Saturday summer morning fun: treat yourself (or your boss) to a Dead Startup Toy

Making Lemonade Out Of Lemons. Most of our Readers have seen startups come and go. Some this Editor has profiled were regrettable. Some had Cute Factor, but still tanked. Others were high in Stonato Factor. And a few, like Theranos, had Major Fraud Factor, augering in taking hundreds of millions of OPM with it (not including legal fees).

But entrepreneurial hope springs eternal, and why not memorialize these College Trys with a toy? MSCHF of Brooklyn has style, enough to go viral with a unique spin on swag. You can go on eBay, Poshmark, or Etsy to grab a Theranos poster or mug, but you can’t get a Theranos mini MiniLab to put on your shelf as a memento mori. Or a toy Jibo [TTA 18 July 2014]  to remind you to not go up against Google and Amazon. There’s also CoolestCooler, a Kickstarted cooler/speaker/blender that never delivered the goods but burned through $14 million, Juicero, an $400 IoT juicer that laid waste to $120 million in one year, and One Laptop Per Child, a Nick Negroponte-headed $100 laptop full of clunkiness that didn’t make it past the Seven Year Itch of Reality.  (The last two are sold out)

Have some fun reviewing–and shoppingHat tip to Reader Dave Albert of AliveCor (KardiaMobile), who definitely has a sense of humor!

The Theranos Story, ch. 74: defense questionnaire trimmed; Holmes loses attorney-client privileges on 13 emails, doctor/patient testimony allowed

This week’s update as Elizabeth Holmes’ Federal trial nears its 31 August start. 

The defense’s 112-page whopper of a jury selection questionnaire was, as most expected, nixed by Judge Edward Davila. He provided the defense with a slimmed-down version that apparently, from press reports, edited the media coverage issues. The prosecution had previously objected to the length, intrusiveness, and over-specificity around juror media usage. Judge Davila remarked in Tuesday’s hearing that jurors could be asked about their sources of news in an open-ended response. According to the Fox Business report, “He said both sides might be surprised to see how many potential jurors don’t know anything about the case.” Impartiality is also an issue in high-profile cases, but “impartiality does not require ignorance,” in the words of a previous Federal decision in the Enron CEO’s criminal case.

The jury will also hear testimony from patients and doctors who used Theranos tests and said they got inaccurate results. The testimony will be limited to facts about the inaccurate test and the money they lost by paying for it. Emotional and physical harm will be off-limits. Fox Business  What won’t be admissible, at least for now, is how Theranos “destroyed” its Laboratory Information System, or LIS, database. The defense argued that the prosecution took years to acquire it and then sat on the evidence. Judge Davila reserved the right to revisit that issue if appropriate. Fox Business

Elizabeth Holmes cannot keep her 13 emails with law firm Boies Schiller Flexner LLP out of the trial on attorney-client privilege grounds. US magistrate Judge Nathanael Cousins ruled that it did not apply to these emails since Boies Schiller was the corporation’s legal counsel and not hired by her personally. According to the Wall Street Journal (partial article as paywalled), the receiver who wound down Theranos after it closed in 2018 waived the company’s privilege to the documents, yet another factor. Boies Schiller represented Theranos up to 2016. Managing partner David Boies was a Theranos board director and a bulldog of an advocate from the company until then. Mr. Boies is now aged 80 and remains chairman of the law firm. (One wonders if the well-seasoned litigator, or his deposition, will be part of the trial.)

Judge Davila has also set the trial schedule–three days per week from late August into December, earlier disclosed as Tuesdays, Thursdays, and Fridays, with relatively short days to fight ‘juror fatigue’. Since Elizabeth Holmes will also have delivered her child by the time the trial starts, there will be a “quiet room” in the courthouse provided for her special needs during the trial.

TTA’s previous coverage of Theranos

The Theranos Story, ch. 73: the defense tries to stack the jury deck in Holmes’ favor, prosecutors say. And Theranos swag and memes are hot!

Law and Order Proceeds. For those of us who follow US trials, or have served on a local or county jury, smart attorneys do a fair amount of ruling jurors in–and out. The voir dire process in high-profile trials is critical. Jury consultants make comfortable livings creating profiles of their ‘ideal juror’.

Thus it should not be a surprise that Elizabeth Holmes’ spare-no-expense-or-strategem defense would file in May with the court an over-the-top 41-page, 112 question jury document. Their rationale is to screen jurors for issues related to the extensive news coverage around la scandale Theranos, Holmes herself, and even the pandemic (!).

In the prosecution’s view, questions such as “Do you have investments?”, “Do you have health insurance?”, and inquiries about social media use, were “untethered” from pretrial publicity and the coronavirus pandemic.

