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 Holmes Trial Update #19 

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Michael Santos

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 HOLMES TRIAL UPDATE #19: WHAT HAS HOLMES TESTIFIED SO FAR?

Elizabeth Holmes took the witness stand at her criminal fraud trial in her own defense.

INTRODUCTION

Elizabeth Holmes is on trial accused of multiple instances of fraud against doctors, patients, and investors in connection with her role as founder and CEO of Theranos. 

In a move that not many saw coming this early in the presentation of the defense case, Elizabeth Holmes took the witness stand to tell jurors (in her famous baritone voice) that she never intended to defraud investors, patients, or the public. Holmes’ direct examination is not yet over.  

A criminal defendant taking the witness stand will first testify on direct examination — meaning, the witness is responding to the questions from their own lawyers. Once Holmes’ direct examination concludes, prosecutors will have ample opportunity to question Holmes in front of the jury — the cross-examination — to challenge her testimony and present her with contradicting evidence. Then there will be a chance for redirect examination of Holmes, again by her team. The purpose of the redirect is typically to give the witness another chance to explain their position on relevant matters, under less pressure and more friendly questioning. 

Reportedly, during her time on the witness stand, Elizabeth Holmes has been making eye contact with the jurors as she testifies. This can be an important way for the defendant to connect with jurors, help them see her as human and not just the alleged fraudster depicted by the prosecutors. In general, people say Holmes can be a very magnetic, charming person. 

Holmes is taking this unique opportunity to display her charm, hoping jurors believe her when she points to the scientists and doctors on her team for the failures in Theranos’ technology. Or when she points to Balwani, who was responsible for the financials. Or when she points to Theranos’ advertising firm for misleading statements in marketing materials that were sent to investors.

How will jurors react to Holmes’ repeated testimony conveniently relocating the blame for things at Theranos on to someone else? 

Prosecutors will likely remind Holmes on cross-examination of the highly publicized media appearance when Holmes said that as the CEO, she is responsible.

At the very least, Elizabeth Holmes is hoping at least one juror refuses to convict her. 

HOLMES TESTIMONY TO DATE: A RECAP

During testimony in her fraud trial so far, Holmes argues that she could not have deceived investors and patients because she believed the Theranos technology was real. 

But what is the defense strategy in putting Holmes on the witness stand to testify at all? A criminal defendant does not have to testify in their defense, as the prosecution bears the burden of proof. And the defense team must surely know the lengthy and excruciating cross-examination that awaits her. 

It is a gamble, but perhaps Holmes’ testimony is the only way to show jurors that she did not intend to deceive anyone.

In general, it appears that the defense strategy in allowing Holmes to take the stand is to humanize Elizabeth Holmes for the jury and show them how much she earnestly believed in her company, her life’s work. 

Along the way, Holmes has the opportunity to conveniently relocate the blame away from herself for the failures that plagued Theranos’ business operations. 

In the end, the defense hopes that the jury does not hold Holmes accountable because: 

  • Holmes’ understanding of the technology, its performance, and shortcomings came from her team of scientists, doctors, and consultants.
  • Holmes’ understanding of the financial projections shared with investors came from Balwani.
  • The misleading marketing materials shared with investors came from the advertising firms Theranos hired. 
  • Protecting trade secrets was the reason for secrecy about Theranos’ operations, like the use of third-party blood analyzers instead of the Theranos machines. Theranos’ lawyers told them to do so.
  • And so on.

HIGHLIGHTS OF HOLMES’ TESTIMONY

Below is a bulleted recap of the most significant aspects of Holmes’ testimony during her direct examination so far.

Personal Background & Early Years

  • First. to make the story personal, Holmes began by describing her background to the jury before Theranos, including her decision to drop out of Stanford to start the company. Holmes shared how she used the monies her parents had set aside for her college on her start-up company, initially named Real-Time Cures. Of course, she later changed the name to Theranos.
  • She talked about how her company began and its early journey with blood testing and diagnostics technology. She told the jury her goal was always to make the technology work better and improve any problems her team identified.

Science & Technology

  • Her lawyers gave Holmes the chance to make the overarching point that her understanding of the Theranos technology came from scientists who were responsible for the technical issues. Overall, her theme is that she understood that the technology generally worked based on talking to the people responsible for the lab and the science. Her team showed her some emails from the early days where Holmes received positive status reports, and people were optimistic and had a rosy perspective about Theranos’ prospects. The emails that support these statements are supposed to help Holmes recollect what happened and help the jury get inside Holmes’s state of mind.
  • The defense team presents Holmes as a true believer rather than a fraudster. They claim that Holmes was within her right to trust the doctors, scientists, and people directly in charge of the labs. She relied on them, and therefore she should not bear criminal responsibility for shortcomings in the technology. To Holmes, the Theranos team was always working hard on getting the bugs out of the technology, and that is a far cry from saying that the technology did not work at all or that the company intended to defraud all along. 
  • Holmes told the jury that she wasn’t running Theranos’ lab operations, saying others handled that responsibility and oversaw the scientific details. “Who was responsible for operational management of the lab?” her defense lawyer asked. She responded: “Sunny Balwani,”  and explained that her former No. 2 executive was in charge of all the “business parts” of the lab. The clinical, scientific decision-making, meanwhile, “was the job of the laboratory director and laboratory leadership,” Holmes said.
    Holmes was so committed to Theranos that she never sold her shares in the company, she told the jury. “I didn’t want to,” she said. “I believed in the company and wanted to put everything I had into it.
  • The defense introduced email evidence to help bolster Holmes’ testimony that her team told her that Theranos was making good strides on the necessary improvements to their technology. Many Silicon Valley start-ups use this sort of argument to insist that the company just needed a little more time to realize its full potential. 
  • Holmes’ testified about communications with her top scientist Ian Gibbons (who committed suicide in 2013 under the stress of working for Theranos for 8 years). Key to Holmes’ beliefs and state of mind is that in early 2010 Gibbons told Holmes that the Theranos blood-testing device could run any blood test. He was not just a scientist. Gibbons was the chief scientist at Theranos at the time. Written records show that Gibbons told her the new technology would be able to run potentially 15 tests from a single small blood sample.

