Theranos Summer Rerun: Sunny Balwani trial verdict countdown analysis (updated)

Our last update on the Summer Rerun of the Theranos trial, a/k/a Rock and Hard Place or Blood Out Of A Stone, was that the defense rested.  It was definitely souffle-grade–Balwani’s late entry to the company, investment of his own millions, and never selling a share. There is no breathless coverage of the trial–no sensational new revelations of cheated investors or psychological violence claims, just near-identical charges (12) mostly of wire fraud with the prosecution methodically setting up Balwani with full knowledge of the cheating with the labs and defrauding of investors. [TTA 23 Mar, 16 June], 

Now it’s up to the jury. The betting is that there will be a verdict next week. It’s expected that the jury will 1) name a foreman and 2) methodically go through the pile of evidence, sending questions to the judge for clarifications on these complex legal issues when needed. The deliberations will be over the July 4th holiday giving a small delay. Will they heap guilt on Balwani’s head with multiple or nearly all counts, or keep them to low single digits as they did with Elizabeth Holmes? We will likely know sooner rather than later. If you want some informative analysis by an attorney, you’ll have to go to YouTube for this video by “Lawyer You Know” Pete Sargos. There’s also a light update on Yahoo Finance.

Update 29 June: The jury has sent two notes back to the court so far. On Day Three, Tuesday afternoon, the jury sent a note asking if the jury cannot agree on a specific count, is there an option other than guilty or not guilty. On Wednesday morning, another note was sent, contents unknown. There are ten wire fraud charges and two counts of conspiracy to commit wire fraud.  NBC Bay Area  This part of the article will be updated as it’s reported until a verdict is reached.

TTA’s Where Did Spring Go?: Meta Pixel captures personal health info, sending to Facebook; Oracle’s remaking of Cerner; Balwani’s Theranos trial nears verdict; data breaches skyrocket, more!

 

 

Weekly Update

Probably the most important and developing story of today is the misuse of Meta Pixel ad tracking code, its capture of personal health information from major health system sites, and sending it straight to Facebook. A corollary story is the sharp rise of health data breaches, now in the millions. Telemental Cerebral’s legal miseries pile up, Sunny Balwani of Theranos awaits legal verdict, and successful fundings a bit thin on ground. And will there even be a Cerner left after Oracle’s through with it? (The skepticism around tech fixes to Big Health Problems continues.)

Breaking: Hospitals sending sensitive patient information to Facebook through website ‘Meta Pixel’ ad tracker–study (Next week’s Big Story)
Thursday news roundup: FTC now investigating Cerebral, Balwani’s Theranos trial rests at last, Proscia pathology AI $37M Series C, health data breaches pile up (Hackermania continues to run wild)
Wednesday news roundup: Oracle scrutinizing outside vendors, cloud change coming for Cerner EHRs, audio-only telehealth can continue after PHE–HHS, Proximie connected surgery raises $80M (UK) (Will there even be a Cerner left?)
Oracle’s Big Healthcare Transformation: it’s all about ‘better information’ (sigh) (updated) (A misguided trust in tech fixes?)

Oracle’s close on their Cerner buy led the news, with the usual claims that the combined companies will ‘redefine the future of healthcare.’ For those who’ve heard that song before, the business of healthcare continues, with Apple, Amwell, Connected Health (UK), a metabolic tracker out of India, and the biggest US data breach of the year so far. Cigna tracks why loneliness is peaking, while the less lonely join class-action lawsuits against Teladoc. And considering SPACs to go public the easy way? Fuggedaboutit!

Weekend review: FDA clears Apple Watch ‘AFib History’, OS9 adds health features; Amwell’s new CMO; 2M records breached at New England provider, largest this year (Apple reinforces Watch for health)
Remote health monitoring a winning strategy…for sports? (Metabolic tracking is the angle)
Thursday news roundup: dimming SPACs, hospital-at-home pilots in DFW, Connected Health debuts bespoke home care services configurator in NIR (The decline in SPAC ‘funny money’)
A sneak peek at Oracle’s plans for healthcare prior to 9 June’s ‘The Future of Healthcare’ live (Without listening to Tony Blair! And nary a mention of DOD and VA.)
Wednesday AM roundup all about money: $28B Oracle-Cerner closes today, 9 June strategy talk; Teladoc class-action lawsuits begin; Cigna’s look at loneliness (Money and the loss of)

Last weekend was Britain’s Platinum Jubilee Weekend, which made the bank holiday very special indeed. And from the US, much respect. A potpourri of news including the likely closing of Oracle’s Cerner buy (it will, on 8 June) and the Homeward Bound second act of several Livongo veterans.

God Save The Queen on her unprecedented 70 years of service!

Thursday news roundup: bet on Oracle-Cerner closing next week, VA EHR progress reports mandated, Homeward-RiteAid rural care, Medtronic-DaVita kidney JV, Withings reenters RPM, Lightbeam buys Jvion AI (Potpourri of activity)
CVS, Walmart refuse Cerebral, Done Health controlled substance prescriptions via telehealth; Cerebral CEO replaced (Trouble in telementalhealth-land)

A little bit of everything as we arrive at the unofficial start of summer. Walmart expands its drone delivery, AWS gains a big one in the Healthcare Cloud Wars, and Verizon publishes its latest roundup on IT breaches. Oracle-Cerner moves a little closer to full international approval. There’s an Aging2.0 challenge, a substantial RPM raise, and NY seniors get robots. And to white coat or not on a telehealth consult.

