holmes serve her sentence at Bryan, Texas, but the BOP has not confirmed that.

Still pending are the restitutions to be made by both Holmes and Balwani, separately, neither of whom have the $381 million (Judge Davila’s calculation for Holmes) or the $878 million that the prosecution has tallied. TTA 22 March

This Editor would like to give a hat tip with flourishes and trumpets to the moderator of the r/Theranos Reddit sub forum, mattshwink, and poster OldSchoolCSci, for clarification on many legal points of my analysis.  

The Theranos Two lose their fight for freedom on appeal as Federal prison surrender dates near

April 12, 2023 | by

It was not a happy Easter weekend for either Elizabeth Holmes or Sunny Balwani. 

Late on Monday, Judge Edward Davila of the Federal Court, Northern District of California, ruled that Elizabeth Holmes would not be able to remain free on bail while appealing her trial and sentence. In his 11-page ruling, he dismissed the defense claims that evidence around Theranos’ technology was not presented to the jury and affirmed that the key charges were related to financial fraud, the company’s financial status, and the false claim that the technology was validated by pharmaceutical companies. “Whether the jury heard more or less evidence that tended to show the accuracy and reliability of Theranos technology does not diminish the evidence the jury heard of other misrepresentations Ms. Holmes had made to investors.” He also noted that her defense had not introduced anything to make a reversal of the decision or a new trial likely, such as new evidence.

It’s anticipated that Holmes’ defense will quickly file an appeal of Judge Davila’s decision to the 9th Circuit Court of Appeals. However, this is the same court that denied Sunny Balwani’s same appeal last Friday. Holmes’ surrender to Federal prison is scheduled for 2pm on 27 April, a little over two weeks from now. She will be serving her 11+ year sentence at the Federal prison in Bryan, Texas unless the Bureau of Prisons changes this recommendation to another Federal prison. 

Her defense has filed multiple appeals of Judge Davila’s rulings and the jury’s guilty verdict on four counts of fraud of 11 on various grounds, including errors made during the trial [TTA 15 Dec 22], with the goal of securing a new trial. Those appeals are with the 9th Circuit and could go on for years. What it now looks like is that Holmes will be serving her time in Texas while these appeals go through, not free or under house arrest. Serving time will not be easy for her in a cell with three other women and duties such as stuffing bag lunches. Mercury News (paywalled), CBS Bay Area, The Hill, TechCrunch

Sunny Balwani had a long Good Friday, receiving the bad news late Thursday that the 9th Circuit Court of Appeals denied his bid to remain free while on appeal. The court denied the appeal on the basis that Balwani had not raised any substantial questions of law or new evidence resulting in a reversal on some of the charges that would shorten his sentence. He was found guilty on all 12 counts and was sentenced to 12 years and nine months. Balwani’s lawyers now have requested from Judge Davila a new surrender date of 20 April, stating that their client needs time to get his “affairs in order”. His original surrender date was 16 March, delayed by the appeal. Where Balwani will serve his sentence is still up in the air. Judge Davila had recommended the Federal facility at Lompoc in Santa Barbara County, but the Bureau of Prisons recommended the Atlanta penitentiary which has been dogged by years of scandals, security lapses, and prisoner abuse allegations. His defense is appealing this assignment. As of now, Balwani will surrender to Terminal Island near San Pedro in Southern California in a little over a week. Mercury News (paywalled), CBS News Bay Area 

Some reports have indicated that Judge Davila has finished with all his rulings, but what is still not finalized is the restitution both Holmes and Balwani must make to investors. Those rulings are scheduled for this month. The amounts being debated are largely theoretical as neither Holmes nor Balwani has much in the way of assets left. TTA 22 March

Theranos update: Holmes, Balwani reprieved on surrender–for now–and Theranos’ creditors try to claw back $25M

March 22, 2023 | by

Both Elizabeth Holmes and Sunny Balwani enter the final stages of legal actions before their respective trips to Club Fed and what used to be called the ‘rock pile’. Between late last week and today, one of Theranos’ late leaders got some additional days, weeks, perhaps a month of freedom, while the other is left hanging until April. Surprisingly, Theranos, the late company, is not actually dead as the proverbial doornail, at least as creditors are concerned–it’s as simple as ABC.