Theranos & Big Pharma

  • About Pfizer, Schering Plough, and other pharmaceutical companies, Holmes maintains that Theranos worked with several top pharma companies that supported and validated Theranos’ technological advancements. Holmes told the jury about the positive reactions Theranos received from several big pharmaceutical companies, including Novartis and Merck, Glaxo Smith Kline, and Bristol Myers Squib. All in all, Holmes saw positive feedback from these different pharmaceutical companies. Defense counsel walked Holmes through Theranos’s relationships with AstraZeneca, Merck, Bristol Myers and Centocor and others, and Holmes testified that Theranos’ technology performed well in evaluations by those companies.
  • She now admits regret over using the Pfizer logo on a report about Theranos that Pfizer did not write or authorize. Holmes admitted that she had added the logos of Pfizer and SP to the top of a Theranos report before sending it to Walgreens. Holmes explained that Theranos worked in partnership with Pfizer and SP on the experiments in the report, and she was trying to convey that to Walgreens. She wasn’t trying to give a false impression, but she said that after hearing the testimony at her trial, “I wish I had done it differently in this respect.”
  • Jurors learned that Holmes sent the report to Pfizer at one point, which seems to back up her assertion that she had no intent to hide anything from Pfizer or anyone else. Indeed, when her attorney asked Holmes if she told any employees to hide aspects of Theranos’ operations, Holmes said “Absolutely not.”
  • As for the Schering-Plough scientist who testified for the prosecution about concerns with Theranos’ technology, Holmes testified that no one at Schering Plough shared any such concerns with her. Moreover, about a year after that scientist reviewed Theranos, Schering-Plough (which had merged with Merck & Co) approached Theranos about doing a project together. Holmes had no reason to believe that Schering-Plough had soured on Theranos. By 2010, Holmes said Theranos’ focus became putting its blood-testing technology into retail stores rather than working with pharmaceutical companies. 
  • The jury will have to contrast that with the contradictory testimony of several pharma scientists.

Walgreens Rollout & Use of Commercial Analyzers

  • On the Walgreens rollout fiasco, Holmes also pointed the finger elsewhere, at her lead lab scientist Daniel Young. She said Young was responsible for the whole project. There are many emails from Holmes telling Young to test the system repeatedly to make sure that everything was working correctly. We will see how the jury weighs this blame-shifting to Young in this instance. 
  • In addition, Young wrote to Holmes pre-launch at Walgreens that Theranos had a then-current list of over 200 blood tests and urine tests it could run. This evidence shows the jury that Holmes received the information she shared with investors from her team. She did not fabricate the information to lure and dupe investors, as the prosecution claims. 
  • Why did Theranos start using third-party blood analyzers if it claimed that Its own technology could run most routine blood tests? Holmes testified that it was simply because the volume of samples they received once they rolled out at Walgreens was too much for its own proprietary devices. This is counter to the prosecution allegations that it was because their own technology had failed, and the company had to lie about how they did their blood tests.
  • Holmes said that because of the large numbers of samples coming in simultaneously, Theranos came up with the idea of adapting third-party machines to use the small finger prick Theranos sample. This made a lot of sense because you could then process all of those samples simultaneously.
  • Why did they keep it secret, not tell anyone? Because they considered it trade secret and intellectual property information, based on the advice of counsel. The use of third-party analyzers in that way was an invention, Holmes said, and we understood from our council that we had to protect it as a trade secret; if we disclosed that information, we would lose our trade secret protection.

Statements to Investors

  • As far as false and misleading information provided to various investors, Holmes said Theranos had a standard presentation that dated back to the early rounds of fundraising. COO Sunny Balwani was responsible for the financial projections she shared with investors and business partners.
  • Holmes and Balwani told investors Theranos projected $140 million dollars in revenues in 2014, a year when Theranos recorded barely $100,000 in revenues. Holmes said her understanding of the 2014 and 2015 revenue projections were based on specific financial models Balwani created.
  • Holmes relayed her experience with some of the very early investors in her company, the due diligence they undertook, the questions they asked, and the financial documents Holmes provided. This testimony will allow the Holmes defense team to argue to the jury that Holmes was forthcoming when investors asked for information, as she was not hiding anything or running a fraudulent company. Peter Thomas, David Lester, and board member Don Lucas are some of the names she identified.

CONCLUSION

Holmes took the stand to tell jurors personally how much she believed in her blood-testing technology that prosecutors say was a fraud. A key to her defense is that she never intentionally deceived anyone. Yes, Holmes may have tended to gloss over problems and rely too much on the advice of the people on her team, but she believed in the technology until the bitter end. 

Holmes tried really hard to make it work. Theranos failed. But business failure, even massive business failure, is not criminal. That is the defense story in a nutshell.

Follow the Prison Professors blog for our next Holmes trial update #20 at the conclusion of Holmes’ trial testimony.

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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