By comparison, the prosecution presented to Judge Edward Davila a modestly sized nine-page questionnaire with a scant 51 questions. Typically, many of these questions are routine, such as reading about the case and if they had any pre-existing opinions which would prevent that person from a fair judgment of the facts presented in the case. On pandemic issues, the prosecution drew from previously used questionnaires that addressed them, though this Editor cannot see how the pandemic is pertinent to this case.

Holmes is facing 12 felony fraud charges. The trial will start 31 August and will be held on Tuesdays, Thursdays, and Fridays through 17 December, according to a filing last week by Holmes’ legal team. She faces maximum penalties of 20 years in prison and a $2.75 million fine, plus possible restitution. East Bay Times

Attention eBay Shoppers!  According to CNBC, original Theranos-labeled items are fetching real coin on auction sites like eBay and Poshmark. An original Theranos lab coat is supposedly listed for $17,000. Over at Etsy and Redbubble, which sell artist-created items, logo-printed t-shirts and masks, including those with Holmes’ face and the Silicon Valley meme, ‘Fake It Till You Make It’, “Girl Boss” signs, throws, posters (left), and greeting cards. (Good things? Yeesh!) are all over. The funniest is a sweatshirt with ‘Theranos Testing–A Guaranteed Result’. Over on Etsy, a merchant’s most popular Theranos item is a mug emblazoned ‘Theranos Early Investor’. (Is it cracked?) Perhaps Holmes could put her Theranos trinkets and trash online to defray a few costs. Or copyright her image like Bogart?

The Theranos Story, ch. 72: a little lifestyle and celebrity is admissible at trial–but not too much. And no profanity, please!

The long-awaited update from the US District Court in San Jose. Judge Edward Davila ruled last Friday limiting the specifics on Elizabeth Holmes’ lifestyle that the prosecution wanted to present as evidence. Only general evidence of Elizabeth Holmes’ Silicon Valley CEO lifestyle would be admissible. The prosecution, in his words, “Each time Holmes made an extravagant purchase, it is reasonable to infer that she knew her fraudulent activity allowed her to pay for those items,” but that “Evidence of Holmes’s wealth can be construed as ‘appeals to class prejudice’ which are considered ‘highly improper’ because they ‘may so poison the minds of jurors even in a strong case that an accused may be deprived of a fair trial.” To the judge, evidence of Holmes’ wealth and fame are not even moderately related to the intent to defraud, the last of which is the heart of the charges.

The prosecution therefore has to walk a very fine line. It’s apparently fine to say that Holmes enjoyed a luxurious lifestyle equivalent to her Silicon Valley peers, with the usual perks. But details on brands of clothing, hotels, and other specifics “outside the general nature of her position as Theranos CEO,” is beyond the scope of the trial.

Judge Davila may be doing the prosecution a large favor by limiting this evidence. Too much reliance on lifestyle as the main motive to defraud is a crutch that could backfire with the jury, especially when they see in August a modestly dressed new mother Holmes. It could also open up an appeal on the basis of prejudicing the jury. To this Editor, there is abundant direct evidence of fraud of patients and investors in a technology that didn’t work, never could work, and the coverup. No need to overegg the pudding. Mercury News

And no profanity in the court! The jury will be spared the infamous employee meeting chants telling a rival testing company (Sonora Quest) and John Carreyrou of the Wall Street Journal to do something unprintable in a business article with themselves. The defense won the argument that these chants were the Silicon Valley Norm to motivate employees. Even the prosecution admitted that these might be “somewhat inflammatory”. Colorful, but inadmissible.  Mercury News

And lest we forget. Holmes is facing maximum penalties of 20 years in prison and a $2.75 million fine, plus possible restitution. The trial starts 31 August. Earlier chapters of this saga are here.

The Theranos Story, ch. 71: Holmes appears in court, lawyers argue celebrity, lavish lifestyle, Silicon Valley ethics

After 15 months, Elizabeth Holmes puts in her Day in Court. Last Tuesday’s and Wednesday’s hearings in US District Court in San Jose were not virtual, but in court–and with Ms. Holmes present. The arguments between counsel were about what would be admissible; the relevance of her lifestyle (fine dining, houses, private jets), her wealth, spending, and celebrity to the charges of criminal fraud, first of hundreds of millions of dollars by investors plus patients and doctors with false claims that the Theranos labs actually gave accurate readings.

