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. 

The Trial of Elizabeth Holmes, ch. 17: looking inside the juror decision process

How does a juror–and jury–process multiple counts, witnesses, a defendant, and an avalanche of information without drowning? ABC News interviewed Juror #6, Wayne Kaatz, an actor, voice talent, and scriptwriter. We rarely get a glimpse inside the jury box of a high-profile case. It’s well described, which isn’t surprising given that Mr. Kaatz is a writer, mostly for children’s programs. In short, “working class” show biz.

  • They grappled with the ultimately deadlocked three charges–and felt they had failed (Ch. 16)
  • Early on, they discarded the charges involving patients, considering Elizabeth Holmes ‘one step removed’ from them
  • They scored witnesses’ testimonies and Holmes on a 1-4 scale, from not credible to most credible. Adam Rosendorff, the lab director that the defense went after hard, scored a four. Holmes–a two.
  • They were sympathetic towards Holmes, finding her “likable”, with a “positive dream”. 
  • The decision to find her guilty on the four fraud counts centered on her “final approval” and that she “owned everything”.  

About the process, they selected a younger man as their foreman from the eight men and four women. They shared initial verdicts on paper scraps and laid out information on a timeline. The jurors got along well over the months-long trial culminating in 50+ hours of deliberation, working on puzzles and swapping sandwiches. 

Mr. Kaatz closed his thoughts: “It was an honor. It was a duty, I did it. I’m done.” Little drama, not ‘Law and Order’ or ‘Twelve Angry Men’. ABC News–and do read the interesting comments, but only halfway through before it devolves into hair-pulling on a wholly different event.

The Wall Street Journal’s follow-up (paywalled text, but audio is not) focuses on Juror #8 (Susanna Stefanek) finding the “smoking guns” as the altered pharmaceutical “endorsements”, singling out Pfizer’s, and the fictional financial projections.

Vox goes into Holmes as Hollywood will be seeing her, with Hulu and Apple treatments teeing up. The NY Times goes on about Holmes being a product of Silicon Valley culture–the puffery, the one-upmanship, and believing their own press releases. But for now, we can give it a rest…till Sunny Balwani’s trial starts.

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. 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. 10: Holmes testifies about the salad days of Theranos, setting up cognitive dissonance

Setting up a defense of cognitive dissonance. Today, in a brief appearance in Federal District Court in San Jose, Elizabeth Holmes returned to the stand to testify in her defense after a start last Friday. Her attorney Kevin Downey walked her through Theranos’ salad days, when the labs were numbered 1.0, cartridges stuck together, and the drug company studies were preliminary. Returning to her deep voice according to reports, she recalled Theranos’ Completed Successes, circa 2009, as many, and the performance as “really good.”

But 2009 was before the fraud with investors really got going. The falsifying of reports from Pfizer and Schering-Plough, for instance, was later. But every single drug company approached for the preliminary studies in those early days, including AstraZeneca at London’s Royal Marsden Hospital, never followed through with Theranos for more, such as a clinical trial or advanced study. Whether Holmes knew from an employee that Constance Cullen of Schering-Plough was less than enthusiastic about Theranos and found Holmes ‘cagey’ is beside the point, when the company later forged the Schering-Plough logo on a report to make it look as if Schering found Theranos’ labs acceptable. Downey took some care with Holmes not to introduce the later forgeries. Yet she was nothing if not persistent with other companies. Holmes pursued a partnership with Pfizer as late as 2015, in conjunction with Walgreens’ Theranos locations as clinical trial sites. 

She also testified that the series 4 lab could run any test, despite testimony from her last lab director Kingshun Das, MD that the series 3 could run perhaps a dozen at best and not reliably, leading him to void all tests made in 2014 and 2015. Earlier testimony stated that the series 4 never ran tests on patients.

Holmes’ testimony will continue tomorrow. Then the courts will be in recess for the Thanksgiving holiday until the 29th, which is when the prosecution will have its turn to cross-examine.

“Trying your hardest and coming up short is not a crime,” Lance Wade, another of Holmes’ many attorneys, said during opening arguments. But Holmes has already admitted to a repeated fraudulent claim of legitimacy–having the Department of Defense as a customer where the labs were on medevacs and the battlefield. But if the defense can introduce enough reasonable doubt, also known as cognitive dissonance or plain confusion, about Holmes and her ‘long con’ in the minds of the jury–that she was an entrepreneur with a dream just ‘trying harder’ and she didn’t know or mean to defraud investors as the prosecution claims but caught up in pursuing her noble aims–and add to that mind control by Sunny Balwani, Holmes does not have to be innocent to, as they say downtown, skate. CNBC, The Verge, FT, Mercury News (paywalled)

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

Theranos, The Trial of Elizabeth Holmes, ch. 9: the cold $96 million (updated 19 Nov)

On which may well hang how many years Elizabeth Holmes spends in prison. Yesterday’s testimony by Brian Grossman, chief investment officer at PFM Health Sciences, may be the prosecution coup de grace in drawing a picture in bold colors, no pale pastels, of deliberate deception and fraud.

