Elizabeth Holmes found guilty on four counts

January 3, 2022 • 7:00 pm

Well, it looks like con artist Elizabeth Holmes, founder of Theranos and its nonfunctional blood-testing system, is going to jail. That is, unless the judge lets her off on probation when each of the four counts of which she’s convicted carries a maximum twenty-year sentence.

As the New York Times reports, Holmes was found guilty of three counts of wire fraud and one count of conspiracy to commit wire fraud. As for the other seven charges, here’s the outcome (from the NYT); “no verdict” means that the jury was deadlocked.

  • Count one of conspiring to commit wire fraud against investors in Theranos between 2010 and 2015: Guilty.

  • Count two of conspiring to commit wire fraud against patients who paid for Theranos’s blood testing services between 2013 and 2016: Not guilty.

  • Count three of wire fraud in connection with a wire transfer of $99,990 on or about Dec. 30, 2013: No verdict.

  • Count four of wire fraud in connection with a wire transfer of $5,349,900 on or about Dec. 31, 2013: No verdict.

  • Count five of wire fraud in connection with a wire transfer of $4,875,000 on or about Dec. 31, 2013: No verdict.

  • Count six of wire fraud in connection with a wire transfer of $38,336,632 on or about Feb. 6, 2014: Guilty.

  • Count seven of wire fraud in connection with a wire transfer of $99,999,984 on or about Oct. 31, 2014:Guilty.

  • Count eight of wire fraud in connection with a wire transfer of $5,999,997 on or about Oct. 31, 2014: Guilty.

  • Count nine was dropped.

  • Count 10 of wire fraud in connection with a patient’s laboratory blood test results on or about May 11, 2015: Not guilty.

  • Count 11 of wire fraud in connection with a patient’s laboratory blood test results on or about May 16, 2015: Not guilty.

  • Count 12 of wire fraud in connection with a wire transfer of $1,126,661 on or about Aug. 3, 2015: Not guilty.

From the NYT:

A jury of eight men and four women took 50 hours to reach a verdict, convicting her of three counts of wire fraud and one count of conspiracy to commit wire fraud. She was found not guilty on four other counts. The jury was unable to reach a verdict on three counts, which were set aside for later.

Each count carries a maximum sentence of 20 years in prison, terms that are likely to be served concurrently. Ms. Holmes is expected to appeal.

The verdict stands out for its rarity. Few technology executives are charged with fraud and even fewer are convicted. If sentenced to prison, Ms. Holmes would be the most notable female executive to serve time since Martha Stewart did in 2004 after lying to investigators about a stock sale. And Theranos, which dissolved in 2018, is likely to stand as a warning to other Silicon Valley start-ups that stretch the truth to score funding and business deals.

The mixed verdict suggested that jurors believed the evidence presented by prosecutors that showed Ms. Holmes lied to investors about Theranos’s technology in the pursuit of money and fame. They were not swayed by her defense of blaming others for Theranos’s problems and accusing her co-conspirator, Ramesh Balwani, the company’s chief operating officer and her former boyfriend, of abusing her.

They were also not swayed by the prosecutor’s case that she had defrauded patients. Ms. Holmes was acquitted on four counts related to patients who took Theranos’s blood tests and one related to advertisements that the patients saw.

Holmes’s defense of blaming her actions on mind control by Sunny Balwani particularly galled me, as she constructed her image, and certainly behaved accordingly, as a strong and independent woman.

My prediction was that she’d be convicted (you’ll see an earlier writing, before the verdict was just issued, in tomorrow’s “Hili News), though I thought she’d be convicted on more charges.  Still, in my own view, she needs some jail time to serve as a deterrent to others entrepreneurs who would extract money from people under false pretenses.

To see what she really did, I highly recommend John Carreyrou’s dissection of the whole saga in his 2018 book, Bad Blood: Secrets and Lies in a Silicon Valley Startup. Begun as a reportorial job for the Wall Street Journal, the saga was turned by Carreyrou into a page turner that is endlessly engrossing and won several prizes as well. If you’ll read it, you’ll wonder how Holmes got off so lightly.

lizabeth Holmes | CREDIT: YICHUAN CAO/GETTY IMAGES

27 thoughts on “Elizabeth Holmes found guilty on four counts

  1. I was hoping for more too.
    I think she got off so lightly because she is an attractive young women with well contrived voice and charismatic personality.