The defense argued that admitting information on the lifestyle and spending behavior would be inflammatory and prejudicial to the jury. The travel, the perks, the company-paid-for services were there because she was traveling on company business. Her stock was never sold and her salary at $200,000 to $390,000 (per SEC) was actually low for her peer group. To a certain degree, Judge Edward Davila agreed with the defense. Being in Silicon Valley, home of tech high flyers and Sand Road investors, Judge Davila said to the prosecution, “It seems like that’s designed to engage a class conversation amongst the jurors which I think you’d agree would be a little dangerous. What’s the value of, ‘Did she stay at a Four Seasons versus a Motel 6?” The prosecution countered that information regarding the increasing value of the stock and Holmes’ billionaire lifestyle largely funded by the company, more so than her salary, is relevant to the continuing fraud. “The perks that she is enjoying greatly reduce the pressure on her to cash in, sell stock and make more money.” And, one could say, to come clean and end the fraud around their technology.

According to the Mercury News, Judge Davila said he would rule on the dispute over lifestyle and compensation evidence later. The trial is scheduled to start 31 August. CNBC video, 5 May, 6 May  

Weekend reading: the strange reasons why Amwell doesn’t consider Amazon a competitor; ground rules for the uneasy marriage of healthcare and technology

Yahoo Finance interviewed co-CEO/founder of Amwell Ido Schoenburg, MD on the company’s 2020 results and forecast for 2021. It makes for interesting but convoluted reading on their growth last year in what is a consolidating field where Amwell was once one of the undisputed two leaders. They now compete against payers acquiring telehealth companies (MDLive going to Optum) and mergers like Doctor on Demand-Grand Rounds that are taking increasing market shares. Then there are specialty providers like SOC Telemed and white-labels like Bluestream Health. However, there are a couple of whoppers in the happy talk of growth for all. Dr. S pegs the current run rate of telehealth visits at 15-20 percent. The best research from Commonwealth Fund (October) and FAIR Health (August) tracked telehealth at 6 percent of in-office visits. Epic Health Research Network measured 21 percent at end of August. [TTA summary here

Then there’s the tap dance around Amazon Care. His view is that telehealth companies all need a connective platform but that each competitor brings ‘modular components’ of what they do best. What Amazon excels at is the consumer experience; in his view, that is their contribution to this ‘coalition’ because healthcare doesn’t do that well. There’s a statement at the end which this Editor will leave Readers to puzzle through:  

“And Amazon and others could bring a lot of value to those coalitions, they should not be seen as necessarily competing unless you’re trying to do exactly what they do. And there are some companies, including some telehealth companies, that that’s what they do. They focus on services. They try to sell you a very affordable visit with a short wait time and a good experience. They should be incredibly concerned when someone so sophisticated as Amazon is trying to compete in that turf.”

The last time this Editor looked, none of these companies were non-profit, though nearly all are not profitable.

Gimlet EyeLooking through her Gimlet Eye, Amazon Care is a win-win, even if the whole enterprise loses money. In this view, Amazon accumulates and owns national healthcare data far more valuable than the consumer service, then can do what they want with it, such as cross-analysis against PillPack and OTC medical shopping habits, even books, toys, home supplies, and clothing. Ka-ching!

A ‘bucket of cold water’ article, published in Becker’s Health IT last month, takes a Gimlety view of the shotgun marriage of healthcare and technology. Those of us laboring in those vineyards for the better part of two decades might disagree with the author in part, but we all remember how every new company was going to ‘revolutionize healthcare’. (The over-the-top blatherings of ZocDoc‘s former leadership provide a perfect example.) The post-Theranos/Outcome Health/uBiome world has demonstrated that the Silicon Valley modus operandi of ‘fake it till you make it’ and ‘failing fast and breaking things’, barely ethical in consumer businesses, are totally unethical in healthcare which deals in people’s lives. Then again, healthcare focused on ‘people as patients’ cannot stand either. Stephen K. Klasko, MD, President and CEO, Thomas Jefferson University and Jefferson Health in Pennsylvania, advocates for a change–far more concisely than Dr. Schoenburg. You may want to pass this along.

The Theranos Story, ch. 70: the lab director turns Federal evidence

A Tasty Appetizer of what awaits in July in Federal District Court, San Jose, showed up in the Wall Street Journal today (paywalled, link to full article below). Theranos‘ lab director Kingshuk Das, MD will testify in Elizabeth Holmes’ trial that the Theranos lab and technology did not work accurately enough to use–and that the company’s leaders ‘pushed back’ against his assessment.

Dr. Das’ comments, revealed in new court filings, represent his most extensive (and only revealed, in this Editor’s estimation) remarks on Theranos. His one-hour interview with Federal agents took place on 1 February. They indicate that Federal prosecutors continue to dig for damning evidence prior to the July trial.

