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 Holmes’ Fraud Trial (Update #7) 

Michael Santos

Michael Santos

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Former Theranos Lab Director Adam Rosendorff blew the whistle to the WSJ in 2015, setting the stage for the current criminal fraud trial

RECENT TESTIMONY IN ELIZABETH HOLMES’ FRAUD TRIAL (UPDATE #7)

Former Theranos Lab Director Adam Rosendorff blew the whistle about Theranos to the WSJ in 2015, setting the stage for the current criminal fraud trial. 

Elizabeth Holmes has pleaded not guilty to 10 counts of wire fraud and two counts of conspiracy to commit wire fraud. Her lawyers describe her as guilty of little more than running a failed business, not fraud.

INTRODUCTION

Adam Rosendorff is a former Theranos lab Director who provided information to the Wall Street Journal in 2015 about his concerns about his former company.

In 2015, the WSJ broke the story that Theranos’ breakthrough blood-testing technology did not work as advertised and could not scan for hundreds of potential health problems with just a few drops of blood. Blood-testing technology generally requires a vial of blood for one test or a limited number of tests.

Based on detailed information from insiders like Rosendorff and others, the WSJ exposed the truth, and the DOJ eventually charged Holmes with fraud. 

DISCUSSION

Rosendorff testified that he resigned from Theranos in late 2014. He left because Holmes and the management team refused to address quality-control problems with Theranos’ blood-testing technology. 

Also, around that same time, Rosendorff received a phone call from WSJ reporter John Carreyrou, and he agreed to speak with the reporter off the record about Theranos. His conversations with Carreyrou were instrumental to the WSJ’s reporting.

A FORMER LAB DIRECTOR & WHISTLEBLOWER

Rosendorff testified in open court that he “felt obligated to alert the public. I didn’t quite know how I should do that. But when this opportunity presented itself, I took advantage of it,” referring to his conversations with the WSJ.

Like other former Theranos employees, Rosendorff told the jury that when Theranos hired him in 2013, he “really bought into the idea” of technology that could run hundreds of blood tests with just a pinprick of blood. He was impressed by Holmes’ earnest commitment and “thought it was going to be the next Apple.”

In describing his experience for the jury, Rosendorff said that a few months after he started working at Theranos, he wrote an email to Holmes with his concerns about the upcoming launch of Theranos’ devices in Walgreens stores. He did not believe Theranos was ready for the rollout, and he tried to delay the launch. He noted how serious it is to use faulty blood-testing devices on actual patients, having to provide patients and doctors with inaccurate results.

Prosecutors anticipate that Holmes will argue she was unaware of the extent of the issues with the Walgreens rollout. But Rosendorff’s testimony shows that she was aware. 

Holmes was more than aware; she had a plan, according to Rosendorff. Holmes told him what Theranos would do if the Theranos devices did not perform. They would still conduct patient blood tests by taking a larger blood sample (an intravenous draw into a blood vial instead of a finger prick) and use conventional blood analyzers (instead of the Edison-Theranos’ proprietary device). 

The use of conventional blood analyzers is at the heart of the government’s fraud charges. Holmes relied on non-Theranos machines while maintaining the illusion that they were using Theranos proprietary machines and technology. 

In the end, Rosendorff said he resigned because the company was all about public relations and media hype and did not take the steps necessary to perform machine proficiency testing “as required by law.”

Moreover, the task of defending the company’s blood-testing performance when doctors called with complaints fell to him. Rosendorff felt under pressure to defend blood tests in the face of inaccurate results, and Rosendorff had to find explanations other than the real reasons why the results were wrong. “I was often called upon to come up with reasons other than test performance,” he told the jury.

Prosecutors elicited testimony that many complaints were about the erratic results of hCG levels, an essential hormone to indicate pregnancy. Indeed, prosecutors called to the stand a patient whose Theranos hCG pregnancy test erroneously indicated she was having a miscarriage. Confirmation tests revealed that the Theranos test was wrong, and she carried her baby to term. 

Brittany Gould took the stand in the trial of Elizabeth Holmes to say the company’s blood test inaccurately said she had miscarried. Although the Judge did not allow Gould to testify about the inaccurate test’s impact on her, the jury will likely imagine it was very traumatic. The reason for limiting patients’ testimony to just the facts of what happened is to avoid undue prejudice to Holmes.  

Nine days before launch, none of Theranos’ tests had completed legally required validation, but federal regulations require this validation before tests can be used on actual patients for diagnosis and treatment. Even simple glucose tests were returning results that were way off. 

Rosendorff asked Holmes for more time to address these technical issues, hire more staff, and improve training. Instead, Holmes decided to continue with the anticipated commercial launch by using conventional blood analyzers not made by Theranos. They also used these conventional non-Theranos blood analyzers for investor demonstrations and presentations without proper disclosures.

WHAT ABOUT THE BOARD OF DIRECTORS?

In 2015, the WSJ raised questions about the accuracy of Theranos’ blood-testing technology, based in part on what Rosendorff revealed to the newspaper. When the WSJ broke the news that Theranos’ proprietary technology was unreliable and Theranos was using non-Theranos machines, members of the company’s Board of Directors became alarmed.

One Board member, former Defense Secretary James Mattis, has already testified, and additional Board members are likely to testify as well.

Emails and testimony from the trial so far reveal that the Board pressed Holmes for answers in the wake of the WSJ reports. Holmes emailed the Board a day after the first WSJ article and said that Theranos was close to getting full FDA approval, but the company could not use its proprietary blood-collection devices in the meantime. In fact, the FDA had denied approval for the tiny blood-collection devices at the time, which Board members did not know.

Many Board members, including Mattis, assumed that Theranos was using its proprietary analyzers (“the Edison” device), not third-party machines. They felt blindsided. Until the WSJ reports began, they were unaware of the extent to which Theranos’ machines were malfunctioning and inaccurate. 

Board member William Frist, a former U.S. senator, a surgeon, and the only Board member with significant medical experience, wrote in an email in 2015:

“Integrity of lab data is at the heart of everything. Nothing else matters if we can’t demonstrate that quickly.” 

However, despite all the concerns, the Board still released a statement after the WSJ’s reports first surfaced and continued to support Holmes and “the promise of Theranos’ technology.”

“As a group, we embrace this promise and stand with Theranos,” the Board stated.

CONCLUSION

Lab Director Adam Rosendorff helped the WSJ break the story of Theranos’ failing technology in 2015, but his identity remained confidential until now. The lead investigative reporter for the WSJ, John Carreyrou, recently praised Rosendorff:

“Adam Rosendorff was my first and most important source. I couldn’t have broken the Theranos story without him. Hats off to his integrity and his courage. He’s one of the heroes of this story.”

When he joined Theranos in 2013, Rosendorff was a true believer. He thought Theranos had advanced technology that would benefit patients. He left a little more than a year later when he realized that Theranos management was unwilling to perform the proficiency testing necessary to ensure the accuracy and reliability of lab tests. Theranos cared more about PR and money than patient care, he concluded.

Follow the Prison Professor blog for regular updates on all developments in the Holmes criminal fraud trial.

Prison Professors, an Earning Freedom company, works alongside (not in place of) civil and criminal defense counsel to help clients proactively navigate through investigations and prosecutions. Our team also helps clients prepare mitigation and compliance strategies.

If you have any questions or are uncertain about any of the issues discussed in this post, schedule a call with our risk mitigation team to receive additional guidance.

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