This is not only a trial of Holmes, but also an examination of Silicon Valley's "pie-painting culture".
Author | Lingzi County
Edit | Zheng Xuan
"At so many forks in the road, she chose the path of dishonesty."
After a 15-week trial, the Elizabeth Holmes fraud case that shook Silicon Valley and Wall Street was ruled on this week by a jury in federal court unanimously granting four of the 11 fraud charges against Holmes. Each charge faces up to 20 years in prison, as well as a fine of $250,000 and other damages.
Beginning in 2004, Holmes told the public and investors the story of "a drop of blood drawn from between the fingers can detect more than 100 diseases such as cancer, completely disrupting the blood testing industry." With jobs-like "distorted reality" speech charm, she has raised $945 million for the blood testing company she founded, Theranos, and has supporters of celebrities such as the former richest family, former US defense secretary and former secretary of state.
The edifice of woven words collapsed in 2018, and the Wall Street Journal's investigative report debunked Holmes's lies. Theranos, once valued at $9 billion, went bankrupt a few months later, and federal prosecutors indicted founder Holmes and the company's second-in-command, chief operating officer Ramesh Balwani, on charges of defrauding investors, doctors and patients. The two were secretive couples during the period of running the company together.
Moving from business to court, Holmes still tried to change the direction of the ending with his "twisting power". After the company collapsed, she and her current husband lightning dated, married, had children, and cried in court that she was sexually assaulted and manipulated by Barwani, portraying herself as a victim; at the same time, for the "deceived" investors, Holmes's lawyers accused them of lacking the necessary investigation and tried to blur the line between Holmes's approach and Silicon Valley's "pie-making culture".
Holmes's approach failed to tilt the jury's judgment. Jurors, while widely convinced that she had been abused, considered it unrelated to fraud; the shift of responsibility to the investor was also pointed out by the judge that "allegations of victim negligence cannot be used as a defence for fraud".
But the section on Silicon Valley culture has divided jurors' discussions, with 3 of all seven allegations of defrauding investors that the jury failed to reach an agreement and will make a decision at next week's meeting.
There's a well-known slang phrase in Silicon Valley culture — "fake it until you make it." As the federal court indicted, "Silicon Valley-led regions are at the center of modern technological innovation and entrepreneurship, and capital investment makes it possible." Here, people praise the story of geniuses who transcend the times, "not crazy, not alive". In such soil, Jobs, who changed the world, was born, and Holmes, who deceived everyone, was born.
There is often only a line between optimistic prediction and deceiving the public, the pursuit of extremes and the deviation from the track. The birth, discussion, and trial of Theronas have a broader meaning.
This decision is not only the fate of Holmes, but also the examination of Silicon Valley's "pie painting culture".
Ramesh Balwani (left) and Elizabeth Holmes (right) | Source: Visual China
01
Claimed to be controlled by business partners
After the Theranos scam was revealed, Holmes began dating Billy Evans, heir to the Evans Group of Southern California. The two gave birth to a child in July this year.
In March, Holmes first reported his pregnancy to the court. Due to the outbreak and pregnancy, the trial process has been delayed four times. Choosing to get pregnant during a lawsuit is naturally speculated to be some kind of strategy. A pregnant woman who testifies in court is more likely to arouse sympathy. Federal white-collar criminal defense attorney Carolyn M. Polisi commented, "The fact that she is a young new mom will affect any potential verdict."
At the age of 9, she said she wanted to become a billionaire and never hid her ambitions, and her trademarks were blonde hair, big blue eyes, and a low baritone. In Wall Street Journal reporter John Carreyrou's nonfiction work Bad Blood, Holmes's aura and charm of being able to "distort reality" are repeatedly depicted. At trial, she continued to unleash her influence and revealed another side of her relationship with her business partner and ex-boyfriend, Sonny, as part of her self-defense.
"He'd force me to have sex with him when I didn't want to, and he'd say he wanted me to know he still loved me." At one point Holmes cried on the witness stand and made a statement. She also said Sonny dominated her schedule, arranged what she ate and kept her away from her family. "He influenced everything about who I was, and I don't fully understand that."
