On Monday, Elizabeth Holmes went from onetime Silicon Valley icon to convicted felon. The founder of the blood-testing company Theranos once operated at the highest levels of the business, political, and media worlds until she was exposed as a fraud.
It was, however, a decidedly mixed verdict. After more than seven days of deliberations, the jury convicted Holmes on four of the 11 counts in the indictment. The convictions were on one count of conspiring to commit wire fraud against Theranos’s investors and three substantive counts of wire fraud relating to investments by Betsy DeVos’s family ($100 million), a hedge fund ($38 million), and a lawyer named Daniel Mosley ($6 million). The jury was unable to reach a unanimous verdict on three fraud counts relating to separate investments and acquitted Holmes on the four counts charging her with defrauding Theranos’s customers.
A conviction of some sort was the overwhelmingly likely result for reasons I explored when the trial began, and although the U.S. Attorney’s office is touting the result “in this large-scale investor fraud,” the verdict is not exactly a stirring endorsement of the prosecution. The jury evidently concluded — unanimously — that prosecutors had failed to establish one of their two principal theories, which was that Holmes had sought to mislead customers through public marketing and advertising materials. The jurors disagreed about whether she had defrauded three of the six investors at issue in the indictment, perhaps because those investors had themselves been so derelict in conducting basic due diligence by investing even after Holmes refused to respond to requests for additional information. Major media outlets are already suggesting this was the long-awaited referendum on Silicon Valley start-up culture, but the government and start-up investors would also do well to reflect on the result.
Unless some of the jurors speak to the press, we may not get any further insight into the mixed result — and it is perilous to read too much into the outcome of a single case, much less one this complicated — but as it is, two things stand out. First, jurors may not be as quick as the government might like to convict entrepreneurs over arguably misleading claims that are public-facing, maybe because they expect a certain amount of vague and self-serving boosterism on the part of businesses. Second, this verdict was yet another reminder that jurors will not take it as a given when sophisticated investors claim they have been misled — even when the government endorses that claim.
The composition of the verdict may have been the most unpredictable part of the proceedings, which otherwise appear to have been largely free of unanticipated drama. The government ended up using only a small fraction of the hundreds of potential witnesses it had identified, and some of the most tantalizing names did not appear, such as former secretaries of state George Shultz and Henry Kissinger, who were on the company’s board, as well as David Boies, the onetime Democratic superlawyer whose reputation and law firm have fallen into disrepair in part due to Boies’s work on behalf of Theranos. Rupert Murdoch, who invested $125 million in Theranos, did not testify, but he was there in spirit: The government presented the pitch materials he received, in which Theranos claimed that it “offers tests with the highest level of accuracy” and that the company’s technology “generates significantly higher integrity data than currently possible.” The person who prepared the binders — a former project manager at Theranos and fraternity brother of Holmes’s brother, Christian, who also worked at the company — testified that Holmes approved the materials that went into them. The witnesses who did testify included Erika Cheung, a former lab employee who became prominent after serving as a source for The Wall Street Journal’s John Carreyrou in his exposés of the company, as well as Adam Rosendorff, who had served as Theranos’s lab director and was also a source for Carreyrou. Jim Mattis, a former board member who would become Trump’s Defense secretary, testified about his increasing disillusionment with the company: “There just came a point when I didn’t know what to believe about Theranos anymore.” Roger Parloff, the author of an infamous Fortune cover story on Holmes, explained how Holmes had lied to him.
The nature of the case required the government to establish both how Theranos’s technology was supposed to work and how it actually worked, so there was always going to be a healthy amount of technical detail, but it appeared to prove difficult — verging on outright dull — for observers. The reporters who covered the case for the New York Times seemed particularly taken aback. After the first month, one story noted “only brief moments of drama amid long stretches of technical tedium” and took issue with “the tedium” and all of “the minutiae of the case,” which had “begun to drag.” About a week later, another story observed that the “mood during testimony is, oddly, sleepy” and quoted a spectator as saying “the trial had ‘not quite’ lived up to her expectations.” By early November, there was practically a cry for help: “Just how long is Ms. Holmes’s trial going to last?”