  • Sunny Balwani’s surrender date, set for 2 pm PT Thursday 16 March, was delayed hours before his surrender when lawyers filed an appeal of Judge Davila’s 9 March ruling denying his request to remain free while appealing his conviction. It automatically triggered the stay while the Ninth Circuit Court of Appeals considers the appeal. Timing on this is not known.
  • Balwani’s defense also appealed to change the Bureau of Prisons’ ruling sending him to the Atlanta Federal penitentiary. This prison has been dogged by scandals, security lapses, and prisoner abuse allegations. As of now, Balwani’s Federal prison will be Terminal Island near San Pedro, about 30 miles from Los Angeles. Judge Davila’s recommendation was Lompoc in Santa Barbara county, about 250 miles from San Jose. It is not known why the BOP declined the judge’s recommendation, nor why the reassignment to Terminal Island, which once hosted Al Capone. CBS News
  • On Friday, Holmes was in court to delay her 27 April surrender to the Bryan, Texas Federal prison, pending her appeals. Legal observers believe this is unlikely now based on Judge Davila’s decision on Sunny Balwani.
  • Before the court session, a man in the gallery attempted to serve her with a paper demanding repayment of two overdue promissory notes she signed while CEO. The now-disclosed December suit by Theranos ABC, an entity set up by creditors, was filed in Superior Court of California in Santa Clara County. It tagged her with repayment of three notes totaling over $25 million, the first two overdue:

August 2011 in the amount of $9,159,333.65, originally due 2016 and extended by the board for five years, now overdue 
December 2011 in the amount of $7,578,575.52, originally due 2016 and extended by the board for five years, now overdue
December 2013 in the amount of $9,129,991.10, due 2018, extended for five years and due in December

According to the complaint, “Theranos ABC has demanded payment of Promissory Note #1 and Promissory Note #2 from Holmes, but Holmes has failed to pay any amounts on account of Promissory Note.”  CNBC, Guardian

  • This would be in addition to whatever is decided on restitution. As we noted on 9 March, “the prosecution is trying to establish that Holmes’ restitution should be in the vicinity of $878 million, up from an earlier estimate of $804 million. This contrasts with the $381 million that Judge Davila used for sentencing purposes, but under Federal law the guidelines for the latter differ. The prosecution is calculating the full loss of the investors “directly harmed” by Holmes’ criminal conduct.” However, Holmes’ defense is arguing that she actually owes nothing because 1) her crimes didn’t cause the collapse of Theranos and 2) that the prosecution had not shown that the investors “relied on the offense conduct when deciding to invest.” Both this and the appeal will be decided by Judge Davila in early April.   Fox News

Whether Holmes or Balwani will be able to pay even small amounts to the creditors or those who suffered losses due to the Theranos fraud remains doubtful. Holmes is not married to her fiance, Billy Evans, and apparently is being supported by him and her family. Balwani may have some funds, but not $900 million. 

Did Theranos collapse because of Holmes’ criminal conduct? Holmes says no–and no to investors’ claims

March 9, 2023 | by

Restitution–and Holmes’ ability to pay–may be similar to squeezing blood out of the rock at left. In the latest filing from Elizabeth Holmes’ defense, they claim that 1) her crimes didn’t cause the collapse of Theranos and 2) that the prosecution had not shown that the investors “relied on the offense conduct when deciding to invest.” Even Judge Edward Davila of the US District Court had said in a January ruling that 1) was not established by the prosecution.

What the prosecution is trying to establish is that Holmes’ restitution should be in the vicinity of $878 million, up from an earlier estimate of $804 million. This contrasts with the $381 million that Judge Davila used for sentencing purposes, but under Federal law the guidelines for the latter differ. The prosecution is calculating the full loss of the investors “directly harmed” by Holmes’ criminal conduct, which is why (2) is important to the defense.

The next date to watch for is 17 March, where Judge Davila will rule on the restitution. He will evaluate submissions by those defrauded of their investment, with an order then specifying how much goes to which investors in proportion to their loss, covered by whatever she owns and from future earnings. The number on what’s owed may be academic. The defense has already stated that Holmes is, to put it bluntly, broke. In a court filing last month, Holmes said she “has essentially no assets of meaningful value” though she continues to work on patents. 

Holmes and her defense continue to fight to prevent her surrender and remain free until her appeals are exhausted. The second date of note is 27 April–her surrender date to the Federal prison in Bryan, Texas. Sunny Balwani’s surrender date is a month earlier on 15 March to the Federal prison in Lompoc, California. Like Holmes, his defense has filed motions for his freedom through his appeals. Balwani also has prosecutors pressing for restitution around $900 million and likely he has not much left in the way of assets either. [TTA 22 Feb]  Havasu News (from paywalled Mercury News)

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

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

January 10, 2023 | by

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)

December 15, 2022 | by

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

December 8, 2022 | by

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

November 18, 2022 | by

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)

November 17, 2022 | by

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

October 26, 2022 | by

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”

October 20, 2022 | by

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

October 13, 2022 | by

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

September 16, 2022 | by

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

July 14, 2022 | by

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.