Elizabeth Holmes a former CEO and founder of Theranos, which is now worth $19 billion, was found guilty on four charges of fraud by the SEC in San Francisco today. Her downfall comes as no surprise to many who saw her story unravel long before she finally admitted defeat last week.
Elizabeth Holmes, the founder of the company formerly known as Theranos, has been found guilty on four charges of fraud. Her net worth is estimated to be $4.6 billion in 2021.
On Monday, Elizabeth Holmes, center, entered the courts in San Jose, Calif. Credit… The New York Times/Jim Wilson
SAN JOSE (California) — In a case that has come to exemplify the hazards of Silicon Valley’s culture of hustle, hype, and greed, Elizabeth Holmes, the founder of the failed blood testing start-up Theranos, was found guilty on four of 11 counts of fraud on Monday.
In a generation of high-flying, money-losing start-ups, Ms. Holmes, who had once vowed to transform health care, was the most renowned CEO to face fraud allegations. She was found guilty of three charges of wire fraud and one count of conspiracy to conduct wire fraud by lying to investors to obtain money for her firm after a jury of eight men and four women deliberated for 50 hours over seven days.
Ms. Holmes was acquitted of four additional charges of deceiving patients who had utilized Theranos’ blood testing. Judge Edward J. Davila of California’s Northern District said he expected to declare a mistrial after the jury was unable to reach a conviction on three charges of misleading investors.
Each offense is punishable by a maximum penalty of 20 years in jail, which will almost certainly be served consecutively. Ms. Holmes, who is 37 years old, is anticipated to file an appeal. At a hearing on the three pending counts next week, a sentence date is scheduled to be established.
Ms. Holmes, who had fraudulently claimed that Theranos’ blood tests could identify a range of diseases with only a few drops of blood, sat impassive as the judgement was announced. She then grabbed her luggage and spoke to her lawyer in hushed tones. She hugged everyone of her relatives and friends in the court gallery behind her before exiting via a side door.
Judge Davila informed the jurors, “It’s been a lengthy case.” “We’ve all gone through a lot as a group.”
The guilty convictions, according to Stephanie Hinds, a US attorney, demonstrate Ms. Holmes’ “culpability in this large-scale investment scam.”
The decision is notable for its rarity. Only a small percentage of technology CEOs are charged with fraud, and even fewer are found guilty. Ms. Holmes would be the most high-profile female CEO to be sentenced to jail since Martha Stewart was sentenced to prison in 2004 for lying to investigators about a stock deal. And Theranos’ demise, which occurred in 2018, is likely to serve as a cautionary tale for future Silicon Valley start-ups that embellish the facts in order to get investment and commercial partnerships.
The divided result indicates that jurors accepted prosecutors’ testimony that Ms. Holmes misled to investors about Theranos’ technology in order to gain money and celebrity. Her argument of blaming others for Theranos’ troubles and accusing her co-conspirator, Ramesh Balwani, the company’s chief operating officer and her former lover, of assaulting her did not convince them. The prosecutor’s evidence that she had cheated patients did not persuade them either.
Jurors informed the court on Monday that they were deadlocked on three of the accusations of cheating investors. Judge Davila pressed them to keep debating, but they couldn’t come to an agreement.
The decision came during a frenzy in the internet sector, with investors scrambling to get into hot transactions and sometimes overlooking possible warning signs about the firms they were investing in. Some have predicted that additional Theranos-style calamities are on the way.
The flow of money toward charismatic founders peddling promises of economic success has not slowed in recent years, despite stories of start-up chicanery ranging from WeWork’s botched first public offering to Uber’s aggressive boundary-pushing methods. These blunders drew widespread notice, but no criminal charges were filed.
Nonetheless, under President Biden’s leadership, the Justice Department has redoubled its efforts to combat white-collar crime. In a recent address, Lisa O. Monaco, the deputy attorney general, stated, “We will push prosecutors to be brave.” “They should not be scared of losing.”
According to Jessica Roth, a law professor at Cardozo School of Law and a former federal prosecutor in the Southern District of New York, Ms. Holmes’ conviction sends a message to other entrepreneurs and executives to be cautious about their comments to investors and the public.
It “emphasizes the significance of distinguishing between fact and hopeful expectations — and maintaining that separation in one’s thoughts,” she added.
Ms. Holmes grew to fame by emulating Silicon Valley icons like Steve Jobs’ disruptive change-the-world bravado, a strategy that has helped firms like Apple, Tesla, Google, and Facebook become some of the most valuable in the world.