Thursday’s short takes: Walmart’s delivery drones expand, AWS lands Geisinger for AI and cloud, UHG-Kaia Health partner for virtual MSK therapy (Droning on and the Cloud Wars accelerate)
ElliQ companion robot, NYSOFA partner for NY older adult assistance (Will they like it?)
Wednesday news roundup: Oracle-Cerner reportedly OK’d by EU, VitalTech RPM raises $14.1 M, Aging 2.0 interoperability challenge, what do rough times mean for investors and startups, employees cause 39% of healthcare IT breaches (Breaches multiply, and Lisa Suennen’s take on what to expect from the current financial craziness)
To white coat, or not to white coat? That is the telehealth doctor question. (A short, refreshing read through the history of the medical white coat)

Our strange May continues with a lot of legal activity, including the tale of one doctor who side gigged as Dr. Mabuse, Master Cybercriminal. Telehealth continues a wobbly path, with claims down along with Amwell’s performance. And Cerner has more problems, this time with DOD and VA. But a new Perspective gives us hope that the UK can save more than £14 bn through TEC–and there’s always self-driving cars for med delivery!  

Thursday legal news roundup: Oscar Health accused of IPO securities fraud; Venezuelan cardiologist moonlights as cybercriminal, faces slammer; Change Healthcare sues former employee now at Olive AI (When lawsuit news outstrips M&A, it’s not good)
Cerner EHR implementation with both DOD and VA running into interoperability, other problems: Federal audit (More process problems being sorted out in public)
Perspectives: Where next for technology-enabled care after 2025? (Is £14bn in savings over the next 10 years an underestimate?)
News roundup: telehealth claims drop 9% in February; Amwell’s good news, bad news Q1; tech-enabled practice Crossover Health growing; NowRx and Hyundai test semi-self-driving delivery (One hopes those Hyundai Ionics drive better than telehealth’s performing)

May’s ups and downs, with the stock market drowning out healthcare. Cerebral confirmed their Federal investigation for prescribing practices, putting a bucket of cold water on this hot sector. But good news pokes its head out, with a Johns Hopkins study that telehealth is benefiting the underserved and urban, not just the affluent and young. More good news with a telecare pioneer receiving the top award for UK enterprise.

Alertacall receives Queen’s Award For Enterprise: Innovation (An outstanding recognition for a telecare pioneer in this Platinum Jubilee Year)
CMS telehealth pandemic waivers boosted usage among disadvantaged, urban patients (Tide lifting all boats, and that’s good)
DOJ investigates telemental Cerebral on over-prescribing of controlled medications (A flashing warning sign for investors)


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Thursday news roundup: FTC now investigating Cerebral, Balwani’s Theranos trial rests at last, Proscia pathology AI $37M Series C, health data breaches pile up

Telemental health Cerebral’s miseries pile on. The Federal Trade Commission (FTC) is now investigating Cerebral on deceptive advertising and marketing practices. The Wall Street Journal (may be paywalled) reviewed the 1 June letter sent to the company. The letter requests the usual preservation of documents and asks ‘dozens of questions’ related to their business. Of particular interest to the FTC is the ‘negative option’ practice that continues the subscription fee unless the subscriber takes positive action to cancel it. Subscribers have complained that Cerebral did not cancel their subscriptions after repeated attempts to do so and did not refund their money. Reuters, FierceHealthcare

Also of interest to the FTC will be the dodgy advertising claims about ADHD and obesity which ran on TikTok and Instagram [TTA 10 May]. The WSJ reported that their ad spend topped $65 million for this year–$13 million on TikTok alone from January to May this year, making Cerebral the third-largest advertiser behind HBO and Amazon, according to research firm Pathmatics.

The FTC action follows the Department of Justice (DOJ) investigation of their prescribing of controlled (Schedule 2, high potential for abuse) substances such as Adderall and Xanax, CVS and Walmart refusing their prescriptions, the unceremonious booting of the CEO and co-founder, and a wrongful dismissal lawsuit by a former VP of product and engineering, Matthew Truebe. Certainly, its investors led by SoftBank, which raised $300 million in December less than six months after a raise of $127 million, are unhappy at watching their $4.8 billion baby crash and burn.

The second “rerun” Theranos trial of Sunny Balwani rests. This much-muted trial is winding towards its close. Receiving much less breathless and near-sensational coverage than Elizabeth Holmes’, Theranos president Balwani was tried in the same San Jose Federal district court, with the same prosecutor (Robert Leach), just about the same charges (12 counts of wire fraud), and Judge Davila presiding. Holmes was convicted and her sentencing is scheduled for September.

The prosecution rested on 20 May and the defense on 9 June. The trial took some delays due to at least two jurors falling ill from Covid. The defense strategy rested on Holmes’ founding and operating the company without Balwani for a few years and that he never sold his shares, making him as victimized as any ordinary investor. The prosecution is relying on how close Holmes and Balwani were, that he had great power at Theranos–and used it, plus in his position was well aware of the problems with the lab machines and deliberately sought to defraud investors by covering it up. Unsurprisingly, Holmes did not testify at his trial, although she was a looming presence at his as he was somewhat at hers, especially in her testimony about their relationship. Closing arguments took place on Tuesday (14 June) and the jury will be charged after their conclusion. NBC Bay Area, New York Post, Wall Street Journal

Happier news comes from Proscia, a pathology software company, funding a $37 million Series C. Highline Capital Management, Triangle Peak Partners, and Alpha Intelligence Capital led the round along with participation from five earlier investors. Their total funding is up to $72 million. Their AI-enabled Concentriq platform combines “enterprise scalability with a broad portfolio of AI applications to accelerate breakthroughs and unlock clinical insights that advance precision medicine.” Clients include 10 of the top 20 pharmaceutical companies as well as the Joint Pathology Center, Proscia release, Becker’s 

Adding to the tally of healthcare data breaches are several this week. The year-to-date winner, of course, are the 2 million at Shields Health Care Group in Massachusetts [TTA 10 June], but this week, reports have been breaking out like late spring roses:

  •  A clinical guidance software vendor’s breach reported 10 June has exposed the protected health information (PHI) of patients at Omaha, Nebraska-based CHI Health and Sioux Falls, South Dakota based Avera Health. Avera has about 900 exposed patients, but the number at CHI is not yet known. MCG Health is the vendor. Becker’s
  • Yuma (Ariz.) Regional Medical Center reported an April ransomware attack that while short in duration, exposed PHI of 700,000 patients. An unauthorized user removed files from the hospital’s system that included patient health information such as names, social security numbers, health insurance information, and limited medical information relating to care. The hospital went offline until it was resolved, including reporting to law enforcement. Becker’s, Healthcare Dive
  • UChicago Medicine had its employee accounts hacked in March by an unauthorized user. It exposed about 2,500 patient records that included patient first and last names, social security numbers, health information, legacy Medicare beneficiary identification numbers, health insurance policy numbers, and driver’s license numbers. Becker’s
  • And Kaiser Foundation Health Plan of Washington had about 70,000 patient PHIs exposed on 5 April when an unauthorized user gained access to one employee’s emails with information on patient first and last names, dates of service, laboratory test information, and medical record numbers.

