The Ninth Circuit Court of Appeals has affirmed the convictions of former Theranos founder and CEO Elizabeth Holmes, and her business partner and former lover Ramesh “Sunny” Balwani, in their entirety.
Holmes and Balwani were convicted of multiple counts of fraud relating to Theranos’s failed blood-testing technology. Holmes and Balwani are currently serving terms of 135 and 155 months in prison, respectively.
The 54-page opinion by a 3-judge panel does not mince words. Judge Jacquelyn H. Nguyen, writing for the court, called Theranos’s promise that it could run hundreds of blood tests from a single drop of blood from a fingerprick a “mirage,” describing the “grandiose achievements touted by Holmes and Balwani” as “half-truths and outright lies.”
Although the indictments against Holmes and Balwani were identical, they were tried separately in federal district court in San Jose and convicted in 2022. The Holmes jury acquitted her of fraud charges related to patients but convicted her of lying to investors. Balwani was convicted of all 12 counts — of fraud against both investors and patients — of the original indictment.
As conclusive as burned toast
On appeal Holmes challenged the admission of damaging testimony by former Theranos lab directors that the technology, including the infamous Edison machines that supposedly ran the multiple blood tests, didn’t work. Holmes argued that this testimony was improper expert opinion that did not comply with the legal framework for permitting experts at trial.
Although the appellate court agreed that some of this evidence “veered into expert testimony,” it found that testimony by other Theranos employees similarly established that the technology was a bust. Because the outcome of the trial would have been the same even without the challenged evidence, the court concluded that any error was harmless.
The court also rejected arguments that testimony by Theranos employee Erika Cheung as to the unreliability of the Edison device also amounted to improper expert testimony, explaining that a lay person could reach the same conclusions that the young lab associate did: “if a certain model of a toaster consistently burned bread or short-circuited when run on regular settings, and those problems consistently manifested across multiple toasters of the same model, a lay person using the toaster could reasonably reach the conclusion that there is a problem with the design or manufacturing of the toaster.”
Holmes also challenged evidence about events that occurred after the misrepresentations to investors that the jury found were fraudulent, including a report prepared by the Center for Medicare and Medicaid Services in 2016 finding that the Theranos tests presented an “immediate jeopardy” to patients and a decision by Theranos’ last lab director, Kingshuk Das, to void every Theranos test ever done. The appellate court held that the district judge, Edward Davila, did not abuse his discretion or improperly prejudice Holmes by allowing the evidence in.
The appellate court also rejected Holmes’s effort to offload responsibility to Balwani, saying that the district court properly excluded statements by Balwani to the effect that he, not Holmes, was in charge of the company’s financial projections.
Restitution for worthless shares
Balwani’s arguments similarly failed, including his claim that some of the investor-witnesses lied at trial. One of the witnesses, Chris Lucas, testified in Balwani’s trial that Holmes told him the Theranos technology was being used in the Middle East and on the battlefield. In fact, Balwani argued, a recording of Holmes talking to investors did not include that statement. The appellate court found that Balwani failed to preserve the argument for appellate review and that, in any event, Lucas had “regular contact with Holmes between 2006 and 2013 leading up to his investment” during which such statements could have been made.
Both Holmes and Balwani challenged the calculation of their prison sentences and the district court’s restitution order that restitution be paid to the victims. The appellate court rejected all of the claims. Because the Theranos shares effectively became worthless once the fraud became public and the investors lost everything, the appellate court concluded that the district court correctly awarded $452 million in restitution, “the full value of their investment.”
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