Things seemed to pick up shortly thereafter as prosecutors transitioned to the evidence on Theranos’s misleading marketing. Former executives at Safeway and Walgreens testified about how Holmes had misled them about the state of the company’s technology. One of the Walgreens executives explained that the company had relied on a document provided by Theranos that suggested — through the inclusion of corporate logos — that three pharmaceutical companies had endorsed the company’s technology, which was not true. When Holmes took the stand in her defense, she was forced to acknowledge she had included two of the logos herself.
Holmes’s testimony, which spanned seven days, otherwise fell in line with pretrial expectations: The whole mess was other people’s fault; she really believed in the company’s work; she had been misunderstood. She followed through on a claim that became public in the days leading up to the trial when she testified that her former boyfriend Ramesh “Sunny” Balwani — who was also the company’s president and chief operating officer — had emotionally and physically abused her. (Balwani has denied the allegations. He is scheduled to go on trial separately next month.) The government told jurors they did not need to decide if the abuse happened, but whether they took that route or simply did not believe Holmes, the result was the same: The claims were not enough for the jury to acquit her.
Some members of the press were expecting a dramatic showdown when the government cross-examined Holmes, but this too turned out to be another anticlimax. The Verge, which generally provided excellent coverage of the trial, criticized one day of cross-examination for lacking “more fireworks” and “a clear narrative throughline” and complained that “the government chose to send an assassin who didn’t know when to twist the knife.” The story went on to identify key admissions that the government had extracted — Holmes, for instance, had “admitted that Theranos devices weren’t on medevac helicopters, as several investors claimed Holmes told them,” which meant prosecutors proved she had lied about this — but it still questioned the absence of a “narrative to counter” Holmes’s direct testimony and the absence of an “emotional punch.” The sentiment was understandable, but this is how cross-examinations often work, particularly with witnesses who have provided extremely long direct testimony (which makes it difficult to structure a cross-examination in advance) and whom opposing lawyers expect to mislead the jury if given an opening.
Holmes’s decision to testify was unusual, but the defense itself was not. Prosecutors had amassed evidence that Theranos was an elaborate fraud, that major aspects of the business had been misrepresented with Holmes’s awareness and direct involvement, and that those misrepresentations actually mattered to at least some investors. The best defense left was that Holmes did not intend to mislead anyone, and she appears to have gone some if not all the way in persuading jurors of this.
The judge scheduled a conference next week to address the three counts on which the jury could not reach a verdict. The government could in theory attempt to retry Holmes on those counts, but that is highly unlikely. The next battle will be the sentencing, likely followed by an appeal and a dispute about whether Holmes can remain out of prison until the appeals court weighs in — which, in the Ninth Circuit, where Holmes was tried, typically takes about a year.
Usually, it is not particularly helpful to note the statutory maximum sentence available in a particular case — in this case, 20 years — since the sentencing guidelines that are supposed to guide the federal courts rely on a complex set of case-specific factors and considerations, and it is rare for them to generate a recommendation in a fraud case that is actually close to the statutory max. This case may prove different given the extraordinary amount of money investors (victims) put in — about $945 million — which is usually the main driver of sentences in fraud cases. Still, the judge’s ultimate decision may prove complicated with considerations that Holmes is a first-time offender, her conduct was not unique among her peers, and the jury rejected (or otherwise could not resolve) significant parts of the government’s case.
Following the proceeding from afar, the whole affair has been a largely guiltless indulgence, particularly striking at a time when we are very short on those in the law and elsewhere in the country. It helped that no one actually died or suffered a serious physical injury as a result of Holmes’s conduct and that the ultrarich investors who did the bare minimum to protect themselves — and in some cases, even less than that — are not a terribly sympathetic lot. Ultimately, the verdict confirmed perhaps the surest thing about Holmes herself: In the end, she never fails to surprise.