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

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

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

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

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

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

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

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