Dr. Das held the lab director, later medical director, position at the Newark, California lab facility in Theranos’ final years (December 2015 in the article, the LinkedIn profile states March 2016, to June 2018). The Centers for Medicare and Medicaid Services (CMS) had already put Theranos on notice for“deficient practices” in November 2015. The WSJ, around that time, revealed Theranos’ dodgy practices.

Dr. Das’ fully credible and extensive pathology training is listed in his LinkedIn profile. It includes his MD at Case Western Reserve, internship at UCLA, residencies in clinical pathology at Washington University (St. Louis) and USC, and return to UCLA for a fellowship in molecular genetics, then rising to Associate Medical Director, UCLA Clinical Laboratories. As for many others, Theranos was challenging,  could not have been good for his career, but perhaps gave him a taste of how to do entrepreneurship right. He has worked in several positions and is currently listed with consumer genetics tester Invitae as a molecular pathologist and founder of AnimanDX from 2018.

This Editor would bet that Dr. Das had far more to say than what was cited in the WSJ article. At least this is more like Joe Friday’s ‘just the facts’ (Dragnet) and not mired in the swamp of ‘motivations’ represented by the filings around Silicon Valley’s Lifestyles of the Rich, Famous, and Busted.

Full article at StockXpo. Hat tip to reader William T. Oravecz. For those interested in the full sturm und drang by chapter, it is here.

The Theranos Story, ch. 69: Elizabeth Holmes ‘faked it till she made it’–like other Silicon Valley startups? (Updated)

Lifestyles of the Rich, Famous, and Busted, Silicon Valley Style. As promised by the prosecution in the cases being brought against Elizabeth Holmes, the CEO/founder of Theranos, and separately with COO Ramesh ‘Sunny’ Balwani, they are proceeding with filings that connect Theranos’ continued defrauding of investors with Holmes’ extravagant lifestyle and desire for fame. “The causal connection between Defendant’s fraud and the benefits at issue is strong,” the filing stated, going on to detail how the fraud funded hotels, private jet travel, and “multiple assistants” paid by the company who also assisted with her personal needs.  “In addition to the tangible benefits that she received from her fraud, she also was the beneficiary of a great deal of favorable attention from the media, business leaders, and dignitaries”. Sustaining the illusion was necessary to continue the lifestyle and recognition.

Countering the prosecution filing on Friday was–of course–a defense filing that attributed Silicon Valley’s ‘fake it till you make it’ startup culture as a rationale for Holmes’ and Theranos’ actions. That filing states “founders in this area frequently use exaggeration and dramatic promises to generate needed attention for their companies and attract capital.” The “culture of secrecy” that concealed Theranos’ fraud?  “…if it is admitted Ms. Holmes surely could present evidence that other Silicon Valley start-ups used similar practices, and that persons at Theranos were aware of these practices.” In November, they also filed to block as ‘unfairly prejudicial’ any mention of Holmes’ lifestyle as irrelevant to her guilt or fraud. 

Another fake was pretending that problems didn’t exist and everything was just ducky. The prosecution also introduced emails that confirmed Holmes’ direct awareness of problems with the blood tests in 2014. One example was from her brother Christian, who worked in product management. It requested a meeting to discuss a customer complaint where it was “pretty obvious that we have issues with calcium, potassium and sodium specifically.” According to the filing, “Theranos emails contain many examples of customer complaints routinely being escalated” to Elizabeth Holmes and other senior company personnel. At trial, the evidence will show that defendant shaped Theranos’s response to those complaints, prioritizing the company’s reputation over patient safety.” This Editor would argue that it’s no different with car manufacturers (Ford and the now lower-case GM) than startups to spin a response, but the proper reaction to clinical product faults would be to pull back the offending tests and solve the problem before going any further. But the Edison lab and their technology didn’t work.

Updated with further analysis. In retrospect, it’s obvious that Theranos crossed the ethical line between massive hype (expected) and outright fraud (not), which is why the defense is fighting so hard to keep Silicon Valley Lifestyle and Startup Culture out of the case unless it can be spun their way. A key: Holmes’ emotional state and a psychiatric evaluation have also been introduced by the defense, countered by the prosecution. In this case, the fraud was based on dual ethical nightmares, the first worse than the second: faking of medical results, then defrauding small and large investors by faking company performance. Too many just wanted to believe, like the X Files. But we should not forget another high-profile hype and fraud that happened around the same time, Outcome Health [TTA’s articles here].  Outcome Health’s fraud was strictly financial–ad performance falsification leading to fraud and money laundering. They defrauded Big Pharma advertising and some of the largest global investors like Goldman Sachs. The Federal lawsuits on Outcome have gone very quiet after settlements, plea bargains, and COVID halting court actions.