Short, but certainly not sweet, and expensive.

The Theranos Trials, ch. 3: Sunny and Elizabeth were in it together, all the way

“Partners in everything, including their crimes” was part of the prosecution’s opening statement in today’s start of Ramesh ‘Sunny’ Balwani’s trial. Delayed by a week by a Covid-19 exposure, the former chief operating officer of Theranos is on trial for the same charges as Elizabeth Holmes–10 counts of wire fraud and two counts of conspiracy to commit wire fraud. Their trials were severed when her defense charged him with emotional abuse. The trial is taking place in the same US District Court in San Jose, with Judge Edward Davila and with the same prosecution team, for the next 12 weeks.

Prosecutor Robert Leach brought Holmes into the picture repeatedly with their personal and professional partnership, adding that while Balwani “skewed the medical decisions patients were making and put them at risk”, he laid the financial and technical fakery at both their feet. “The defendant and Holmes knew the rosy falsehoods that they were telling investors were contrary to the reality within Theranos.”  Leach also contended that Balwani had absolutely no background in healthcare technology and was unqualified to lead the company.

His defense, which is led by Stephen Cazares of Orrick–a former Federal prosecutor and enforcement attorney at the SEC–contends that Balwani was not a founder, nor a controlling executive, or had final decision-making authority–Holmes was. If anything, Balwani was blinded by his belief in the technology, to the extent of putting up his own $10 million to guarantee a loan for Theranos before investing another $5 million for a stake in the company. And others, such as Safeway and Walgreens, had reviewed and invested in Theranos. Like Holmes, he never cashed in his stake.

A new piece of the defense is quoted from the very thorough article in tech website Protocol: “…the government was to blame for not doing its due diligence. Theranos handed over a hard drive to the Department of Justice with encrypted test data for more than 9 million Theranos patients back in 2018. The DOJ didn’t analyze that database, and therefore, Cazares argued, the government cannot definitively say how well or not well Theranos’ technology worked.” It’s an interesting limb but given the Holmes convictions, feels to this Editor like one that’s easily sawed off.

The first witness called was Erika Cheung, the Theranos lab associate who became a whistleblower. Court ended before she got to any statements, but in the Holmes trial she stated the Edison lab results were about as accurate as a coin toss, which was devastating. More to come through Thursday. The Guardian, NBC Bay Area, and Mercury News (annoyingly paywalled).

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!

Theranos, The Trial of Elizabeth Holmes closes, ch. 15: she believed! in the technology!

The defense returned to their closing arguments on Friday. According to lead defense attorney Kevin Downey, not only did Holmes appoint a stellar board, but also the evidence showed that she believed intensely in the Theranos technology changing the world.

  • Holmes stayed till the end trying to save the company–because she believed in improving healthcare
  • She continued to improve the company and the technology, but after all that she didn’t realize…
  • …that the labs had problems until March 2016, when her very last lab director, Kingshuk Das, MD, invalidated 60,000 lab tests made on Theranos labs in 2014-2015.
    • This happened only after CMS sent a deficiency report notice to Dr. Das’ predecessor with the subject line  “CONDITION LEVEL DEFICIENCIES – IMMEDIATE JEOPARDY.” And that lab directors and techs had already told Holmes about problems with the Edison labs.
  • The proof of her sincerity? If she committed fraud, she would have sold her stock while it still had value, and jumped ship like a scared rat!

Interestingly, Downey made no mention of Sunny Balwani, except that Holmes fired him in 2016. No mention of all the time spent in her testimony depicting Balwani as a mentally and physically abusive Svengali, which led Holmes-as-Trilby to not be in control of herself as CEO, even after he departed.

The prosecution returned for rebuttals. John Bostic countered the defense claim of Holmes’ belief with “the disease that plagued Theranos wasn’t a lack of effort, it was a lack of honesty.” “We see a CEO of a company who was so desperate for the company to succeed, so afraid of failure, that she was willing to do anything.” Bostic also reminded the jury that they needed to put Holmes’ claims of emotional abuse by Balwani aside since there was “no evidence connecting the allegations of abuse with the actual charged conduct.” 

Judge Edward Davila, in winding up 14 weeks of trial, then charged the jury to avoid consideration of or speculation on the abuse, and to disregard both public opinion and Holmes’ place in society. They could consider whether Holmes had a “good faith belief” in the truth of her statements. The jury will return Monday morning to start deliberations. The fraud charges include conspiracy between Holmes and Balwani against patients and investors. Two more charges are related to patients receiving erroneous test results on HIV infection and prostate cancer. One is on fraudulent marketing and advertising. Six more charges are about investor fraud. 

AP, Mercury News (paywall–refresh to read)

Because it’s the weekend, your Editor will include two extra articles. The Verge article reads something like a screed against our legal system valuing money fraud over patient medical fraud. The NY Times article is on the latest Holmes makeover. During the trial, she changed from hard-edged, black turtleneck, red-lipsticked Lady Steve Jobs to suburban-junior-manager-working mom in off the rack wrinkled skirts, peachy pink lip color with curled but messy hair, carrying an inexpensive baby bag. All calculated by her defense to create an illusion of innocence and, this Editor would add, incapability of any dastardly acts, such as financial and medical fraud.