Previous testimony spun tales of family offices and highly wealthy individuals such as Rupert Murdoch (and not so wealthy such as Alan Eisenman) being easily lulled by the Social Network spinning. They were gulled by the whiz-bang technology–Elizabeth Holmes’ and Sunny Balwani’s nanotainers, miniature Edison labs–as well as their fake claims of Theranos labs on Army medevacs and false letters from multiple international pharmaceutical manufacturers vetting their technology. Safeway and Walgreens executives had a more complicated tap dance, coming on board at not much past the idea stage, and staying in through a combination of Wanting To Believe, Competitive Embarrassment, and Heads Wanting To Stay In Place at having to write off hundreds of millions of dollars in public companies. 

Mr. Grossman in fact was and is the managing and founding partner, as well as CIO, of PFM. It’s located not on Sand Road but in (relatively) sober San Francisco. Founded in 2004, PFM specializes in early-stage and diversity health-focused investment, and currently manages over $2 billion in public and private funds. Lark Health is one of their recent investments [TTA 14 Oct]. Their Crunchbase profile demonstrates active investment in multiple operating companies. He and his firm are of some substance.

Something about Theranos got his attention–not the social networking, but the all-in-one miniature labs that condensed thousands of feet of lab into a small box. He was told that the entire Phoenix market could be served with labs fitting into about 200 square feet. Grossman knew a competitor, Quest Diagnostics, would need hundreds of thousands of square feet of space to match that. 

What caused him not to be skeptical? Of course, the mythical military involvement and pharma endorsements first, but then….

  • Projections of $30 million in 2014 income from pharma companies–alone. Needless to say, no income in 2012 or 2013 would raise a red flag for some, but not necessarily for PFM in early-stage companies.
  • Four-hour turnaround on lab results in retail, one hour in hospitals–carefully concealing the wildly uneven results from the Edison labs resulting in third-party labs being used for retail, and his own personal result of over a day on a full venous draw, not a finger stick.
  • Holmes was “very clear that this technology was not a point-of-care test, not a point-of-care testing platform, it was a miniaturized lab,” he said. That alone smelled like a 20-ounce porterhouse steak off the grill. 
  • While Balwani nixed Grossman speaking with Walgreens and UnitedHealth, Channing Robertson of Stanford, who helped Holmes start Theranos, vetted their labs as extremely advanced technology–one with which competitors would spend years catching up–for a serious investor, sauce, potato, vegetables, and trimmings on that sizzling steak

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

Three years later, PFM also won its own fraud case against Theranos, settling its lawsuit for about half–an estimated $40-50 million (WSJ; CNBC claims $46 million). The timing was good–it was while the company still had some money to claw back [TTA 26 June 2017].

What happened to PFM and other investors shook up Silicon Valley for years and, as much as some may deny it, health tech investment plus tarnished the image of women heading health tech companies. Some of the reasons why this case has received international attention. CNBC, The VergeNBCBayArea

Updated. Where the prosecution would go in its final days of its case–they may be wrapping this week–would they have trouble topping this for the jury, after piling similar fraud high and wide? But, in this Editor’s estimation, they brought it all back home for the jury by putting Roger Parloff, author of the 2014 Fortune cover story, ‘This CEO Is Out For Blood”, on the stand. His articles, recordings, and notes put into sharp relief and in summary the full fraud–all the fraudulent statements the company presented, versus the reality presented by the witnesses and evidence in the courtroom. At the time, the Fortune article fueled the current investors and served to bring in more, such as the DeVos family. Parloff over a year later wrote a column stating that he had not only been misled, but also failed to get to the bottom of what he termed “certain exasperatingly opaque answers that I repeatedly received”. Parloff was also the “beating heart” of a 2019 HBO documentary, “The Inventor”. CNN Business

Updated 19 Nov: But now it will be the defense’s turn to surprise. 

The New York Times, in a well-padded piece, speculates on the obvious–whether Holmes will be put on the stand to directly testify about  “how Sunny made her do it”–Sunny Balwani’s private psychological manipulations, all of which seemed to be well-hidden at the time. Stand by, it may get lurid.

But first for hilarity. The prosecution rested. The defense’s first move was to request that the court acquit Holmes on the grounds of insufficient evidence. Then amazingly, Holmes took the stand. Judge Davila dismissed one fraud count against Holmes, leaving only 11. We’ll pick this up next week.

To be continued….

TTA’s earlier coverage: Chapter 8, Chapter 7, Chapter 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….