    That even the prospect of mind control and manipulation by her boyfriend could be thought to work is disturbing.

    1. I can’t say what appropriate sentencing will be. But assuming is about RRRD I am wondering what would be appropriate?
      Restrain … prevent Holmes from doing it again? Prison time will certainly prevent her from doing that again. Though I thought it would be unlikely she will ever be in position to repeat something like this.

      Rehabilitate Well I suppose there may be some programs in place to rehabilitate Holmes, but I suspect there is not much that needs rehabilitating. Unless she has some mental defect underlying her actions, in that case the options become different.

      Restoration Well returning money as much as possible to the investors is in order. Not sure jail time helps here.

      Deterrence Deterring others is of course a worthy cause. Not sure how much hefty sentences actually deter people from committing crimes? I have been led to believe deterrence is a weak component when it comes committing crime (getting caught is much bigger).

      And of course there is the fourth R of the Justice system:

      Retribution

      Again … I am not saying what an appropriate sentence might be, other that when considering sentencing this is the list I go through.

  2. I think that honorary degrees are meaningless and often done for PR with the intent of drawing donations – but Pepperdine now has two big losers in Holmes and Bill Cosby.

  3. I wouldn’t dismiss the allegation of being controlled by Balwani. That said, she would have to prove it, and as that is not happening, she has to stand responsible.

    The most interesting thing about the case, to me, is how much like scientology Theranos presented itself. I think, althought it doesn’t matter in the end, that either Holmes believed she could achieve what she pretended, and was just triying to gain time and money to achieve it, or more probably she knew what she was doing and was in it only for money and recognition for as long as she could, knowing that she would be caught eventually. Either puzzles me about how a person’s mind could rationalize such position. The thing is if only she would have presented the whole thing as a religious enterprise, as scientology does, she could have gotten away with it.

    I would conclude that corporate culture (including figures like Jobs) is very much like a religion, and so is the market economy with the invisible hand and all that. Also, that this should inform us how much religions and churches are like companies in it for the power and money, and shouldn’t be tax exempted.

    1. Interesting comment – I started to read because I was going to say the same on Balvani, lots of strong individuals have come out as having been abused and controlled – but the analogy with religion is noteworthy too.

      On companies or in general hierarchical groups there is the tendency to follow a – charismatic, or not – leader. I don’t see that as a problem most times – groups fail randomly at objectives all the time, as individual do – but I’m all for taxing churches.

      I dunno about any “invisible hand” but archaeological record trace trade markets back 4 kyrs to self organized weight systems. It turns out you can get enough fair weights (at 20 % error) by eye and, well, markets, and they find evidence from Asia to Europe of local systems along the trade routes. It is a “well tested” system, and I haven’t seen any successful competition for it. A long way to say that this may be an opposite example to hierarchical systems and leaders.

      1. I didn’t understand your las paragraph about markets and so on, and by that I mean the sentences don’t make much sense to me.

        For clarification, by invisible hand I was refering to Adam Smit’s concept (https://en.wikipedia.org/wiki/Invisible_hand) and so by market economy the modern capitalist concept. Not sure they do hace much to do wit markets on Asia and Europe centuries ago.

    2. [This may become a copy – it seems I can’t use a login as I post:]

      Interesting comment – I started to read because I was going to say the same on Balvani, lots of strong individuals have come out as having been abused and controlled – but the analogy with religion is noteworthy too.

      On companies or in general hierarchical groups there is the tendency to follow a – charismatic, or not – leader. I don’t see that as a problem most times – groups fail randomly at objectives all the time, as individual do – but I’m all for taxing churches.

      I dunno about any “invisible hand” but archaeological record trace trade markets back 4 kyrs to self organized weight systems. It turns out you can get enough fair weights (at 20 % error) by eye and, well, markets, and they find evidence from Asia to Europe of local systems along the trade routes. It is a “well tested” system, and I haven’t seen any successful competition for it. A long way to say that this may be an opposite example to hierarchical systems and leaders.

  4. Glad to see Holmes convicted of at least some of the charges. Balwani’s trial next month is going to be interesting.

  5. … Elizabeth Holmes, founder of Theranos and its nonfunctional blood-testing system, is going to jail. That is, unless the judge lets her off on probation when each of the four counts of which she’s convicted carries a maximum twenty-year sentence …

    Under the federal sentencing guideline applicable to fraud cases, USSG section 2B1.1, the primary driver of a convicted defendant’s guideline score is the amount of the loss incurred by the fraud’s victims. According to reports from the trial, Holmes is accused of causing some $140 million in losses. Under the loss table in subsection (b)(1) of the guideline 2B1.1, a loss of that amount would add 24 points to Ms. Holmes’s base offense level of 7. (Other upward adjustments based on the number of defrauded victims may increase her offense level even further.)