To be continued…

TTA’s earlier coverage: Chapter 14, Chapter 13Chapter 12Chapter 11Chapter 10, (10-13 recap the Holmes testimony); Chapter 9Chapter 8Chapter 7Chapter 6Chapter 5Chapter 4 (w/comment from Malcolm Fisk)Chapter 3Chapter 2Chapter 1

Theranos, The Trial of Elizabeth Holmes closes, ch. 14: was it fraud over business failure–or building a company, not a criminal enterprise?

The flat spin starts as the trial winds up. On Thursday, the prosecution presented its closing argument to the jury, and the defense began its summary which will finish on Friday.

The key prosecution points made by Assistant US Attorney Jeffrey Schenk were:

  • Elizabeth Holmes’ decisions were all hers. She first defrauded investors, then deceived patients.
  • “She chose fraud over business failure. She chose to be dishonest with investors and with patients.”
  • Elizabeth Holmes was not a young, naive CEO. She had headed Theranos for nearly a decade. But it was ‘a house of cards.’
  • A decision about Sunny Balwani’s abuse is not pertinent to the case and does not have to be made to reach a verdict. 
  • That has to be made on whether this was deliberate investor and patient fraud.“Ms. Holmes knew these honest statements would not have led to any revenue,” Schenk said. “She chose a different path.”

Mr. Schenk reviewed the testimony of all 29 witnesses and statements made by Holmes herself, with the specific aim of refuting every defense point made about her not being aware that the technology didn’t work, or that she was not in charge of the marketing, advertising, business development, partnerships, and finances. He put a very fine and obvious point on it with a chart for the jury entitled “Knowledge of falsity,” which listed her false statements alongside exhibits.

Enter the defense, represented by Kevin Downey. He started by telling the jurors that they had a high burden of proof in finding Holmes guilty “beyond a reasonable doubt”and that crucial information was left out of the government’s case. It was ‘incomplete’ and that their opinion would change with his review of the evidence. Holmes acted ‘in good faith’. In that review, Downey provided illustrations of 11 successful partnerships Theranos had with drug companies. As to the board, he pointed out that they were not cronies who one would expect in a fraudulent enterprise; “She appointed these people, an incredibly illustrious group of people.”

The defense continues on Friday. The jury will be given instructions after the defense concludes, and it’s expected they will have over the holidays to deliberate. MercuryNews (paywalled but refresh repeatedly to view), CNBC, The Guardian

To be continued….

TTA’s earlier coverage: Chapter 13, Chapter 12Chapter 11Chapter 10, (10-13 recap the Holmes testimony); Chapter 9Chapter 8Chapter 7Chapter 6Chapter 5Chapter 4 (w/comment from Malcolm Fisk)Chapter 3Chapter 2Chapter 1

Theranos, The Trial of Elizabeth Holmes, ch. 13: a crescendo of ‘I don’t knows’ and ‘I don’t remembers’…and the defense rests! (updated)

Elizabeth Holmes returned to the stand in her own defense today, continuing with cross-examination by the prosecution’s Robert Leach. From the coverage published so far of six hours of questioning, Holmes has done everything to deny key statements she made multiple times to writers and investors, just short of ‘taking the Fifth’ (Amendment, which is a Constitutional guard against self-incrimination). 

Starting with the now-infamous 2014 Fortune cover story authored by Roger Parloff, Holmes admitted to Leach that the claim of 200 tests using the equally infamous nanotainers was incorrect, but used what marketers call ‘weasel words’: “I believe that now.” Did she not believe that then? She then proceeded not to remember that she forwarded the article via email to investors on 12 June 2014. “I think I could have handled those communications differently.” 

More not knowing or remembering. Were Theranos labs being used on military medevacs, as witnesses from Walgreens and Safeway, among others, have testified? Was Walgreens told of difficulties with the Theranos labs? Did or didn’t she dismiss concerns raised by Erika Cheung and Tyler Shultz to John Carreyrou of the WSJ as coming from disgruntled employees? Did she present a 2015 revenue projection of nearly $1 billion to investors, especially as the internal estimate was much lower and there were no contracts with pharma companies? Did she listen to her lab directors about problems with the tests?

But regrets, she had a few. The WSJ investigation, for instance. And slapping pharma company logos on Theranos reports.

It all comes down to who the jury believes. The prosecution either will close today or tomorrow (Wednesday). The defense will return to wrap up, either with Holmes or with expert witnesses such as Mindy Mechanic and, possibly, others. The defense will return to the 3 Ds–diffusion, deflection, and diminished capacity. The luridly resonant theme of Sunny Balwani as an abusive Svengali, which led her to be not in control of herself even after he departed, will be the coda. The Guardian, CNBC

Wednesday Update. Boy, was your Editor wrong. The defense rested today (Wednesday).

  • Dr. Mindy Mechanic, the defense’ expert on relationship violence, will not be testifying about the nature of the Balwani-Holmes relationship. By not calling Dr. Mechanic, the prosecution cannot call their psychiatrists who also spoke with the defendants. For his part, Balwani has consistently defended himself from these charges of relationship abuse. The prosecution is also seeking to strike Holmes’ testimony of being sexually assaulted while a freshman at Stanford as now being irrelevant to the case, but it is hard for a jury to unhear it.
  • Holmes was, of course, the star witness in her own defense, joined in minor roles by paralegal Trent Middleton from Williams & Connolly, Holmes’ law firm, who summarized evidence in the case, then former Theranos board member Fabrizio Bonanni, who testified that Holmes attempted to remedy Theranos’ problems–but only after it came under regulatory scrutiny, which was late in the game. He had been offered the COO position but declined as ‘too old for that’.
  • Holmes returned in her final testimony to Balwani. Sunny, she said, was her most important advisor though she was, admittedly, the decision-maker. He was volatile. She “tried not to ignite” Balwani in emails and frequent texts. “Sunny would often blow off steam or vent through text,” Holmes said. “I was trying to be supportive.”
  • Returning to tugging on the heartstrings of the four women on the jury, she stated that breaking up with him was a ‘process’. He’d just show up at places she would go, like church and The Dish near Stanford. 
  • Holmes explicitly denied ever trying to mislead investors, Her own summary was restating her original ‘healthcare vision’ and the impact the company would make on healthcare.