Barniva's lawyers have denied allegations of manipulation and sexual assault. The trial of Barniva will begin next month.
After being indicted alongside Bavanier, Holmes's lawyers won to divide the cases between the two and try them separately. In his hearing statement in September, her lawyer said, "It was one of her mistakes to believe in and rely on Mr. Barwani to make him her main adviser."
In 2003, Holmes dropped out of school as a sophomore at Stanford to found Theranos. In high school, Holmes came to Beijing through a summer program at Stanford University and met Balwani. In testimony, Holmes said she had been raped while at Stanford. Shortly thereafter she reconnected with Barwani and eventually dropped out of school. "Believing that God put Him in my life at a time when it really mattered," she described Sonny's influence on herself.
In closing remarks about Holmes' part of her defense, prosecutors said, "There is no evidence of a link between their relationship and the conduct she is accused of."
No matter how much influence others are reinforced, as the CEO of the company, Holmes is bound to be responsible for her actions. In her closing statement, she commented, "At so many forks in the road, she chose the path of dishonesty."
On September 8, 2021, local time, Elizabeth Holmes, founder of the American blood testing company Theranos, and her partner Billy Evans appeared in the U.S. federal court in San Jose, California, to participate in the first day of the trial. Source: Visual China
02
Key evidence of technical fraud:
Technical reports with internal mail
At trial, Holmes took off his signature turtleneck black sweater and jeans and changed into a dark suit suit. Previously, she had been expressing to the public that she was a fan of Jobs and was influenced by her mother to wear a black sweater. But Ana Arriola, a former Apple employee who worked at Theranos, said in a 2019 media interview that the style of dress for the black sweater was recommended to Holmes after she joined the company.
Holmes was involved in the company's falsification of technological innovations. The key piece of evidence at the trial was the company's technical verification report handled by Holmes. In court, prosecutors displayed Theranos technical reports with Pfizer, Schering-Paul's, and GlaxoSmithKline logos.
Holmes said he added the logos to the report and sent it to investors and business partners. But she explains that "the work was done in partnership with these companies and I tried to convey that". Pharmaceutical companies are not involved in or approved these reports. Investors and partners say the reports are a catalyst for investments or collaborations.
In 2006, Pfizer signed a contract with Theranos, whereby Pfizer evaluated Theranos' technology and saw if there were other opportunities for collaboration. Later, Pfizer scientist Shane Weber did due diligence on Theranos in 2008. After speaking to Holmes about the technical questions, he judged Pfizer that Theranos provided "non-informative, off-topic, off-topic, or evasive answers." Ultimately, Pfizer decided they had no interest in using Theranos' technology.
After that, Holmes told business partners and investors that her company's technology had been certified by 10 of the 15 largest pharmaceutical companies.
Theranos' technical report, in the upper left corner, has the logo of the pharmaceutical company Schering Baoya | Source: TNY
Theranos doesn't have the blood analyzer it claims. In most pointer lancets, instruments from other companies are used. The company also doesn't have the technology to detect 100 diseases from a single blood sample, with only 12 diseases at most. Holmes said she concealed the fact that Theranos used a third-party blood testing device. But she explained that this is to protect the company's modification information to the device in case other companies copy it.
Regarding camouflage technology, the company's internal emails were also shown in court as key evidence. In an internal email, Theranos software engineer Michael Michael Craig suggested that product manager Daniel Edlin use the Demo App for a showcase. This is a special setting on Theranos devices that displays "Running" or "Processing" instead of displaying an error if an error occurs. The email stated, "Demo App can hide algorithm failures from customers."
Screenshot of Theranos internal mail | Source: TNY
03
4 allegations established,
4 refusals
The jury ultimately found Holmes guilty of four counts of investment fraud, one of which was conspiracy with Rabarvani.
The four investment fraud counts involved four investments totaling more than $140 million from 2010 to 2015. Three of them include about $100 million from the family of former Education Secretary Betsy DeVos; $38 million from hedge fund PFM Health Sciences LP (which invested a total of $96 million in Theranos and recovered $43 million in a 2016 civil lawsuit against the company); and about $6 million from veteran real estate lawyer Daniel Mosley. The amount of another conspiracy to defraud was not disclosed.
