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 Holmes Trial Update #20 

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Michael Santos

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HOLMES TRIAL UPDATE #20: WHAT ELIZABETH HOLMES HAS TESTIFIED SO FAR-PART 2

Elizabeth Holmes testifies at her criminal trial and delivers on the strategy to point towards Sunny Balwany for Theranos’ failures.

INTRODUCTION

Elizabeth Holmes faces up to 20 years in prison if convicted of the fraud counts in the federal indictment against her. After four days on the witness stand, Holmes concluded her direct examination. We now await the prosecution’s cross-examination, and then her team will have the chance to ask her questions again on redirect.

HOLMES ON THE STAND

The conclusion of Holmes’ testimony covered the promise of the company to expand access to healthcare, her belief in that promise, as well as Sunny Balwani’s role in her personal and professional life. Balwani is Holmes’ codefendant, currently awaiting his own criminal trial next year. He was Holmes’ boyfriend and Theranos Chief Operating Officer during the relevant timeframe. Holmes categorically denies trying to deceive investors, patients, or the public.

The testimony against Balwani delivers on defense counsel’s promise to blame Balwani, and Holmes explained Balwani’s direct responsibility and control of Theranos’ day-to-day operations. In closing arguments, a big part of Holmes’ defense will be that Balwani heavily influenced her decision-making, negating perhaps all criminal intent.

 

HOLMES BLAMES BALWANI 

Here are the highlights of her last day of testimony on direct. A very rigorous and hard-hitting cross-examination from prosecutors is next.

  • Holmes attributed her dropping out of Stanford at age 19 to being the victim of rape. This testimony was visibly emotional, according to reporters in the courtroom. 
  • Holmes shared detailed allegations of verbal and sexual abuse at the hands of Balwani in the aftermath of the rape. Holmes’ allegations against Balwani include gaslighting and tearing her down, undermining her confidence as a businesswoman, so that she had to lean more and more on him. 
  • Some experts see this testimony as laying the groundwork for a “Svengali” defense. “Svengali” has come to refer to someone who tried to dominate, manipulate and control another with evil intent. In court, the Svengali defense is a legal strategy that portrays the defendant as a victim, a pawn in the scheme of a greater and more influential criminal mastermind.
  • For example, Holmes testified that Balwani tried to take credit for Theranos’ success and her skills as a leader. She said Balwani would say that “he had built me into who I was.” After speaking with young women inspired by Holmes in May 2015, Balwani texted her, “I have molded you.” Balwani meant that he was responsible for people’s admiration of her.
  • The testimony delved into the personal and physical abuse Holmes said she suffered in her relationship with Balwani, including being told, “I was a monkey trying to fly a spaceship.” Holmes made notes of insults from Balwani, and she recalled the time Balwani said to her, “I don’t enjoy being in a company that’s not going to win” and “So angry at myself for coming.” 
  • Balwani has denied all allegations against him.
  • This testimony from Holmes directly contradicts the testimony of other witnesses close to Holmes during her years leading Theranos. Witnesses observed that Balwani generally deferred to Holmes in public, and Holmes was in complete control of decisions at Theranos, even in areas of the business that Balwani controlled. For example, Balwani led Theranos’ highly publicized partnership with Walgreens, but witnesses testified that Holmes appeared to keep a tight grip on the company’s moves. “There wasn’t a decision made at that company that didn’t go through her,” one former Walgreens official testified.  
  • Holmes continued to try to distance herself from the day-to-day management of the Theranos laboratories, claiming that she was not aware of any problems with Theranos’ technology per se. Holmes testified that she did not run Theranos’ lab operations; others were responsible for oversight of the scientific and lab issues. “Who was responsible for operational management of the lab?” the defense counsel asked Holmes. “Sunny Balwani,” she replied. Balwani was in charge of all the “business parts” of the lab. Meanwhile, the clinical, scientific decision-making was the job of the laboratory director and laboratory leadership, Holmes testified, according to WSJ reporting. She spoke about hearing from Theranos’ first lab director that a regulatory inspection in 2011 went well. 
  • According to Holmes, Balwani tried to control her actions and personal life once they became romantically involved. “He told me he didn’t know what I was doing in business, that my convictions were wrong,” she testified. Balwani even told her what foods to eat to make her pure and have the disciplined lifestyle necessary for success. She said he wanted Holmes to follow his prescription for how to be a great leader, continuously focusing on the company’s vision. 
  • Balwani criticized her personality and would get angry at her for being mediocre, telling her she would never be successful. “He felt I came across as a little girl and needed to be more serious and pointed,” she said, “and not be giddy in my interactions.” She said Balwani told her she had to act more like a man to succeed.
  • Ultimately, Holmes lost faith in Balwani, she told the jury. “He had taught me everything that I thought I knew about business, and I thought he was the best business person that I knew,” she said. “I think that I didn’t question him in the way that I otherwise would have.”
  • She testified that her faith in Balwani began to crack after a 2015 inspection by the Centers for Medicare & Medicaid Services. The inspection failed and resulted in Theranos losing its license to operate its California blood-testing lab. Holmes personally was banned from running a lab for 2 years. Holmes testified that she had “thought Theranos had one of the best labs in the world” before that. “He wasn’t who I thought he was,” she said. 
  • Interestingly, Holmes does not claim that Balwani forced her to make certain specific statements to investors, retailers, board of directors, or the media. She categorically answered no when asked about this by her lawyers. 
  • As to what impact Balwani had on her work at Theranos, Holmes answered, “I don’t know. He impacted everything about who I was, and I don’t fully understand that.”
  • Holmes’ trial testimony also conflicts with what Holmes told the Securities and Exchange Commission in 2017, where she took responsibility and stated: “I’m the CEO. I’m the ultimate decision-maker for the company.” 
  • Holmes’ testimony concluded by reinforcing her vision for Theranos and her belief in the company for the jury. “I believed in the company and wanted to put everything I had into it,” she added. As to the “vision” she sold investors for Theranos’ future, Holmes said her goal was to improve access to testing and medical data to catch diseases earlier and treat them more effectively.
  • When asked why she never sold her 50% stake in Theranos — valued at one point at $4.5 billion — despite board members and investors urging her to, Holmes said she “didn’t want to.” Holmes confirmed that her shares in Theranos are worth nothing today.

CONCLUSION

Holmes took the stand to tell jurors personally how much she believed in her blood-testing technology, and she never thought it was a fraud. She also explained how Balwani affected her personally and professionally for the worse, not for the better. The next step for her is to withstand the challenges to her direct testimony when prosecutors start their cross-examination. 

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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