Theranos founder Elizabeth Holmes convicted of 4 fraud charges

San Jose federal jurors convicted Theranos founder Elizabeth Holmes Monday on four counts, three of which carry a potential 20-year prison sentence, but they also found Holmes not guilty on several counts and did not reach a unanimous decision on three of the charges against the founder.

After seven full days of deliberation, jurors found Holmes guilty of a conspiracy to defraud investors and three counts of wire fraud. Composed of eight men and four women, the jury acquitted Holmes of conspiracy to defraud patients and three counts of wire fraud.

Before the verdict was announced late Monday afternoon, the jury delivered two notes to U.S. District Judge Edward Davila of the Northern District of California, who is presiding over the case, saying it could not reach a unanimous decision on three of the 11 counts.

Prosecutors alleged that Holmes’ fame as a celebrated Silicon Valley CEO and “the next Steve Jobs” fueled her motive to defraud investors and patients to keep Theranos afloat.

Holmes, who is represented by a Williams & Connolly team that included Kevin Downey and Lance Wade, took the stand for seven days of the nearly four-month trial, during which the former biotech executive accused Ramesh “Sunny” Balwani, Theranos’ former chief operating officer and Holmes’ ex-boyfriend, of sexual and emotional abuse.

Holmes also testified that she was raped as a student at Stanford University and had began her relationship with Balwani, who is 20 years older than her, shortly after dropping out of college as a result of the assault and to start the company. Holmes said the abuse “impacted everything,” but denied that Balwani forced her to make statements to investors, journalists or business partners.

Balwani’s criminal fraud trial is set to begin Feb. 15. The parties requested the trial date be pushed back from Jan. 11 after Holmes’ trial ran past its estimated conclusion of the first or second week of December. The U.S. Attorney’s Office for the Northern District of California and Balwani’s legal team—led by Orrick, Herrington & Sutcliffe’s Jeffrey Coopersmith—agreed that they needed the additional time to assess the Holmes verdict and review discovery generated during the trial, according to court filings.

The government indicted Holmes and Balwani on June 14, 2018, for wire fraud allegedly occurring between 2010 and 2016, following media reports that the Theranos leaders had misrepresented the capabilities of the company’s technology purporting to miniaturize blood samples and lab testing devices.

Prosecutors also alleged that the executives had represented to investors that Theranos was preparing to expand its service centers within Walgreens Co. stores from 30 to 900 stores despite knowing by late 2014 that the rollout was postponed because of operational and technical issues and the retail chain’s concerns with Theranos’ performance.

Theranos’ former legal counsel loomed large in the trial. Boies Schiller Flexner’s David Boies was a member of the Theranos board of directors, which included business titans and diplomats such as former Wells Fargo CEO Richard Kovacevich, former Secretaries of State Henry Kissinger and George Shultz and retired Marine Corp Four-Star General Jim Mattis. Boies Schiller also began representing the biotech company starting in 2011.

During trial, Holmes said Walgreens’ attorneys steered the company away from deploying its blood-testing technology in stores, and Theranos’ lawyers advised Holmes not to disclose the use of commercial blood-testing devices in their partnership with the pharmacy chain. Holmes testified that Theranos’ use of modified traditional lab devices instead of its proprietary Edison or MiniLab devices was only the first phase of a plan, and the second phase was the rollout of the Theranos analyzers in stores.

Holmes said Walgreens was on board to deploy Theranos devices in its stores when the company originally pursued the retailer in 2010, but in 2013, Walgreens’ regulatory attorneys decided the service centers should use a central lab instead because of the hurdles from the U.S. Food and Drug Administration and Centers for Medicare & Medicaid Services, she said.

The founder testified that she did not disclose the company’s “invention” that allowed the company to use small blood samples on commercial devices instead of the MiniLabs to Walgreens, because her attorneys told her to protect it as a trade secret in order to profit off the intellectual property.

Assistant U.S. Attorney Robert Leach asserted that Holmes and Balwani sought to quash a 2015 story from the Wall Street Journal’s John Carreyrou by intimidating his sources, who worked at Theranos, with legal threats from “one of the most powerful law firms” in the world, Boies Schiller.

Holmes denied that she retaliated against former Theranos employees Erika Cheung, who took the stand in September as a prosecution witness, and Tyler Shultz, the grandson of board member George Schultz, for talking to Carreyrou. But she admitted that she felt she mishandled the entire process of confronting the Wall Street Journal reporting. She called her handling of the situation “a disaster.”

A sentencing hearing for Holmes has yet to be scheduled. The maximum sentence for wire fraud is 20 years, while the maximum sentence for conspiracy to defraud investors is five years.