Elizabeth Holmes has been found guilty of defrauding investors as founder and CEO of Theranos. After four months of court proceedings and seven days of deliberations, the jury has reached a verdict that will have lasting implications in Silicon Valley and beyond.
The former youngest and wealthiest female self-made billionaire was tried for two counts of conspiracy to commit wire fraud and nine counts of wire fraud. Holmes was found guilty of conspiring to defraud investors, as well as defrauding investors from the DeVos family, hedge fund manager Brian Grossman and former estate and trust attorney Dan Mosely. She was not found guilty of charges related to defrauding patients.
The jury did not reach a verdict on three wire fraud counts involving Black Diamond executive Chris Lucas, Hall Group executive Bryan Tolbert and money manager Alan Eisenman, who all testified in the trial. Judge Edward Davila found a mistrial on these three counts. Prosecutor Jeffrey Schenk said he will confer with the Department of Justice, then tell the court next week how the government wishes to proceed.
Holmes founded Theranos in 2003 after dropping out of Stanford. She pitched investors and partners on technology that would revolutionize the healthcare system — instead of drawing blood intravenously and waiting days for test results, her technology would prick a tiny bit of blood and instantly conduct dozens of tests on it. Soon she was the CEO of a company with a $10 billion valuation, but there was one problem: the technology didn’t work.
Theranos has been defunct since 2018, but Holmes’ criminal trial only began this fall after delays due to the pandemic and the birth of Holmes’ child. Over 11 weeks, the prosecution constructed the case that Holmes knowingly defrauded investors, questioning witnesses like former U.S. Secretary of Defense James Mattis, whistleblower Erika Cheung, Theranos patients, investors, medical professionals and journalists.
Even though Theranos’ technology didn’t actually accomplish what the company claimed it did, Holmes said that she thought she was telling the truth — she even alleged that the slideshows she presented to investors were made by scientists and engineers. But the prosecution managed on some counts to convince the jury that Holmes knowingly misled investors and partners — one piece of evidence showed that Theranos used Pfizer’s logo in an unauthorized manner while negotiating a partnership with Walgreens. A former senior product manager at Theranos, Daniel Edlin testified that Theranos sometimes faked demonstrations of their technology in front of investors. When billionaire investor Rupert Murdoch had his blood tested, Theranos removed abnormal results before sending out the reports, Edlin said.
In a big twist for the high-profile trial, Holmes took the stand herself to argue that her failure as a startup founder doesn’t mean she committed fraud. In a key moment, Holmes alleged that Theranos COO Ramesh “Sunny” Balwani abused her.
Balwani, who faces a separate trial next year, was Holmes’ boyfriend in secret. They met when Holmes was 18 and Balwani was 37 — she moved in with him the year after she dropped out of Stanford. She also said during the trial that she was raped as a Stanford student, which is part of why she didn’t finish her degree. She “decided [she] was going to build a life by building this company.” She detailed Balwani’s controlling behavior, including a written document that dictated her daily schedule, including what she ate, when she slept and how she dressed. She said, “He was so disappointed in my mediocrity and he was trying to teach me how to be better.”
The jury deliberated for seven days, even asking if they were allowed to take jury instructions home to review. They also asked to re-listen to some audio clips of Holmes’ calls with investors, which had been presented as evidence, yet deliberations continued into the new year.
On the seventh day of deliberations, the jury submitted its third note to the judge, saying that it could not reach an unanimous verdict on three of the 11 counts. The prosecution suggested that Judge Davila read the jury an instructional document on what to do in the case of a deadlocked jury. Holmes’ defense disagreed, saying that these instructions could be seen as coercive, but the judge proceeded to deliver the instructions. He also reminded the jury that Holmes would be presumed innocent until proven guilty. Four hours later, the jury submitted another note stating that its members could still not reach an unanimous verdict on three charges. Shortly after, they presented their verdict on the eight other counts.
It’s not unexpected for the deliberations in a prominent white-collar trial to take this long. The jury deliberated for five days before arriving at a verdict in Ghislaine Maxwell’s recent four-week trial; she was found guilty of five of six charges. In 2007, former press tycoon Conrad Black was of fraud convicted after 12 days of jury deliberations in a 14-week trial.
The trial’s verdict sends a message to tech founders that it’s not okay to lie about your technology — especially not when it affects the health of real people. But it sends a mixed message that she was found not guilty of the counts related to defrauding patients. Beyond that, the case showed how important due diligence is for investors and partners collaborating with startups. Notably, Theranos’ investors weren’t the usual-suspect venture capital firms. Rather, her funding came from individuals like former Secretary of Education Betsy DeVos, billionaire media mogul Rupert Murdoch, former Secretary of State Henry Kissinger and the Walton family, among other wealthy elites. Some evidence showed that these investors were willing to give Theranos money even when Holmes evaded their more probing questions.
But the investors’ misplaced belief in Holmes wasn’t the only thing propelling the faulty Theranos tech forward. Theranos and other diagnostics companies have exploited regulatory loopholes that allow devices that are not yet FDA approved to reach the market.
Theranos isn’t quite a thing of the past yet. Balwani awaits his own criminal fraud trial next year.