The court found that she used direct communication, marketing materials, statements to the media, financial statements, models, etc. to induce investment. U.S. Attorney Stephanie M. Announcing her conviction, Hinds said: "Elizabeth Holmes chose fraud rather than business failure."
Of the remaining 7 counts, 4 were not convicted of defrauding patients. The evidence did not lead the jury to believe that she was directly linked to the patient's receipt of false test results.
The jury was not convinced by the other 3 allegations and testimonies about investment fraud. The three involved Early Investors in Theranos: Black Diamond Ventures, Hall Group and Alan Eisenman.
The jury appeared to have opted for investment even though Holmes refused their request for more information. Defense attorneys said this showed that the investors were negligent.
How to further address the 3 investment allegations will be decided at next week's meeting. Sentencing may wait until 6 months later, or longer.
Former federal prosecutor Nyama Neama Rahmani said every fraud charge results in a maximum sentence of 20 years. But with no previous convictions, Holmes is unlikely to get the maximum sentence. In addition to her imprisonment, she faces a $250,000 fine for each count, as well as other compensation.
On January 3, 2022, local time, Elizabeth Holmes arrived in the federal courthouse in San Jose, California, USA. Source: Visual China
04
Deceiving Investors and the "Silicon Valley Culture"
People in Silicon Valley may be reluctant to see "bad blood scams" as a product of "Silicon Valley culture." But the judge allowed that perspective. At least at trial, the judge allowed Holmes' lawyers to cite the tech industry's optimistic ethos to defend themselves.
"They're not interested in today, tomorrow or next month." In his defense, Holmes described what people around him expected of him: "They are interested in what kind of change we can make." So when she talks about the company, she chooses to talk about "what can be done in a year, five years, ten years."
Alan Eisenman, an early investor in the company, testified that when he asked Holmes for more information about the company, he was interrupted and threatened. But even so, he chose to invest more money in the startup. Because he believes that this seemingly fast-growing business will bring him wealth.
The investor's testimony became a grip on Theranos' defense lawyers' counterattack. Lawyers try to shift some of the blame to the "investor's" carelessness. At trial, the lawyer tried to get investor, veteran real estate lawyer Danny Mosley, to admit that he never directly asked Holmes if he had a validation report written by a pharmaceutical company; asked lisa Peterson, an investment professional, if she was familiar with the concept of due diligence. It was the latter that led the family's investment in Theranos by former Education Secretary Betsy DeVos.
These defence strategies were also refuted, with the judge reading the instructions to the jury stressing that "allegations of victim negligence cannot be used as a defence for fraud."
However, the investment facts disclosed at the trial did reflect a certain blindness of Silicon Valley investors in chasing star companies.
In 2006, Bijan Salehizadeh, an investor at venture capital firm Highland Capital, did not choose to invest in Theranos. The reason, he said, was that Holmes was unwilling or unable to answer most of his questions. But when Theranos was in the ascendant, he doubted his own judgment and heard the voice of doubt.
"A hot company like Theranos, as a healthcare practitioner, you saw that you didn't invest? A unicorn sitting in your office in the early stages, how can you miss it?" And what it's like being an investor in Silicon Valley is like going through a roller coaster inside, "You always feel like you're either an idiot or a genius."
There's a well-known slang phrase in Silicon Valley culture — "fake it until you make it." As the federal court indictment put it, "Silicon Valley-led regions are at the center of modern technological innovation and entrepreneurship, and capital investment makes it possible." Here, people praise the story of geniuses who transcend the times, "not crazy, not alive". In such soil, Jobs, who changed the world, was born, and Holmes, who deceived everyone, was born.
There is often only a line between optimistic prediction and deceiving the public, the pursuit of extremes and the deviation from the track. The birth, discussion and trial of Theronas will also be a trial and reflection on this "Silicon Valley culture".
*Header image source: Visual China
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