Thanks in large part to Theranos and Outcome Health, that startup culture is mostly kaput. The lessons are learned–we believe. A modicum of modesty along with a large dose of telehealth/telemedicine/data analytics is The 2020-2021 Thing. A lasting effect? Perhaps. Small-batch blood testing is only now recovering from being radioactive.

Before the start of the company’s collapse in 2016, Theranos had raised a reported $900 million ($700 million in some accounts) and was privately valued at $9 bn. Few of the investors clawed back their money. Fraud doesn’t work. It never works.

The trial in Federal District Court, San Jose, is now scheduled for jury selection 13 July. It was moved just before Christmas from 9 March by Judge Edward J. Davila due to California’s COVID-19 surge (MassDevice). So here we are five years later It promises to be popcorn-worthy, with possible appearances by famous men such as Henry Kissinger, Rupert Murdoch, and former Defense Secretary James Mattis. CNBC, Bloomberg For those interested in the full sturm und drang by chapter, it is here.

The Theranos Story, ch. 68: the texts told the tech failure–and please omit Holmes’ ‘luxurious lifestyle’ and profane meeting language from trial

The trials of Elizabeth Holmes and ‘Sunny’ Balwani churn on towards a March 2021 court date. Two major revelations have entered the record from last Friday 20 November’s flurry of filings on both sides. 

  • The prosecution introduced panicky Holmes/Balwani texts, iMessages, and Skype messages indicating that Theranos was having major trouble with validating its lab technology from 2014 on. One text from Balwani described a lab as a ‘disaster zone’. “The spreadsheets are replete with admissions by defendant and Balwani that demonstrate their knowledge that their statements to investors were false and misleading and that Theranos’s testing was beset with problems.”  CMS in 2015 concluded that their California lab posed an “immediate jeopardy to health and safety.” The messages were from previous civil cases and collected by securities regulators, with many still under seal from those cases.
  • The defense for Holmes moved to prohibit prosecutors as ‘unfairly prejudicial’ evidence of Holmes’ wealth, spending, and lifestyle,  citing Federal rules of evidence and that this information is not relevant to Holmes’ guilt or innocence on the fraud charges. In 2015, Holmes was worth an estimated (by Forbes) $4.5 bn despite what is claimed as a moderate salary and not selling equity. The government has detailed her company-paid perks such as a luxury SUV, a rented luxury house, and luxury-level travel, in addition to a ‘substantial salary’. 
  • The defense is also seeking to omit any references to Theranos employees making claims about the technology, including Theranos sales representatives falsely claiming that the FDA approved the company’s lab machines. The grounds to omit are that Holmes could not be responsible for their false statements.
  • The defense also seeks to omit transcripts of a company meeting that used profane language to refer to reporting in the Wall Street Journal investigating the company and a competitor at that time, on the grounds that such language is par for the course in High-Tech-Land. Mercury News (may be paywalled)

Fox Business 23 November, 24 November. BNNBloomberg.

In a separate case, a former Theranos lab scientist, Diana Dupuy, has claimed that she was wrongfully terminated from her job with medical testing company DiaSorin nine days after receiving a subpoena to testify at the Theranos trial. DiaSorin is claiming the reason is unrelated to Theranos. The suit has been filed in US District Court in San Francisco. Anecdotally, many former Theranos employees have reported that Theranos has been a glaring black mark in their resumes that make them close to unhireable. Mercury News

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

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

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

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

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

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

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

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

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

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

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

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

The Theranos Story, ch. 65: Elizabeth Holmes’ “mental disease or defect” defense revealed

Going the ‘Twinkie Defense’ one better? While this Editor was enjoying a much-needed break from the Insanity of the World, hurtling across the wires was the revelation that Elizabeth Holmes’ pricey defense attorneys have prepared a defense for her that includes evidence “relating to a mental disease or defect or any other mental condition of the defendant bearing on the issue of guilt.” Interpreted, her mental state may have affected her intent and judgment in her business dealings. 

According to the filing, the defense is introducing testimony from Mindy Mechanic, Ph.D., a clinical psychologist and professor at California State University at Fullerton. According to her bio, her “work focuses on the psychosocial consequences of violence, trauma, and victimization with an emphasis on violence against women and other forms of interpersonal violence. Her work has addressed the mental health consequences of violence, such as Post-Traumatic Stress Disorder and depression as well as other important physical and social health outcomes.” 