    At that offense level, under the federal guidelines sentencing table, she’s looking at a sentencing range of at least around 10 years (108-135 months) and possibly higher. Although a federal sentencing judge has discretion to depart (either upward or downward) from the range set by the guidelines, I think it highly unlikely that the judge in Elizabeth Holmes’s case would grant her the extreme downward departure it would take to impose a probationary sentence.

    1. I’d like to ask some questions to clarify a point.

      You have assessed the sentence based on the total of all the losses alleged under each charge that was proven. Is the judge allowed to consider all the charges together or must he assess the sentence for each of the four guilty verdicts separately? If the latter, does he have any discretion as to whether the sentences should be served concurrently or consecutively?

      I think the answers to those questions will make a big difference as to how much time Holmes serves behind bars.

      1. The US Sentencing Guidelines created a “conduct based” rather than “charge based” system. Under this system, the sentencing court considers all the convicted defendant’s “relevant conduct” in determining the guidelines range, including even conduct for which the defendant was acquitted, so long as the court finds that the conducted has been established by a preponderance of the evidence. See USSG 1B1.3.

        Under the sentencing guidelines, separate counts of conviction that involve the same type of harm are grouped and treated as a single count of conviction under section 3D1.4. (I believe that all four counts on which Holmes was convicted will be grouped under this provision.) Accordingly, the counts will all run concurrently, unless Holmes’s recommended sentencing guidelines range exceeds the maximum for any one count (in her case, 20 years), in which case one of the counts will be run consecutively so as to reach the specified range.

        The guidelines system isn’t amenable to simple explanation, but I hope this helps.

      2. If I remember correctly, the legal pundits on CNN said that the judge has the option to make the sentences concurrent but that it isn’t usually done. The judge has a lot of discretion in such cases.

        1. The pundits probably said that the sentences would in all likelihood be imposed to run concurrently, since there is no reason to run them consecutively unless the ultimate sentence imposed exceeds the maximum sentence for a single count, i.e., 20 years.

          As originally enacted in 1987, application of the US sentencing guidelines was made mandatory. In the landmark case United States v. Booker, an oddly fractured SCOTUS held mandatory guidelines unconstitutional and interpreted them instead to be discretionary. Since then, sentencing courts have had much greater leeway to vary or depart from the specified guidelines range, although an accurate calculation of the applicable guidelines range is still the starting point in imposing a federal sentence.

    2. The analysis I read here is that the sentencing guidelines call for life (level 43) and since 65 years is less than life, that’s what will be imposed. According to the link, Holmes lied on the stand which is unlikely to endear her to the judge.

  6. What I find curious about the Theranos case is that the prosecution, the defense, and the media have all treated it as a sort of “vaporware” case: Holmes made fraudulent (fide the prosecution) or overhyped (fide the defense) claims about what her test kits could do. So it was like an early beta version of a video game– it’ll be great once the kinks are worked out and the extra code is written. But my understanding is that what she was claiming was more akin to saying she was developing a perpetual motion machine– no amount of development could produce the kits she claimed, because it would be literally physically impossible. It’s not that she was promising things they hadn’t achieved yet– she was promising things that cannot be achieved.

    Perhaps the prosecution didn’t mention this, because if the investors are being just as delusional as Holmes about what is possible, then a fair amount of the responsibility falls on the investors.

    GCM

    1. I don’t recall anyone saying that what Theranos was proposing was physically impossible. Microfluidics and gene chips are real. When people suggest that their machine “cannot be achieved”, I don’t think they are talking about some kind of fundamental limit to what’s possible.

      The blood testing industry still thrives though certainly investors have been made wary by the Theranos debacle. See this article from 2018:

      “Like Theranos, but it works”–health startup Genalyte proves its worth
      https://www.fastcompany.com/40574949/like-theranos-but-it-works-health-startup-genalyte-proves-its-worth.