Summaries by the prosecution and defense will be next up. Mercury News (partial paywall), CNBC

To be continued…

TTA’s earlier coverage: Chapter 12, Chapter 11Chapter 10Chapter 9Chapter 8Chapter 7Chapter 6Chapter 5Chapter 4 (w/comment from Malcolm Fisk)Chapter 3Chapter 2Chapter 1

Theranos, The Trial of Elizabeth Holmes, ch. 12: all bucks stop with the CEO (updated)

Tuesday was the last day this week of Elizabeth Holmes’ cross-examination by Federal prosecutors. Despite Monday’s excursion by the defense into how emotional and physical abuse by her live-in partner and corporate president could have warped her business judgment (a ‘me-too’ variation on the infamous Twinkie Defense relating to diminished capacity), and perhaps concealed from her the depth of Theranos’ problems, the cross-examination returned to the essentials. Who was the boss? Assistant US Attorney Robert Leach drew from her this: “Ultimately all roads led to the CEO?” “Yes,” she replied. “The buck stops with you.“ “I felt that.” 

The prosecution was highly effective in drawing out of her how Holmes controlled the company, and despite her claims of not knowing its finances, she knew what to say to round up funding. This countered the emotional drama of the prior day around ‘Svengali’ Balwani’s abuse and controlling actions. Holmes confirmed that she was the New Elizabeth in her hands-on role in altering pharma company reports, marketing materials, investor presentations, knowing their financials–and trying to kill unfavorable stories:

  • She added logos to Theranos’ pharma reports about partnerships with Pfizer and Schering-Plough to make it appear that the documents came from them. Add to these an altered analysis that came from GlaxoSmithKline (GSK), where Holmes admitted adding a logo but couldn’t recall deleting the conclusion “finger prick/blood draw procedure was difficult (needed larger lancet and better syringe system).”
  • She hired lawyers to review the Theranos website for claims at the time of the Walgreens launch in 2013. The language drew quite the critical eye for its language in their report to her. Our Readers will recognize these walk-backs on superiority claims: replacing “highest quality” with “high quality,” “highest levels of accuracy” with “high levels of accuracy,” and “more precise” to “precise.” Claims made needed to be substantiated. It’s not clear from the articles whether these were made.
  • Where walk-backs on these claims were most certainly not made were the investor presentations, including not disclosing that most testing was done on third-party machines, leaving the impression that Theranos labs were capable of running 1,000 tests.
  • Texts between Balwani and Holmes confirmed she knew that Theranos was in critical financial shape throughout 2013, burning through funding like tinder. 2014 was ‘fake till you make it’ time with sunny (sic) revenue projections–convincing to PFM Management and the DeVos family office, kicking in funds totaling close to $200 million, and then a cascade of funds following them. All of whom should have known better, admittedly.

In 2015, Holmes went directly to one of her investors, Rupert Murdoch, CEO of News Corporation and owner of the Wall Street Journal, to have John Carreyrou’s investigative reports killed. To Murdoch’s great credit, not only did the stories run, but also Carreyrou was legally defended against the mad-dog attorneys of Boies Schiller snapping at his heels. Boies Schiller also harassed and tracked former employees-turned-whistleblowers Erika Cheung and Tyler Shultz. Holmes also approved hiring the killer ‘oppo’ research of Fusion GPS. The latter became infamous a year later in sourcing and promoting now-debunked ‘evidence’ of Russian ties to then-candidate Donald Trump.

To counter the rising tide of negative news, Holmes went on CNBC’s ‘Mad Money’, hosted by, in this Editor’s opinion, the ever-credulous, often unhinged, and in recent years de trop Jim Cramer, and bald-face lied that “Every test we run on our laboratory can run on our proprietary devices.”–when only 12 did, not even the 15 Carreyrou documented.

It isn’t known yet whether Holmes will return to the stand next week for more cross-examination or a rebuttal by the defense. What is most likely is that the defense will continue with the themes of diffusion and deflection, creating cognitive dissonance in the jurors’ minds that while Holmes acted in control and committed fraudulent acts, Balwani had so thoroughly emotionally abused her that she was not in control of herself even after he departed. Look for expert testimony from Mindy Mechanic, an expert on intimate partner violence and abuse, to show that words of ‘love’ in 500-odd texts isn’t love at all. (Cue ‘What’s Love Got To Do With It’)

The Verge, CNBC, Yahoo Finance, Ars Technica

Updated: Theranos junkies (Judge Davila’s pronunciation of which is the subject of an entire Mercury News article) may want to follow John Carreyrou’s podcast, epically titled Bad Blood: The Final Chapter. He’s up to 11 episodes and close to 11 hours, so if you think your Editor is focused on this…it’s a deep dive indeed from the reporter who found that Theranos should have been spelled with an F for Fake. The link here is to the ThreeUncannyFour player, but Sony Media has made it available on other podcast platforms such as Spotify.

To be continued…

TTA’s earlier coverage: Chapter 11, Chapter 10Chapter 9Chapter 8Chapter 7Chapter 6Chapter 5Chapter 4 (w/comment from Malcolm Fisk)Chapter 3Chapter 2Chapter 1

 

Theranos, The Trial of Elizabeth Holmes, ch. 11: Holmes’ widening gyre of diffusion of blame–and abuse

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

The Second Coming, William Butler Yeats 

Elizabeth Holmes’ defense continues its strategy of deflection, diffusion of blame, and now psychological abuse. Ms. Holmes and her defense hit its stride today with Holmes recounting, in this lurid Mercury News headline, “Theranos president Balwani forced sex on Holmes, she testifies” (PDF attached if paywalled). This is far more interesting and clickbaitable than, say, her fan dance around regretting tacking on Pfizer and Schering-Plough logos on falsified reports, or denying that she ever said to investors, repeatedly, that the Theranos labs were being used by the US military in medevacs and in the field. The jury, ground down to numbness by the prosecution’s mile-high-pile of false documents and claims, surely woke up with Holmes’ upset and tears on the stand.

