Comment on this story
Comment
Former Theranos CEO Ramesh “Sunny” Balwani, who was a longtime deputy to founder Elizabeth Holmes, has been convicted on all 12 counts in federal court in San Jose of defrauding investors and patients connected to the biotech company, according to the Associated Press.
Balwani faced 10 counts of wire fraud and two counts of conspiracy to commit wire fraud after initially being charged against his former business partner, Holmes. Balwani ended up with a harsher sentence – Holmes was convicted in January of four counts of fraud for misleading investors who poured money into the blood-testing startup that once promised to transform the medical diagnostics industry.
Theranos founder Elizabeth Holmes has been found guilty in a landmark fraud case in Silicon Valley
Theranos has been a shining star in Silicon Valley for more than a decade, attracting investment from savvy techies like Oracle’s Larry Ellison and venture capitalist Tim Draper. It boasted a star-studded board of directors that included former Secretary of Defense Jim Mattis and former Secretaries of State Henry Kissinger and George Shultz. Holmes started the company when she was still a student at Stanford and captivated potential business partners, investors and the media with her vision to make blood testing cheaper and less painful.
But the house of cards came tumbling down after a Wall Street Journal investigation revealed that Theranos’ technology didn’t work as well as the company had boasted. Its small, desktop device, sometimes called the Edison or MiniLab, could perform only about a dozen blood tests, former employees revealed in trial testimony — a far cry from the hundreds of tests Theranos thought it could perform.
The company’s collapse destroyed Holmes’ image as a Silicon Valley innovator and became the subject of a bestseller, multiple podcasts, an HBO documentary and, most recently, a Hulu series starring Amanda Seyfried.
Thearanos’ downfall has shaken confidence in some corners of the biotech industry and served to some as yet another example of Silicon Valley greed overreaching.
Elizabeth Holmes learned all the wrong lessons from Silicon Valley
Balwani, a man almost 20 years older than Holmes, was by her side most of the time, both as a business and romantic partner. Federal prosecutors charged the two together, but the defendants’ cases were later dropped when Holmes accused Balwani of abusing her. He denied the allegations. The allegations did not come up during Baluani’s trial.
But the trial mirrored Holmes’s in many ways, with prosecutors calling more than a dozen of the same witnesses, including former investors and company lab directors.
Still, Balwani ended up with more convictions than Holmes, which was not entirely unusual since the two had different juries, said Robert Dugdale, a former federal prosecutor who is a partner at Kendall Brill & Kelly and specializes in white defense collars.
Different jurors could look at the same set of facts and come up with slightly different findings, he said, noting that both Holmes and Balwani were convicted on at least some counts.
“Juries sometimes reach not entirely consistent results,” he said. “It’s not unusual to have small deviations.”
The government also streamlined its case this second time around, said Michael Weinstein, chair of the white-collar criminal practice at Cole Schotz and a former federal prosecutor. Prosecutors had turned to the evidence, were more selective with their witnesses and their presentation was tougher, he said.
“In the end, it was too much for the jury not to convict,” he said. He added that Balwani, an older and more experienced business leader, may not have garnered the same “likes” as Holmes, who started working on Theranos when she was a student.
Although a less public leader, Balwani had significant responsibilities at the company, including managing the biotech’s ultimately doomed relationship with Walgreens, overseeing its laboratories and overseeing some of its finances and investor relations, the lawsuit revealed.
Prosecutors said Balwani was fully aware of the problems Theranos was facing and dismissed employees’ concerns. A former lab worker who said she brought her concerns to Balwani, Erika Cheung, later became a key informant who exposed the company.
“What he’s saying to Erica Cheung is that he questions her experience and that he’s tired of people who don’t have enough experience questioning the Theranos blood test,” prosecutor Jeff Schenck said in his closing statement. “And he tells her that she has one job at Theranos and that’s to process patient samples and not ask any questions.”
Balwani’s defense team did not dispute that the former CEO had a lot of control and responsibility at Theranos. He “drew from many, many fire hoses,” including lab operations, software, investors and manufacturing, his defense attorney, Geoffrey Coopersmith, told the court.
But his defense team argued that Balwani believed in Theranos and — as Holmes similarly put it — acted on the belief that Theranos was doing everything it could to make blood tests more affordable.
“What the evidence in this case showed was that all along Mr. Balwani acted in good faith to make blood testing more affordable, more convenient and more accessible to everyone,” Coopersmith said in his closing statement .
Unlike Holmes, who testified over several days, Balwani did not take the stand during the trial. His team called only two witnesses, including a doctor who referred patients to Theranos and a computer specialist unrelated to the company who spoke about a lost database of test results.
The trial of Elizabeth Holmes is the hottest ticket in Silicon Valley
Balwani, a former dot-com software entrepreneur, guaranteed a $10 million loan to Theranos in 2009 and later bought millions of dollars worth of stock in the company. In 2009, he became vice president of Theranos and was later named president and chief operating officer.
He first met Holmes, 18, on an international trip to China the summer before she started college. Balwani was 37 years old at the time. The pair later struck up a romantic relationship and continued dating while he worked at the startup.
In a statement, Balwani’s lawyer said he was “disappointed” by the sentences.
“We plan to explore and consider all of Mr. Balwani’s options, including an appeal,” Coopersmith said.
Holmes is expected to be sentenced in September and Balwani in November.
“Mr. Balwani had to make a choice,” Schenck, the prosecutor, said in his closing statement. “He could watch Theranos fail, he could watch his girlfriend’s business fail, or he could follow a different path.”
Add Comment