What did Theranos do and how did Elizabeth Holmes get caught?

Elizabeth Holmes is back in the news: The founder, and former CEO of the now-defunct Theranos, is set to stand trial on two counts of conspiracy to commit wire fraud and nine counts of wire fraud on August 31.

This date was pushed back from July 13 after Holmes revealed that she was pregnant in a court filing.

In the time since she was indicted, her rise and fall have been the subject of a book, a documentary, several TV specials, and a podcast. And director-producer Adam McKay is bringing the story to the silver screen with Jennifer Lawrence portraying Holmes.

How Elizabeth Holmes went from fame to infamy

In 2015, Elizabeth Holmes topped Forbes’s list of the youngest self-made female billionaires in the US as the founder of Theranos, a health technology company.

Media outlets were quick to draw comparisons between the young, upcoming magnate and one of her idols, Steve Jobs. Both leaders were charismatic when pitching their tech. Holmes even made it a habit to wear a black turtleneck.

“The most interesting thing about Steve Jobs—and something he shares with Elizabeth Holmes—is that he was a storyteller,” Alex Gibney, the director of a recent documentary on Holmes called, The Inventor: Out for Blood in Silicon Valley, said of her initial appeal. “She’s brilliant and she makes something of herself, and now she’s a billionaire and she’s the next Steve Jobs.”

Holmes set out to “democratize healthcare” with Theranos. She claimed to be working on a novel method of testing blood via a device called, The Edison, that could produce conclusive analysis from small volumes — saving clinicians time and patients money.

However, internal documents suggest that the technology required to support this outcome was basically absent from trials.

The beginning of the end occurred when a reporter for The Wall Street Journal started a months-long investigation of Theranos in secret.

The reporter, John Carreyrou had actually received a tip from a medical expert who thought the Edison could not deliver on the promises of its ever wealthier manufacturers.

While Holmes continued to make appearances, promoting the Edison, Carreyrou was learning about Theranos’ failed clinical trials from various ex-employees turned whistleblowers.

Holmes attempted to stop Carreyrou from publishing with legal and financial threats to little effect.

After two years of increasingly negative press, a federal grand jury indicted Holmes and her business (and former romantic) partner, Ramesh “Sunny” Balwani, on wire-fraud charges. Not long after, it was revealed that Holmes may have destroyed evidence that had been previously subpoenaed, including three years’ worth of Theranos accuracy and failure rates.

The data is crucial for the prosecution because it indicates a failure rate of 51.3%, which would make it worthless to health systems and investors.

The charges

She and Balwan could be facing up to 20 years in prison on fraud charges—not including the legal actions that may follow if the former is found guilty of tampering with evidence.

“Elizabeth Holmes and Ramesh ‘Sunny’ Balwani are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud.  According to the indictment, the charges stem from allegations that Holmes and Balwani engaged in a multi-million-dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients,” The United States Department of Justice reports.

How Holmes may be found not guilty

This media storm surrounding Holmes has her defense team worried — so much so they have requested permission to probe jurors about “exposures” they’ve had to Holmes’ “profession and celebrity,” as well as any biases they may have with respect to the witnesses expected to take the stand in her defense.

“When there are cases that jurors may be influenced by things such as celebrity, either a witness or the defendant’s profession or position in a community, let there be some sort of caution against that,” said Amy Saharia, an attorney for Holmes, speaking to the judge last Monday, “It’s no surprise, your honor, that our client is the subject of very intense media scrutiny.”

The defense has made similar motions in the past to shield jurors from knowledge about Holmes’ lavish spending, which is said to include
luxury shopping sprees, a private jet, and a payroll for errand runners and personal assistants.

The defense is doing everything they can to offset Holmes’ public image as a calculating bigwig by downplaying her spending and celebrity status.

Some have even speculated that her pregnancy was a machination to both delay her trial date and soften her image.

“Whether conscious or unconscious, judges, prosecutors, and jurors might worry about the effect of maternal incarceration on a newborn baby in a way that they don’t when the defendant is male,” said NBC News legal analyst Danny Cevallos.

Prior to her pregnancy, Holmes’ legal team unsuccessfully attempted to delay the trial by reason of her mental health, claiming that she suffered psychological trauma when she was younger that may have affected her actions as an adult.

With a pregnant, victim of psychological trauma defendant, the jury may be a little more sympathetic about the actual charges raises by the prosecution.

The defense maintains that the kind of dishonesty exhibited by Holmes while pitching the Edison to investors happens all the time in the healthcare industry.

In advertising, “puffery,” or hyperbolic language meant to make a product more enticing to consumers, is very common.

Legally it works a lot like satire. If someone published an article claiming Nancy Pelosi is secretly a telekinetic alien from Mars, they would likely be immune from legal action. Similarly, the more implausible the puffery the more acceptable.

If Holmes’ defense can demonstrate that their pitch to investors for The Edison did not survive on a misrepresentation of facts, Holmes might be able to avoid jail time.

What the prosecution needs to accomplish for Holmes to be found guilty

The prosecution claims that many of these expenses were afforded by Theranos’ short but highly lucrative run (the company was valued at $10 billion at its prime).

Holmes and her team will have to prove to a jury that she did not have prior knowledge of the low efficacy of Theranos’ blood-testing technology before accepting massive funding from investors. This will be a difficult feat to pull off on account of the data that is available. What’s more, some former colleagues are expected to testify against her.

Earlier this month, US District Judge Edward J. Davila denied a motion by Holmes’s defense team to suppress evidence of customer complaints and their test results in her criminal trial. The ruling permits prosecutors to put patients on the witness stand.Some have even speculated that her pregnancy was a machination to both delay her trial date and soften her image.

Prosecutors need to prove that a significant portion of the wealth acquired—by distributing blood tests with falsified results—contributed to her life of opulence.

The trial will be staffed with a who’s who of witnesses, including, former Secretary of State Henry Kissinger and former Secretary of Defense James Mattis, both of whom served on the board of Theranos.