The defense attempted to introduce this evidence without further examination by the Federal prosecution. Unfortunately, US District Judge Edward Davila did not agree. Ms. Holmes will be examined by two experts for the prosecution: Daniel Martell, Ph.D., a forensic neuropsychologist for the forensic litigation consulting firm Park Dietz & Associates, and University of California San Francisco psychiatrist Renee Binder, MD. Over the objections of the defense, the examination will be videotaped. The trial will commence with jury selection on 9 March 2021 [TTA 27 Aug].

Most of our Readers who care about this will be wondering, after they’ve picked themselves off the floor laughing at the above notion, that any person with a mental defect of this type could have fooled the savviest Sand Road VCs, Stanford/Hoover Institution luminaries, an admiral, a Marine general later Secretary of Defense, and Rupert Murdoch for years, to the tune of nearly $1 bn. That they should be gulled and fooled is disturbing enough. What is equally disturbing is the desperation of the defense to attempt an ‘insanity defense lite’ that sources and justifies Ms. Holmes’ inability to discern right from wrong.

This then proceeds to exactly what was the ‘interpersonal violence’ or post-traumatic stress that caused her judgment to warp quite this way. Was it her upbringing, which apparently was a bit upper-middle-class flaky–the ‘it’s not High Anxiety, it’s parents!’ reason? Was it a head trauma (the Howard Hughes defense), drugs, or surgery gone wrong? Did Sunny get Blue (in more than one way) on her? Stock up on the popcorn–la scandale Theranos has just gotten even more interesting. CBS Bay Area, Bloomberg News, Forbes, MedCityNews

A historical footnote. The term ‘Twinkie Defense’ came into usage in 1978 during the defense of the murderer of San Francisco mayor George Moscone and the better-known supervisor Harvey Milk. While not used per se by the defense team, the testimony of a psychiatrist for the defense that the murderer excessively consumed junk food, including Twinkies, as an indicator of depression and a sign of diminished capacity was hyped by the press as the ‘Twinkie Defense’. The term has passed into the vernacular. Ironically, both trials are occurring in the Bay Area.  Hat tip to The Crime Report.

The Theranos Story, ch. 64: Holmes’ trial moved to March 2021

What a difference two years makes. Once the subject of breathless headlines and breaking news, the latest news on the trials of Elizabeth Holmes and Ramesh ‘Sunny’ Balwani in la scandale Theranos earned hardly any notice in the healthcare press. Only this Editor’s search for an update found information that the Federal court trials, due to the pandemic and corresponding difficulty with trial preparation and jury selection, have been moved to 2021. Pretrial hearings for both have been moved to October and December.

So not to further punish our Readers who are dreaming of mountain lakes and ocean beaches, your Editor, a/k/a Glutton for Punishment, has summarized the Court’s next steps. 

  • The Holmes and Balwani trials have been severed–legalspeak for separated
  • Holmes will go first starting on 9 March 2021 with jury selection in the Federal Court, San Jose, Judge Edward J. Davila presiding. Balwani’s trial will not start until Holmes’ trial is concluded.
  • The next court hearings for Holmes will be 6 October (pretrial motion), 2 December (status), and 16 February 2021 (status)
  • Balwani will have a status hearing on 8 December

In early August, the Department of Justice (DOJ) prosecutor added a 12th fraud charge to Holmes’ list, relating to a patient’s blood test. A grand jury was empaneled in June during the midpoint of the pandemic, leading to Holmes’ legal team attempting to obtain 21 broad categories of documents on the jury selection. Their intent is to overturn the indictment as improper.

No need to stock up on popcorn till a month before Easter 2021, but it will be munch-worthy as rumored witnesses will be ‘faces’ such as General James Mattis (ret.), former board member and customer; Henry Kissinger; and Rupert Murdoch. This Editor’s bet is that these aged titans will not appear, with the exception of the youngest, General Mattis. More likely to be called to appear, in this Editor’s view, are executives from Walgreens who did the deal with Theranos, the last-ditch investors at Fortress Investment Group, major investors such as Partner Fund Management, and early unrepentant backer Tim Draper of Silicon Valley VC Draper Fisher Jurvetson.

The Federal charges are summarized in TTA 13 May]The full sturm und drang by chapter are here.

CNBC, US Department of Justice, Northern District of California published notice  The 14 June indictment (15 pages)

The Theranos Story, ch. 63: 12 new wire fraud, conspiracy, forfeiture charges for Holmes, Balwani

The Fraud That Is Theranos manages to stay in the news, despite a global pandemic, with more fraud charges. Only a few weeks ago, things were looking up for former executives Elizabeth Holmes (left, in the Female Steve Jobs days) and ‘Sunny’ Balwani. The defense insisted that they couldn’t prepare a proper defense without breaking shelter-in-place executive orders, which built their case for delaying the original August trial date. Prosecutors are requesting 27 October; the defense 2021. In February, the nine counts of wire fraud and two counts of conspiracy were reduced by the judge, who dismissed the two conspiracy charges related to defrauding patients who did not pay directly (e.g. insurance payment) and directing doctors to misrepresent Theranos to patients. 

