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 Holmes’ Trial Update #15 

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INSIDER COMPLETES TESTIMONY (HOLMES TRIAL UPDATE #15)

Product manager Daniel Edlin says Elizabeth Holmes was a highly involved CEO.

EDLIN COMPLETES TESTIMONY: HOLMES TRIAL UPDATE #15

INTRODUCTION

As we covered in Holmes Trial Updates #13 & 14, Daniel Edlin is the first Theranos insider to testify at the trial. Edlin told the jury that he left Theranos because he no longer believed that Theranos could support the claims it made about its technology.

Read more about Edlin’s trial testimony on the Prison Professors blog:

Holmes Trial Update #13: Top 3 Insider Revelations at Holmes Trial

Holmes Trial Update #14: Theranos and the Military

DISCUSSION

Daniel Edlin had a front-row seat to the inner workings of the Theranos C-Suite, and this blog covers the final highlights of his trial testimony. 

All told, Edlin’s testimony during the course of two days covered:

  • Theranos’ relationship with the US military;
  • The rollout of Theranos devices at Walgreens;
  • The experience of working at Theranos for the boss;
  •  The dynamics of the Balwani and Holmes personal and professional relationship; 
  • The demonstration of Theranos’ technology; and 
  • The company’s approach to marketing.

Edlin was the consummate insider with access to critical information during the most relevant period. 

A Culture Of Secrecy  

The media has amply reported on Elizabeth Holmes’ obsession with “secrecy” at Theranos, demanding that everyone keep information on a tight need-to-know basis. Employees were discouraged from discussing issues amongst themselves.

Edlin’s testimony supports this narrative. He testified that at Theranos, it was the norm to keep most information siloed. He recalled that the company’s top brass (Elizabeth Holmes, Christian Holmes (her brother), and former Chief Operating Officer Ramesh “Sunny” Balwani ) told him not to share details about work outside of the direct team involved. The given excuse was always confidentiality. 

While prosecutors claim the secrecy culture is consistent with the ongoing and elaborate fraud scheme, Edlin testified that the insistence on a restricted flow of communication was associated with “protecting Theranos’ trade secrets.” 

Undoubtedly, prosecutors will have more to say about “trade secrets” and “confidentiality” as a defense to concealment and deceit as the trial continues.

Dynamic of Holmes & Balwani Relationship

The dynamics of Holmes’ and Balwani’s relationship is a relevant topic at trial. They were romantically involved, and Holmes’ defense team plans to blame Balwani for all the operational failures at Theranos since he was the Chief Operating Officer. 

In addition, Holmes may claim that Balwani abused her psychologically and emotionally, which ultimately rendered him — not Holmes — in control of her action. This strategy is sometimes called the “Svengali defense,” in which Holmes would argue that if crimes occurred, it was because Balwani manipulated her into them. 

The prosecution probed Edlin for information about the power dynamic between the two. And Holmes and her team could not have liked what Edlin had to say.

In terms of who was in charge at Theranos, Edlin said Balwani would ultimately defer to Holmes. “Generally, Elizabeth was the CEO, and she had, kind of, the final decision-making authority,” he testified.

When asked if Edlin ever saw Balwani overrule a decision Holmes made at Theranos, Edlin testified: “I can’t recall a specific moment.” Then added: “I can’t think of one off the top of my head.”

Edlin first met Balwani during his college days with Holmes’ brother at Duke University. Christian Holmes introduced Balwani as Elizabeth’s boyfriend, so he knew they were dating when he joined the company years later. 

Defense Damage Control

In questioning Edlin, Holmes’ defense team tried to show the jury that Theranos tried to market accurately, in an attempt to undercut claims that Holmes set out to deceive investors and the public. Specifically, internal communications and presentation materials show that Theranos sometimes updated the accuracy of investor presentations and marketing materials. 

In fact, internal Theranos communications show that before Theranos’ website went live in 2013, Theranos hired a law firm with experience in food and drug law to review the content. The defense would argue that a company intent on committing fraud would not do that, and certainly not before the actual blood-testing of patients went live in Walgreens stores in 2013.

 Theranos’ law firm requested that Theranos scale back many of its marketing claims. For example, written documents show they made numerous suggestions, such as:

  • Ensure substantiation for the claim “1/1,000 the size of” typical blood draw.
  • Replace “faster and easier” with fast and easy.
  • A request for substantiation for “have results to you and your doctor faster than previously possible.”
  • Change “more precise” to “precise.”
  • Replace “highest levels of accuracy” with “high levels of accuracy.”
  • Remove “unrivaled accuracy.”
  • Ensure substantiation for “unprecedented speed and accuracy.”

Again, the defense team will argue to the jury that a company trying to deceive the public and investors with exaggerated marketing claims would not hire a law firm to review the website and suggest edits to improve accuracy and legal compliance. 

Note that Holmes only needs one juror to have reasonable doubt about the prosecution’s fraud theories to avoid conviction. A guilty or not guilty verdict in a criminal trial must be unanimous. 

Jurors also saw draft slides of investor presentations and drafts of marketing materials. Internal communications show that Theranos employees discussed making changes and adding new information to make these things more accurate. 

In one instance, a meeting with Theranos’ advertising agency resulted in marketing materials no longer saying tests in Walgreens stores would take around 30 minutes because that was inaccurate. Marketing materials later stated, “Results in Hours. Not Days.”

Prosecutors argue that such changes and others only occurred because Theranos decided to no longer put its devices directly in Walgreens pharmacies, sending blood samples to its central lab instead. 

Defense lawyers highlighted for the jury another example that occurred when Theranos went live with patient testing in fall 2013. Theranos employees discussed internally that the website should be clear about the reality that patients sometimes had to get regular venous blood draws rather than blood samples coming exclusively from finger prick collection.

A November 27, 2013 email indicates that the website was amended to include a footnote saying, “*Occasionally, a venipuncture may be required, based on the lab order. This is uncommon, and we aim to eliminate this scenario entirely.” The email shows the marketing team added this footnote in response to customer complaints to the Theranos call center, which “received multiple patient complaints about this not being clear.”

In this situation, it was Holmes who then requested that they add the language into the main body of the website, not as a footnote, explicitly writing, I did not see this concept of the asterisk sent to me or mentioned to me at all. If we are going to say something like this, we need to own it and not contradict ourselves.”  That is a good example for the defense of Elizabeth doing the right thing. 

It will be up to the jury to decide how strong the defense argument is when it points out that Theranos reviewed its marketing materials frequently and made changes when necessary. Standing alone, this would not seem to negate the testimony from Edlin. The defense simply continues chipping away at the prosecution’s case at every opportunity, with every document, email, and witness. 

CONCLUSION

Daniel Edlin testified for multiple days about his experience at Theranos over five years. On the whole, Edlin’s testimony was very unhelpful to his former boss Elizabeth Holmes. His testimony raised serious concerns about the demonstrations that investors, business partners, board members, and VIP guests received from Theranos about its technology. The evidence shows how those demonstrations often lacked full transparency. The prosecution would call them false and misleading, though Edlin denied any intent to deceive.

Edlin also testified that Holmes was a highly involved CEO who micromanaged everything from investor and VIP tours and the relationship with the US military. 

Listening to Edlin, jurors could think that Theranos intentionally deceived investors and the public under Holmes’ leadership. Nonetheless, the case is not over. The defense continues to offer other plausible alternative explanations, which is all it can do at this point in the case. 

Prison Professors, an Earning Freedom company, regularly assists clients involved with the criminal justice system to obtain better outcomes. Follow the Prison Professors blog for regular updates on criminal justice topics.

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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