It started with her meeting Sunny Balwani on a trip to China when she was 18 (and he was 38), entering and then departing Stanford because she had been raped, compensating by dedicating herself to developing her high school idea on blood testing, and moving in with him. There was more than a bit of Svengali dynamic here, with her quoting Balwani’s rough talk of transforming her into ‘the new Elizabeth’ who’d be savvy about business and successful, versus “I didn’t know what I was doing in business, that my convictions were wrong, that he was astonished at my mediocrity and that if I followed my instincts I was going to fail, and I needed to kill the person who I was in order to be what he called the new Elizabeth”. She needed to work seven days a week, eat prescribed crunchy vegetables and grains (reading like a trendy SF restaurant menu), and see her family less. He would guide her and tell her what to do.

Holmes looked up to Balwani as a successful entrepreneur; he had joined a reverse auction startup called CommerceBid, eventually becoming president, and cashed out with $40 million as part of its $200 million sale to Commerce One in 2002. Between that and Theranos a few years later, however, Balwani left nary a shadow on Silicon Valley. At Theranos, Holmes became the public founder/face and Balwani the behind-the-scenes business planner–plus a bare knucks ‘enforcer’ on the daily life of the company, according to John Carreyrou. Business Insider

The rest of the story is about Balwani’s getting rough with her when she ‘displeased’ him, rough enough to be hurt, swollen, and not able to get up, in her account from a 2015 incident. She moved out the following year and he left the company in May 2016. Not all Pygmalion stories end well and all too often, they end like this.  

Yet the prosecution has provided another pile–of texts between Holmes and Balwani which, in between the mundane, are effusive in pronouncements of eternal love and support. These continued after his departure. Business Insider and full texts here

The defense has its own pile of deflection going, with the aim of creating doubt that Holmes was really at the center of the fraud, and more of a pawn, in Holmes’ own words:

  • Balwani was in charge of the financial projections and operations. Holmes testified that Balwani’s financial modeling produced discrepancies in revenue projections in 2014 and 2015. The Walgreens relationship also cratered at that time. This reinforces the defense opening back in September that relying on Balwani as president was one of her mistakes.
  • Validation? Adam Rosendorff, a former lab director, was less than competent [TTA 6 Oct]
  • Not disclosing about using third-party devices? A ‘trade secret’ recommended by legal counsel.
  • And the marketing/PR claim about Theranos using only ‘a single drop of blood’? (And all that ‘passionate intensity’ Holmes exhibited at investor conferences and interviews?) Blame TBWA/Chiat/Day, the ad agency! And Patrick O’Neill, who went from executive creative director there to creative director of Theranos and prepped her for the press including her 2014 TED speech. (Take a trip back and watch a few Theranos spots, courtesy of Refinery29. High on image, low on reality.)

Diffusion of responsibility is common in fraud cases. Wired quoted David Alan Sklansky, a professor of criminal law at Stanford. “It’s probably the most common kind of defense mounted in cases involving allegations of large-scale financial fraud,” he says. “Whether it works depends on how credible it seems to the jury.”

The hazard is that it makes Holmes appear incompetent, but incompetence beats 11 counts and 20 years in Club Fed.

What is the jury to believe about her competence? From the Mercury News again: “Asked by Downey whether Balwani ever forced her to make statements to investors or journalists that the prosecution has focused on, or whether he controlled her interactions with board members or executives from companies Theranos sought to work with, she said no. Asked what impact her relationship with Balwani had on her work, she responded, “I don’t know. He impacted everything about who I was, and I don’t fully understand that.” Holmes made statements on her own, frequently and over many years. She stated she wasn’t controlled by Balwani when it came to the board or business partnerships–and continued running the company after his departure and attempting to fix a myriad of problems. But what will the jury take away from this day? This, or Sunny getting blue on her?

Also Fortune 23 Nov and 25 Nov

To be continued…

TTA’s earlier coverage: Chapter 10, Chapter 9Chapter 8Chapter 7Chapter 6Chapter 5Chapter 4 (w/comment from Malcolm Fisk)Chapter 3Chapter 2Chapter 1

Theranos, The Trial of Elizabeth Holmes, ch. 8: choosing investors with more money than sense a winning strategy

The prosecution continues to pile up defrauded investors–but this one may backfire on them. Alan Eisenman invested about $1.2 million in Theranos in 2006 on behalf of himself and his family–after a five-minute phone call with Elizabeth Holmes. As an early investor, he also believed he was entitled to special treatment, such as direct talks with Holmes, frequent enough to the point where she offered to buy out his shares for five times their value and cut off contact. 

Later, he had other opportunities to sell his shares up to nearly 20 times their purchase price, but held on stating he didn’t have enough information on what was apparently a ‘liquidity event’. Lack of information was a persistent red flag, with gaps in communication from 2010 to 2012 and a contentious relationship with Sunny Balwani. Despite this, when Theranos needed money in 2013, he then invested an additional $100,000 despite no audited statements since 2009. This last investment became one of the government’s counts of wire fraud.

In his testimony, Eisenman testified that like others, he was initially impressed that Oracle founder Larry Ellison was involved with the company and that Theranos had contracts with six international pharmaceutical companies including Pfizer and Novartis–which was blatantly false.