Now Federal prosecutors have filed 12 fresh counts of wire fraud and conspiracy against Holmes and Balwani, plus forfeiture, in the Federal US District Court, Northern District of California, in San Jose. The superseding information (link to PDF) filed on 8 May details the very public splash and claims on their capabilities made by Holmes to the media, on their website, in their Walgreens partnership, and in advertising, from 2013 to 2015. Revealed today (12 May), the expansion of charges include 12 counts of:

  • Wire fraud against Theranos investors, including conspiracy to defraud investors through false representations of their revenue, financial models, and technology, going back to 2010
  • Wire fraud against Theranos patients, through representing to doctors that the tests were accurate while knowing they were not
  • Six additional charges of wire fraud through using electronic media and electronic transfers of funds
  • Four additional charges of wire fraud in transmitting through phone and internet laboratory and blood test results, plus payments for the purchase of nearly $1.3 million in ads targeting patients and doctors for the Wellness Centers

Wrapping this up is a demand for forfeiture of proceeds (which were at least $700 million).

These felony charges carry a potential sentence of 20 years imprisonment, a $250,000 fine, three years supervised release, plus a $100 special assessment (ahem), in addition to whatever proceeds can be clawed back in what is now a worthless company.

The actual indictment needs a grand jury to be convened, which cannot happen until 1 June or later.

Additional information on The Register, BioSpace, and Fox Business.

Theranos’ fraudulent blood testing is even more relevant in this Age of COVID with reports of the proliferation and uneven performance of virus and antibody tests. Tyler Shultz, who worked at Theranos and was related to investor/advisor George Shultz, warned on 2 May that Theranos would have thrived in this hothouse. The UK alone ordered millions of kits from China, only to send them back due to poor sensitivity (ability to avoid false negatives) and specificity (ability to avoid false positives). Rapid testing kits have come under particular fire. The US opened the gates to non-FDA cleared tests in March, only to close them shut a few days ago. Only Belgium, with the highest rate of fatalities per 1,000 infections, has banned the rapid tests. Other tests are more accurate but they take more time to return results and cannot be administered at home. Many believe that they already had COVID and anxious to see if they have the antibodies (IgG) floating about in their plasma. Bloomberg

The Theranos Story, ch. 62: Holmes’ attorneys request breaking ‘shelter in place’ orders for trial prep, charges shrink–and a coronavirus testing patent twist

Even the ‘Bad Blood’ trial has a Coronavirus Twist. The trial of Theranos former CEO Elizabeth Holmes surfaced last week in the midst of the Public Health Emergency in the US District Court in San Jose, where Holmes is scheduled to go on trial in August. Williams & Connolly lead attorney Lance A. Wade filed a motion with Federal Judge Edward Davila to permit Holmes’ attorneys to travel, serve subpoenas and meet with potential witnesses, which would include health care professionals and testing laboratories, all in preparation for the trial. Judge Davila basically swatted it aside, stating “I have to tell you sir, I read [the document] and I was a little concerned,” the judge said. “You’re basically filing a motion in essence asking the court to violate orders in the midst of a national crisis.” Wade stated that it would be nearly impossible to prepare Holmes’ defense without violating shelter-in-place orders and public health warnings. While both the judge and the lead counsel agreed that much could be done remotely to prepare for trial, Wade maintained that it would be ‘almost impossible’ to complete it. 

The trial date may change at the next hearing on 15 April, since the judge has requested both the prosecution and defense to propose alternative trial schedules. Jury selection is scheduled to start in late July. 

A prosecutorial deteriorata? In February, the nine counts of wire fraud and two counts of conspiracy were reduced by the judge, who dismissed the two conspiracy charges related to defrauding patients and directing doctors to misrepresent Theranos to patients. He also severed Holmes’ trial from former president and live-in Sunny Balwani’s. One wonders that, between the reduction of charges and the delay which has made The Biggest Healthcare Fraud of the 21st Century old news, whether Holmes and Balwani will serve any significant Club Fed time at all. Law360. CNBC, Observer

Another Corona Twist is that a SoftBank/Fortress Investment shell company, Labrador Diagnostics LLC, which happens to own several Theranos patents, sued a small company, BioFire, developing COVID-19 tests. Labrador now states that the patent infringement doesn’t entail the COVID tests but others over the past six years. Our Readers will recall that SoftBank/Fortress was a ‘last ditch’ investor in Theranos in December 2017, collateralized by the patent portfolio. The Verge