She drew the attention of heads of state, corporate leaders, and rich families with her lofty ideas to transform the health-care sector. She was feted with accolades and glowing magazine cover articles as the world’s youngest self-made female millionaire, and she traversed the globe on private aircraft.
But, in order to win finance and commercial partnerships, she lied about the accuracy, kinds, and quantity of tests Theranos’ machines could do.
“That’s a felony on Main Street and a crime in Silicon Valley,” said Robert Leach, an assistant US attorney, during the trial’s opening arguments.
The judgment brings to a close almost four months of events that fluctuated between thrilling and tedious. A coronavirus threat, a ruptured water pipeline, courtroom technology issues, and jury travel all caused delays. One juror was kicked off for playing Sudoku, while another was sent off because of her Buddhist religion. Spectators queued for hours for a position in the courtroom’s restricted seats, many of whom had been following the Theranos drama via podcasts, movies, books, and news stories.
Inside, jurors heard from dozens of witnesses and examined hundreds of pieces of evidence in support of prosecutors’ claim that Ms. Holmes willfully deceived investors and patients throughout her meteoric ascent to fame and money.
James Mattis, the former defense secretary who was on Theranos’ board of directors, and Lisa Peterson, who handled money for the affluent family of Betsy DeVos, the former education secretary, and invested $100 million in Theranos, were among the witnesses. The company’s board of directors included prominent investors like as Rupert Murdoch and Larry Ellison, as well as two former secretaries of state, George Shultz and Henry Kissinger, who were considered but never summoned to testify.
Ms. Holmes’ participation in fraudulent demos, fabricated validation reports, deceptive contract claims, and inflated financials at Theranos was detailed in the case’s evidence. Ms. Holmes made exaggerated or false assertions about Theranos, according to recordings and films shown to jurors.
Theranos canceled two years’ worth of blood tests before shutting down in 2018. It paid to resolve many investor lawsuits as well as Securities and Exchange Commission fraud allegations.
Prosecutors, on the other hand, claimed that Ms. Holmes’ acts were criminal in nature. According to them, she caused investors to lose hundreds of millions of dollars and patients to get incorrect test results.
“She selected the dishonest route at so many forks in the road,” said John Bostic, an assistant US attorney, in closing remarks.
Ms. Holmes’ attorneys attempted to dismiss whistle-blower evidence, blamed investors for not conducting more research into Theranos, and claimed that Ms. Holmes’ errors were not criminal.
Ms. Holmes took the stand to bring the proceedings to a close. She alternated between taking responsibility for some blunders and diverting blame for other issues on coworkers throughout the course of seven days of hearing.
She said that she felt Theranos’ tests were accurate and that she had relied on the experience of the company’s lab’s more trained personnel. And she used her appeal to persuade jurors to believe in the same futuristic vision that had helped her win over investors, international leaders, and the press years before.
Ms. Holmes said, “I wanted to speak about what this firm could achieve a year from now, five years from now, ten years from now.” “I wanted to discuss the possibilities.”
Ms. Holmes’ assertion that her optimistic estimates were no different from those of other Silicon Valley firms contradicted the government’s evidence, according to Ms. Roth, which was consistent with classic fraud prosecutions.
“Other founders and executives should be worried if they are engaging in the types of deception that was charged and confirmed by substantial evidence in this instance,” she added.
Mr. Balwani was accused of emotional and sexual assault by Ms. Holmes. For more than a decade, the couple dated in secret and even shared an estate in Atherton, California. Mr. Balwani, who is about 20 years older than Ms. Holmes, allegedly had complete control over every area of her life, including her schedule, self-presentation, and time spent with her family, according to Ms. Holmes. He was also accused of forcing her to have sex with him, according to her. The claims have been refuted by Mr. Balwani.
By appealing to the jury’s emotions and portraying Ms. Holmes as a victim, that tearful testimony threatened to change the tide against the prosecutor’s case. Experts say it was a hazardous technique since Ms. Holmes did not give an expert witness to put her claims in perspective with the wire fraud allegations.
Sunny Balwani, also known as Mr. Balwani, will face charges this year. He has also entered a not guilty plea.
Ms. Holmes walked out of the courtroom with her mother and boyfriend after nightfall on Monday. They were encircled by cameras, which illuminated the black sidewalk. Ms. Holmes avoided eye contact and glanced straight ahead as reporters yelled questions.
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Elizabeth Holmes, the founder of the company “Theranos”, was found guilty of four charges of fraud and is facing up to 20 years in prison. Reference: elizabeth holmes voice.
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