      WaPo’s recent article captures the consensus opinion:

      “Experts overwhelmingly agree that running hundreds of tests from just a few drops of blood in a portable machine is an incredibly difficult task to accomplish. But that hasn’t stopped a new generation of founders from attempting to make breakthroughs in less invasive blood testing, moving out of the shadow of one of most infamous tech start-up failures.”

      Theranos failed, but other blood-tech companies are still trying to make testing faster and easier
      Theranos might have collapsed, but other blood diagnostic start-ups are still raising cash
      https://www.washingtonpost.com/technology/2021/11/16/blood-startups-theranos/

      1. >I don’t recall anyone saying that what Theranos was proposing was physically impossible.

        That’s kind of my point. It’s not that blood testing can’t be automated and made to fit a smaller device, but that there are limits that were fairly obvious, but not mentioned. You can make an engine more efficient, but when someone says they have achieved 100% efficiency, you know they are lying.

        GCM

        1. Agreed. “100% efficiency” is always BS in an engineered product from a purely scientific point of view.

          On the other hand, in marketing speak things can always be finessed. It could be interpreted as 100% of the efficiency that may be reasonably achieved, for example. When dealing with supposedly savvy investors, it could be argued by Theranos, “Of course we didn’t mean that it was something akin to a perpetual motion machine. We know that our investors are smarter than that.” Unless they get caught saying that some measurement was 85 when, in fact, it was 27, it all comes down to a subjective argument. Was it reasonable or fraudulent marketing hype?

          Complicating this even more is the fact it was a device in development. Was she talking about what the device was capable of right now or when they get the bugs out sometime soon? Again, it comes down to a subjective argument.

        2. My albeit limited understanding is that the most eyebrow-raising claim had to do with sample size – i.e. they were claiming to be able to do multiple tests using a blood sample smaller than any of the current-technology individual tests uses right now. So maybe a one or two order of magnitude jump (downward) in sample size required, for multiple different types of blood tests.

          Which seems like a big enough leap in technology that anyone with any biotech savvy should have been wary of a company claiming to have successfully done that in a mere few years. However, that also seems to me the sort of breakthrough one could reasonably expect from a 10-20 year R&D tech push. It would not at all surprise me to see a real, working Theranos-like test in the 2030s. In terms of biotech advancement, that would not even be as remarkable as going from Human Genome Project to 23AndMe in 25 years, which we already did.

          So not a perpetual motion machine. More akin to the Raelians claiming to have a cloned human teen. I.e. the sort of breakthrough we can reasonably expect science to achieve in the future…but also not the sort of claim we should accept if someone says they can do it now, today.

          1. The important point was that there was no reason to dismiss their claims on their face. The investors should have demanded a closer analysis of their technology but they didn’t. It’s somewhat like the Bernie Madoff scandal. Everyone was so enthused by the prospect of success that they didn’t really consider that they were being had.

            One big difference between Theranos and Madoff’s fund was that when a company like Theranos has such a high valuation and 800 employees, even failure to create their target product can still be a financial success by selling off patents and/or pivoting the successful parts of their technology toward other products and industries. However, in the Theranos case it was almost complete vaporware.

    2. I am curious about all the smaller fry in the science/technology chain? How big was Theranos? How many people in the chain knew that the technology does not work? It’s a bit like the Volkswagen fiddle.

    3. Given the major investors, I don’t feel badly for some of them for having lost hundreds of millions. Couldn’t have happened to a nicer bunch. But I don’t think they bear any responsibility for allowing themselves to be scammed because the promised technology was too obviously impossible. Unless you mean to imply that they were part of the scam? I don’t see what the pay-off for the investors could have been if it was a given that the technology was vaporware. But, could be.

      In any case, Theranos did have established experts involved from time to time to lend credence to their scam. For example . . .

      “In April 2016, Theranos announced its medical advisory board which included past presidents or board members of the American Association for Clinical Chemistry.[126] Members were invited to review the company’s proprietary technologies and advise on the integration into clinical practice.[126] The board included past presidents or board members of the American Association for Clinical Chemistry such as Susan A. Evans, William Foege, former director U.S. Centers for Disease Control and Prevention (CDC), David Helfet, director of the Orthopedic Trauma Service at the Hospital for Special Surgery and professors, Ann M. Gronowski, Larry J. Kricka, Jack Ladenson, Andy O. Miller and Steven Spitalnik.[127][128]” [Wikipedia, “Theranos”]

      My impression was that the claimed technology was amazing enough to warrant skepticism, but not impossible.

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