Theranos’ denouement: Holmes and Balwani lose their appeals

March 5, 2025 | by

It’s been two years since Theranos was in the news. In April 2023, both Elizabeth Holmes and Ramesh ‘Sunny’ Balwani started serving their lengthy sentences for multiple charges of fraud (11 years, 3 months and 12 years, 9 months respectively, generally reduced to 85% of sentence). Last week, the three judges of the US Court of Appeals for the Ninth Circuit in San Francisco ruled to uphold both trials on investor fraud and the award of $452 million in restitution. The original verdicts were made in separate trials in the US District Court for the Northern District of California by Judge Edward Davila, but the appeals were considered together. [TTA 12 June 2024]

Neither appeal of the separate trials proved that any errors were significant enough, nor any testimony excluded, that would provide grounds to overturn the verdict.

The key issues centered on legal errors made by the District Court in allowing certain witnesses’ testimony to veer into ‘expert territory’, which is an error, but that “any error was harmless”. For instance, both defenses concentrated on Kingshuk Das, MD, the final Theranos lab director who worked there March 2016 to June 2018 and voided two years of Edison Lab tests. He testified about his experience at Theranos (fact witness) but in court was allowed to express his opinion as a scientist though he was not qualified by the court as an ‘expert witness’. That is a separate procedure that involves a special qualifications hearing (Daubert hearing) that did not take place with Dr. Das. The appeals panel found that Dr. Das should have been qualified as a expert witness and would have easily done so. Not doing so was an error that was not challenged by Holmes’ team at the time. But the court’s error was harmless. Dr. Das’ testimony on the Edison devices’ reliability and accuracy was supported by other testimony. The testimony regarding the device was one of many other misrepresentations made to investors that the jury had to review. 

Another issue was the CMS report on the labs, issued in January 2016 after much of the deception had already taken place. Holmes’ appeal team argued it should have been excluded as misleading to the jury. It was admitted into evidence as relevant to Holmes’ state of mind, intent, and knowledge about the labs’ conditions. The District Court did not “abuse its discretion” in permitting it for that limited purpose.

Holmes’ team also challenged the exclusion of statements from Sunny Balwani about “owning” the Theranos financial model.

Regarding restitution, the conclusion in the ruling summary was direct: “The panel concluded that any error was harmless because the district court’s factual findings compel the conclusion that the victims’ actual losses were equal to the total amount of their investments.”

The very tough decision was written by Judge Jacqueline H. Nguyen. Her fellow judges were Mary M. Schroeder and Ryan D. Nelson. The decision PDF is here. (It seems quite readable, but was not fully read by this Editor.)

Their chances for further appeal, either in the Ninth Circuit with a larger panel or by the US Supreme Court, as “very unlikely” for the first and “almost inconceivable” for the second, according to Stanford Law professor Robert Weisberg, quoted in the Mercury News.

This Editor recommends a review of the Reddit thread by mattschwink, “Annotating the 9th Circuit review of Holmes appeal”, which was (again) of great assistance in summarizing the appeal issues. He also confirmed for me that Sunny Balwani was moved from the limited facilities at Terminal Island FCI to Lompoc FCI, north of Santa Barbara and a stone’s throw from Vandenberg Space Force Base. Thank you, Matt, again! Press coverage has been minimal: Mercury News, AP, BBC

Immediately preceding the 9th Circuit Court’s decision was a People cover puff piece on Elizabeth Holmes. You may be able to read it all the way through without being amazed at her manipulation and lack of contrition on defrauding investors and patients. It doth make much of her claims that she was sexually abused not only at a college party but also in her years with Sunny Balwani, for which she is in therapy there. She is continuing to research and write patents for new healthcare inventions, presumably between law clerking, advocacy, teaching French, and weekend family visits. The Bryan FCI does not, even in her description, sound like ‘It’s Been Hell and Torture’. (Perhaps she’s seeking a Federal pardon?) More than likely, she will be enjoying the facilities and the visits until April 2032. And then there is the $452 million restitution to somehow scrape up.

No “equal time” exclusive interviews with Sunny Balwani, of course.

It strikes this Editor that, in the words that Orson Welles wrote for his character and that of Marlene Dietrich in ‘Touch of Evil’ that both Holmes’ and Balwani’s futures ‘are all used up’. That is, they will emerge from their respective prisons and live on, but as to any role in medical research, the parade will have long passed them by.

Postscript: The Mercury News published a rather anodyne interview with one of her prosecutors, John Bostic, who is now in private practice as a partner with Cooley in the Bay Area. It’s brief but interesting as to why he was chosen–he was a molecular biology major in college–which helped him to understand the technical aspects of Theranos and make them understandable to judge and jury. The strongest evidence against her? “There was evidence that Holmes knew some things that she was saying were not true, and there was also some evidence of document altering that I think was very easy for the jury to understand.” The one notable takeaway was that Silicon Valley and technology companies shouldn’t ‘fake it till they make it’, which is a lesson they’ve already learned.

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.  

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.