This incredible narrative becomes more understandable when you understand Holmes’ strategy of choosing only ‘high-quality investors’ of the family fund sort. She targeted funders who weren’t knowledgeable and meticulous in examining the company books and the technology. The funders were also oh-so-socially connected. According to The Verge, Eisenman was ‘wired’ into Theranos–“he was friends with the Holmes’ family’s financial advisor [David Harris], who had also invested. Plus, his wife’s father, who had also invested, was friendly with [Bill] Frist, who was on the board.” Eisenman contacted Frist as well when he was essentially cut off from Holmes about 2010. 

Surely Eisenman was entitled to be upset and more than a little embarrassed, as a former money manager and financial planner. But then his actions dealing with the prosecution left a Mack truck-sized opening for the defense on the cross-examination. He sent an email to the prosecution team perhaps 15 hours after he finished his direct examination last Wednesday, strictly against instructions. He did it again on Friday, ostensibly about travel plans. An assistant US attorney called him to remind him not to contact them again. The defense leveraged this into the compromising position of being biased against Holmes beyond his actual loss, for instance a purported statement he made “upon entering the courtroom” about wanting Holmes to go to prison.

Coming so late in the trial–the prosecution may rest this week–the abrasive impression that Alan Eisenman left may leave an opposite impression on the jury that favors the defense interpretation of naïve investors who didn’t do their due diligence homework, and by extension, deserved to lose their money. CNBC 15 Nov, 10 Nov

To be continued….

TTA’s earlier coverage: Chapter 7, Chapter 6Chapter 5Chapter 4 (w/comment from Malcolm Fisk)Chapter 3Chapter 2Chapter 1

Theranos, The Trial of Elizabeth Holmes, ch. 7: Edison labs consistent–in deficiency and strange results

And Elizabeth Holmes knew. The last two years of Theranos’ existence, were, to put it mildly, fraught, for anyone honest. Job 1 for the very last in a parade of lab directors, Kingshuk Das, MD, was to respond to CMS on substantial deficiencies found in a November 2015 on-site inspection. The CMS deficiency report, sent to the prior lab director in January 2016, two months before Dr. Das’ start, had a subject line that would grab anyone’s immediate attention: “CONDITION LEVEL DEFICIENCIES – IMMEDIATE JEOPARDY.”

The report went on to say that it was determined that your facility is not in compliance with all of the Conditions required for certification in the CLIA program.” and concluded that “the deficient practices of the laboratory pose immediate jeopardy to patient health and safety.”

Dr. Das found some interesting things in his early days on the job, such as the Edison labs producing results detecting abnormal levels of prostate-specific antigen (PSA)–in female patients. When he brought this to Holmes’ attention, she quoted a few journal articles stating that certain rare breast cancers in women might present that result. This didn’t seem quite plausible to Dr. Das. Holmes then told him that it wasn’t an instrument failure, but rather a quality control and quality assurance issue. Nevertheless, Dr. Das went back and voided every Edison lab test made in 2014 and 2015, stating to Holmes that the Edison labs were not performing from the start. Most Theranos results sent to patients were produced on third-party machines made by Siemens and others, often on inadequately sized blood samples. 

As Dr. Das testified to the defense, many skilled people at Theranos earnestly tried to fix the problems with the Edison lab machines, but, as The Verge put it in part, if Holmes didn’t believe Dr. Das, other employees, or multiple preceding lab directors that the machines were really, truly broken, did it matter?

The defense is maintaining that Holmes didn’t really understand the lab details and was heavily influenced (ahem!) by president Sunny Balwani. However, the Babe in the Medical Startup Woods defense falls apart when there’s no Sunny to blame–he departed shortly after Dr. Das’ arrival. 

The actual theme–a long-term pattern of deception aimed at those who wanted to believe, and ponied up Big Bucks--was reinforced by a witness before Dr. Das. Lynette Sawyer was a temporary co-lab director for six months during 2014 and 2015, but never came to the Theranos site. It seems that her main duties were signing off remotely on documents using Docusign and backing up then-lab director Dr. Sunil Dhawan, Balwani’s dermatologist who came to the lab a handful of times. Even more amazingly, she was unaware of Theranos’ signature ‘nanotainers’ and the backup use of third-party devices. After her six-month contract was up, she departed, uncomfortable with Theranos’ procedures.

Kicking off the day was Judge Davila’s regular admonition to those in the public section of the courtroom to type vewy, vewy quietly. Then the video display for exhibits broke down. This led to a two-hour delay while the court found an antique projector to show the images to the jury and the public on a blank wall.

One wonders if the tapping plus the tech breakdown topping off the Parade of Fraud is leaving the jurors numb–or wanting to jump into the well above, even if there is no bottom. CNBC, Wall Street Journal (15 Oct), 5KPIX

TTA’s earlier coverage: Chapter 6, Chapter 5Chapter 4 (w/comment from Malcolm Fisk)Chapter 3Chapter 2Chapter 1

To be continued….

 

 

Theranos, The Trial of Elizabeth Holmes, ch. 6: the decision maker was Holmes–and she was ‘cagey’

Judge Davila is speeding up the trial, adding hours and days–perhaps because the damning testimony has become depressingly similar. Were the investors sloppy, or did Theranos–and Holmes–deliberately deceive?

Maybe…both.

Documents and slideshows from Theranos glowed.

  • The company faked memos and reports from both Pfizer and Schering-Plough, which was in the process of being acquired by Merck. Schering-Plough’s Constance Cullen said she found CEO Elizabeth Holmes’ answers to technical questions “cagey” and she was blocked by Holmes from asking questions of other Theranos employees.
  • Presentations describing the Theranos lab capabilities were written in present, not future, tense. Example from the prosecution reading from an investor deck: “Theranos proprietary technology runs comprehensive blood tests from a finger stick.” Another slide was 10-Pinocchio-worthy: “Theranos has been comprehensively validated over the course of the last seven years by 10 of the 15 largest pharmaceutical companies, with hundreds of thousands of assays processed.”

