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Elizabeth Holmes 'chose fraud over business failure,' prosecutors say in Theranos closing arguments

The former Theranos CEO faces nine counts of fraud and two counts of conspiracy. If she is convicted, she could face up to 20 years in prison.

SAN JOSE, Calif. — Was Elizabeth Holmes a liar or just naive? That’s the ultimate question posed to jurors as prosecution and defense delivered their closing arguments Thursday after 15 weeks of the closely watched trial of Holmes, the founder and former CEO of Theranos.

Prosecutors have argued that Holmes, "out of time and out of money," decided to lie to investors in her blood-testing startup to keep the cash flowing and to keep pushing the development of her unrealized technology.

If Holmes had told investors, patients and business partners the truth about her company, she never would have attracted any revenue, Assistant U.S. Attorney Jeff Schenk told the jurors.

“She chose fraud over business failure. She chose to be dishonest,” Schenk said. “That choice was not only callous, it was criminal.”

"She chose fraud over business failure. She chose to be dishonest," the prosecution said.

Holmes, 37, watched attentively from the courtroom benches just as she has for most of the trial: ramrod straight and nearly motionless. She was flanked as she entered the courthouse by her mother, Noel Holmes; her father, Christian Holmes, a former Enron executive; and her partner, Billy Evans, an heir to a Southern California hotel chain.

During his methodical presentation, Schenk reviewed testimony from nearly 30 witnesses, including patients who had received faulty Theranos test results for HIV, cancer and a pregnancy.

He also recalled the testimony of six investors and a business reporter who testified that Holmes had led them to believe that Theranos machines were fully capable of carrying out hundreds of tests and that they were actively being used on U.S. military medical evacuation helicopters in Afghanistan.

Bringing up documents on monitors in front of the jury box, Schenk reviewed how Holmes had affixed pharmaceutical company logos to Theranos lab reports to imply endorsement. The companies, Pfizer and Schering-Plough among them, had neither endorsed the results nor authorized the use of their logos, witnesses testified. Holmes also altered, enhanced or doctored the conclusions to make the reports appear even rosier, Schenk argued.

“It is the story of a tragedy, but it is the story of people acting remarkably,” he said, referring to company whistleblowers.

Holmes and Ramesh "Sunny" Balwani, her ex-boyfriend and former chief operating officer, “knew what [Theranos technology] could do and what it couldn’t do," Schenk argued. "They took advantage of that gap in information. And for that they were able to commit fraud.

“And because of that you should find Elizabeth Holmes guilty of the charged offenses,” he said. “You shouldn’t find her guilty because of my words. You should find her guilty because of her words.”

The 'good faith' defense

The defense argued that Holmes had acted in good faith and that the government had failed to prove that she acted with intent to deceive.

“If someone is acting in good faith or someone does not believe that what they are doing is part of a scheme to defraud, then the correct verdict is a not guilty verdict,” defense attorney Kevin Downey told the jury of eight men and four women.

Using lists and other visual aids, Downey laid out five areas that he said showed that Holmes did not intend to commit fraud.

First, he said, Holmes was forthcoming with the Food and Drug Administration. Second, Holmes believed feedback from her research team that the company’s next version of its technology would perform the advertised tests accurately. Third, Holmes believed positive feedback from the Mayo Clinic, pharmaceutical companies and business coverage. 

Fourth, Holmes had the company's technology validated by Johns Hopkins University, at the request of Walgreens, and was not afraid of outside review. 

Last, after regulators delivered scathing lab inspection reports, Holmes implemented a series of reforms, bringing in top outside experts and hiring a new lab director. 

“It’s hard to see how someone acting with bad intent would take those steps in response to the criticism that she was suffering,” Downey said. “Are those the actions of someone who had been engaged in a conspiracy to defraud people?”

Downey also rebutted prosecutors' arguments that Theranos had not disclosed its use of third-party devices, pointing to mentions on Walgreens' and the company’s website.

The defense also returned to the frequently mentioned issue of "trade secrets." The modification of traditional commercial blood testing equipment to run the Theranos samples was a trade secret, and that is why Holmes could not be more forthcoming to investors and the public about the devices, Downey said.

In his book about Theranos, "Bad Blood," former Wall Street Journal reporter John Carreyrou wrote that the modification consisted of hacking competitors’ machines designed for traditional vein draws — the very technology Holmes was seeking to disrupt — to accept and dilute the smaller finger-prick samples in the company's "nanotainer," which also increased the risk of erroneous results.

Holmes, who dropped out of Stanford University at 19 to launch the blood-testing company, rocketed to “it girl” status in the 2010s with her feel-good narrative about disrupting health technology. At its peak, her company was valued at over $9 billion and her personal net worth at over $4.5 billion.

Bypassing experienced biotech investors, she targeted wealthy family offices and other private funders, drumming up nearly three-quarters of a billion dollars in funding. But the castle in the sky collapsed after a series of skeptical articles in The Wall Street Journal in 2015 and 2016 showed that the company was relying on third-party machines instead of its own proprietary technology. Investor lawsuits and a federal criminal indictment soon followed.

The defense is expected to wrap up its closing arguments Friday. The jury will begin deliberations immediately afterward. The court has set aside Monday, Tuesday and Thursday next week for further deliberations.

Holmes is charged with nine counts of fraud and two counts of conspiracy. If she is convicted, she could face up to 20 years in jail.

A separate trial for Balwani, her co-defendant, is scheduled to begin in February.