Comings and goings, wins and losses: VA’s revolving door spins again, NHS sleep pods for staff, Aetna’s Bertolini booted, Stanford Med takes over Theranos office

VA’s revolving door spins again with #2 person fired, but VistA replacement implementation moves on. James Byrne, deputy secretary, was fired on 3 Feb “due to loss of confidence in Mr. Byrne’s ability to carry out his duties” according to secretary Robert Wilkie. Mr. Byrne, a Naval Academy graduate and former Marine officer, had been VA general counsel, acting deputy secretary starting August 2018, then confirmed five months ago.

Mr. Byrne’s responsibilities included the Cerner implementation replacing VistA and other IT projects (HISTalk), of which Mr. Wilkie stated in a press conference today (5 Feb) “will not impact it at all” (FedScoop). The termination comes in the wake of a House staff member on the House Veterans Affairs committee, herself a Naval Reserve officer, stating that she was sexually assaulted at the VA Medical Center in Washington (NY Times). Axios claims that the White House was disappointed in the way the VA handled the investigation. At today’s presser, Mr. Wilkie denied any connection but attributed the dismissal to ‘not gelling’ with other team members. The launch of Cerner’s EHR is still on track for late March. The turnover at the VA’s top has been stunning: four different secretaries and four more acting secretaries in the last five years. Also CNBC, Military Times.

NHS’ sleep pods for staff to catch a few ZZZZs. A dozen NHS England hospitals are trialing futuristic-looking ‘sleep pods’ for staff to power nap during their long shifts and reduce the possibility of errors and harm by tired clinicians. Most of the locations are in the A&E unit, doctors’ mess, and maternity department. They are available to doctors, nurses, midwives, radiographers, physiotherapists, and medics in training. The pods are made by an American company, MetroNaps, and consist of a bed with a lid which can be lowered along with soothing light and music to aid relaxation. The pods may cost about £5,500 each but are being well-used. Other hospitals are fitting areas out with camp beds and recliner chairs. The sleep breaks take place both during and end of shifts before returning home and average about 17-24 minutes. Everything old is new again, of course–dorm areas were once part of most hospitals some decades back and doctors’ lounges with sofas were popular snooze-gathering areas. Guardian (photo and article)

Mark Bertolini bumped off CVS-Aetna Board of Directors. The former Aetna CEO, who was the engineer of the sale to CVS Health two years ago, isn’t going quietly out the door with his $500 million either. The high-profile long-time healthcare leader told the Wall Street Journal that he was forced off the BOD. He maintains the integration of the Aetna insurance business is incomplete, contradicting CVS’ statement that it’s done. Mr. Bertolini and two other directors are being invited out as CVS-Aetna reduces its board following, it says, best practices in corporate governance. Looking back at our coverage, Mr. Bertolini had hits, bunts (ActiveHealth Management) and quite a few misses (Healthagen, CarePass, iTriage). According to the WSJ, the contentious nature of the statement plus the departure of the company’s president of pharmacy is raising a few eyebrows. And recently, an activist shareholder, Starboard Value LP, has taken a stake in the company. CVS is demonstrating some innovation with rolling out 1,500 HealthHubs in retail locations as MinuteClinics on steroids, so to speak.  Hartford Courant (Aetna’s hometown news outlet) adds a focus on how many jobs will be remaining in the city with a certain skeptical context on CEO Larry Merlo’s promises. 

Stanford taking over Theranos Palo Alto HQ space. HISTalk’s Weekender had this amusing note (scroll down to ‘Watercooler Talk’) that the 116,000-square-foot office building in Stanford Research Park will now house the Stanford medical school. Theranos had been paying over $1 million per month in rent for the facility. The writer dryly notes that Elizabeth Holmes’ bulletproof glass office remains. This Editor humbly suggests the floor-to-ceiling application of industrial-strength bleach wipes and disinfectant, not only in the lab facility but also in that office where her wolf-dog used to mess.

The LA Times reports that Ms. Holmes is also defending herself without counsel in the Phoenix civil class-action lawsuit against Theranos. On 23 January, she dialed in to the court hearing’s audio feed and spoke for herself during that hour. One has to guess that she doesn’t have much to do other than read legal briefs. (Perhaps she sees herself as a cross between Saint Joan and Perry Mason?) Last fall, Ms. Holmes was dropped by Cooley LLP for non-payment of fees [TTA 9 Oct 19]. Williams & Connolly continues to represent her in the criminal DOJ suit, where prison time looms.