These were good enough for investors like Lisa Peterson of the DeVos family office, who testified last week about their decision to put in $100 million. In fact, investors were Social Networking right to Theranos’ door. The well-connected Daniel Mosley, who invested “a little under $6 million” in Theranos, after his client and friend Henry Kissinger, a Theranos board member and $3 million investor, asked him to evaluate the company, in 2014 recommended it to his other clients–the DeVos, Walton ($150 million), and Cox ($10 million)  families. Black Diamond Ventures founder Chris Lucas invested $7 million in Theranos. He believed that Theranos’ analyzers were being used by the military in the Middle East. Presumably, his uncle Don Lucas, who sat on the Theranos board, backed up the claim. They were additionally impressed by Holmes’ intensity and insistence that the company was on a mission to revolutionize blood testing. Risk can be fashionable for ‘high-quality families’ who aren’t hands-on with their money and won’t experience hardship if the investment doesn’t pan out.

The investors like Peterson and Mosley believed what they were shown was steak, not marshmallow, like projected revenue of $140 million in 2014 after zero revenue in the two prior years. They didn’t examine the books, other key corporate records, or make a technical evaluation of the labs. Why? “We were very careful not to circumvent things and upset Elizabeth,” Peterson of the DeVos office said. “If we did too much, we wouldn’t be invited back to invest.” Ooof. But on their side, in 2014-2015, the winds of hype were blowing fair, the skies were blue on CNBC, and Walgreens plus Safeway were lashed to the mizzenmast. The Verge, CNBC, KTVU Fox 2

The defense keeps pinning blame on the investors for being naïve, which is taken up by the NY Times. With 20/20 hindsight and infinite wisdom, the article blames the investors for not being scrupulous in their due diligence. A fair point made is that in ‘hot’ startup markets, no one looks too closely for the Fear Of Missing Out (FOMO)–something we see this very day.

Holmes’ chances of pinning the blame on president/boyfriend ‘Sunny’ Balwani and evading any lengthy time are low at best.

  • The defense sub-strategy of painting Holmes as controlled by Balwani appears to be augering in. CNBC uncovered a 27 June 2018 videotaped deposition in an investor lawsuit, eventually settled, where Holmes, in between taking the Fifth Amendment, also claimed she was the ultimate decision-maker at Theranos.
  • An analysis published in the Mercury News (PDF), through the paywall, is not sanguine about Holmes beating the odds and walking free, or with minimal time. However, juries do strange things in assessing fraud, even when piled high and wide by the prosecution, out of sheer boredom or cussedness. Holmes is also surrounded by family, friends, baby on breaks, and baby papa, all of which can sway some jurors.

So as the trial passes the halfway corner, we observers are waiting for a final bombshell–or two.

TTA’s earlier coverage: Chapter 5, Chapter 4 (see new comment from Malcolm Fisk)Chapter 3Chapter 2Chapter 1

To be continued….

Theranos, The Trial of Elizabeth Holmes: ch. 1

“The company believed more about PR and fundraising than about patient care”, from Tuesday’s testimony by former lab director Adam Rosendorff, could be the prosecution’s strategy in the proverbial nutshell. Mr. Rosendorff, who quit in November 2014 after a long struggle to get Ms. Holmes and Theranos management to address persistent problems in patient lab results and to implement a legally required verification process, was a witness for the prosecution. The defense tried to paint his testimony in cross-examination as inconsistent and self-serving in accounts of Ms. Holmes’ state in hearing concerns about three particular blood tests, the launch date of public blood tests, proficiency tests versus ‘precision tests’, when the California Department of Public Health audited the lab, and exactly why he quit Theranos 18 months after hire. The questioning twice grew so heated that District Circuit Court Judge Edward Davila deemed it inappropriately argumentative. One example from Lance Wade to Mr. Rosendorff was that supervising quality control tests and making sure laws were followed was “why you get the big bucks, right?” “Not as big bucks as you get paid,” Mr. Rosendorff replied. Mr. Rosendorff did get caught up in an email trail and on narrowing the proficiency testing to FDA-approved devices versus the Edison labs. The cross and the bickering went on into Friday and probably will resume on Tuesday next week (@doratki).

Also on Tuesday was brief testimony from Celgene manager Victoria Sung, who drew a picture of more Theranos fabrications around how pharmaceutical companies (Celgene owned by Bristol Myers-Squibb) had not  “comprehensively validated” Theranos technology. 2012 results showed that Theranos labs performed “out of range” versus standard tests, and other tests were not run. Last week, Theranos employee Surekha Gangakhedkar in her testimony stated that she did not think GSK’s report validated Theranos’ tests. Mercury News, The Verge

Today, John Carreyrou, who broke la scandale Theranos in The Wall Street Journal and authored the book Bad Blood, filed a motion to stop being barred from court. Cleverly, La Holmes’ defense put him on the witness list but not subpoenaed him. Being on the witness list, however, means he cannot attend any part of the trial or publicly discuss his testimony, if given, without permission from Judge Davila. “Placing Carreyrou on the witness list was done in bad faith and was designed to harass him,” the motion claimed, calling his placement on the list “a cynical ruse” that violates the First Amendment. Also cited in the motion were the company chant about him and various text messages between Ms. Holmes and Sunny Balwani. Mercury News  Mr. Carreyrou and six years before the Theranos mast, interviewed in The Verge in an interview that diverges fascinatingly into the psychiatric drives of the players….

And earlier in September (Wednesday 22nd), General James Mattis, Ret. testified about how he initially wanted to pilot the Theranos labs on ships and remote locations, where space and swiftness are at a premium. The Verge article does take liberties in the psychology between the two (bachelor general, young female CEO), including his joining the board after retirement, sticking around despite his growing doubts until he was named secretary of defense in 2016. The defense drew out that he was confused about his compensation package ($150,000 per year plus a stock option purchase).

The Mercury News (which has a minimum of free articles before the paywall goes up, the WSJ (paywalled), local TV KRON4, The Verge, and CNBC have been covering the past weeks of the trial. Dorothy Atkins of @Law360 is also tweeting in real time on it (@doratki).

To be continued….