Elizabeth Holmes Testimony Day 3: Live Trial Updates – The New York Times

On Tuesday, in her third day of testimony, Ms. Holmes further built up that defense.

During the proceedings, Kevin Downey, Ms. Holmes’s lawyer, brought up emails and presentations from senior Theranos scientists such as Ian Gibbons and Surekha Gangakhedkar in which they gave positive reports about the start-up’s devices. Ms. Holmes publicly claimed Theranos’s devices were revolutionary, but The Wall Street Journal exposed in 2015 that the machines didn’t work.

In one case, Mr. Downey displayed a February 2010 email from Mr. Gibbons to Ms. Holmes. Ms. Holmes had asked about various blood tests, and he responded, “Essentially all are possible in the proposed system.” She said that she took this to mean that these tests were being run on Theranos’s system.

In another case, Ms. Holmes emailed her scientists to ask them about a presentation they had prepared. When Mr. Downey asked why she had sent the email, she said, “Our scientists had said that, and so I wanted to better understand that statement.”

Mr. Downey also tried to show that Ms. Holmes had relied on outside experts and her board of directors. He brought up a study done by scientists at Johns Hopkins University that concluded that Theranos’s technology was “novel and sound.”

“Our team was really excited about this,” Ms. Holmes said. “This was some of the best laboratory experts in the world.”

Mr. Downey also pointed out that Theranos’s board in 2010 included Don Lucas, an investor who backed Oracle and Adobe; Pete Thomas, a longtime investor at the venture capital firm IVP; and Channing Robertson, a Stanford University professor.

One person Ms. Holmes hasn’t fully discussed is Ramesh Balwani, Theranos’s former chief operating officer and her former boyfriend, who is known as Sunny. In three days on the stand, she has mentioned his name only once, to note that he was involved in the Hopkins study.

But there also has been a dissonance in Ms. Holmes’s testimony. She has talked confidently about Theranos’s technology during her testimony, a contrast to how her lawyers have tried to argue that she depended on other people to tell her how the technology worked.

It’s all part of painting the picture, they said, of Ms. Holmes as a well-meaning but ultimately unsuccessful executive, rather than someone who intentionally misled investors and should be convicted of fraud.

“This is exactly what you would expect,” said Neama Rahmani, the president of the law firm West Coast Trial Lawyers and a former federal prosecutor. “Generally speaking, when you go into these types of cases, there’s two types of defenses: ‘I didn’t know’ and ‘It wasn’t me.’”

Ms. Holmes, 37, has been charged with 11 counts of fraud and conspiracy to commit fraud. She has pleaded not guilty. If convicted, she faces up to 20 years in prison.

Mr. Rahmani said that Ms. Holmes’s attempts to blame others for the company’s problems while emphasizing her own ignorance was typical of fraud defendants. He said the tactic was also often used in money laundering and drug trials — cases where prosecutors have to prove that a defendant knew they were transporting drugs or that money came from illicit activities.

In Ms. Holmes’s case, she and her team “are going to do everything they can to distance themselves from that knowledge,” he said.

Jeffrey Cohen, an associate professor at Boston College Law School and a former federal prosecutor, said attempts to make Ms. Holmes appear ignorant were part of a larger strategy.

“What I would expect a defendant in a high-profile case to do is try to humanize themselves and make the jury see that they’re not just a corporate C.E.O., but a person with the flaws that any person might have who’s running a large corporation,” Mr. Cohen said. He added that having Ms. Holmes’s mother in the room “says to the jury that she could be a sympathetic character and not this mastermind of a fraudulent scheme.”

As for Ms. Holmes’s attempts to rebut arguments made by the prosecution, such as by pointing to studies Theranos did with drug companies, Mr. Rahmani said it was likely an effort to create uncertainty about Ms. Holmes’s culpability.

“They’re trying to paint this much more nuanced picture, because obviously all they need to do is establish reasonable doubt. They’re hoping to pick off a few jurors,” he said. “If they get some folks who are sympathetic or some people who are on the fence, that’s their path to success here.”

Investors and partners, including Wade Miquelon, the former chief financial officer of Walgreens, had previously testified that the outside endorsement had helped convince them to invest in and work with Theranos.

“My assumption was that both parties agreed to what was written,” Mr. Miquelon said of the Pfizer report. It was an important piece of diligence, he added, because “the pharmacy companies in general are much more adept at the lab work they do.”

But there was one problem, prosecutors said: The drug companies had not written or approved of the reports.

On Tuesday, Ms. Holmes said she had personally added the logos to the reports just before sending them Walgreens. But she said she had done so “because this work was done in partnership with those companies and I was trying to convey that.”

Ms. Holmes said she hadn’t meant to give the impression that the reports were prepared by the pharmaceutical companies.

“I’ve heard that testimony in this case, and I wish I’d done it differently,” she said.

Ms. Holmes’s lawyer, Kevin Downey, said Theranos had not hidden that it had added the logos from the pharmaceutical companies. In a bid to show that the companies may have been aware of the reports, he displayed a 2014 email from Ms. Holmes’s brother, Christian Holmes, who worked at Theranos, to various Pfizer executives. The email attached the report using Pfizer’s logo.

Not every white-collar case is a tech case or related to start-ups, which means there are only a handful of times each year when someone in Silicon Valley is accused of a crime.

There are a lot of complicated reasons for this shortage of courtroom action.

A frequent explanation is that it is the fault of a lackluster U.S. attorney’s office in San Francisco. Few prosecutors come to the Bay Area to make their reputations, and those that do — like Robert Mueller 20 years ago — soon move on to better jobs. Mr. Mueller took over the F.B.I.

It’s not just a local issue. Fighting white-collar crime has been less of a priority for the Department of Justice since the Sept. 11 attacks brought fears of widespread terrorism.

And for all the growing awareness of the power of tech companies, there is little public demand to hold them accountable. When David Anderson stepped down as U.S. attorney for the Northern District of California early this year, he did an interview with a radio station. None of the questions from the host or from callers dealt with Silicon Valley.

Mr. Anderson, a Trump appointee, had talked about making Silicon Valley a priority for his prosecutors. His first public appearance was on a panel titled “White Collar Crime in a High-Tech World.” But he was in office for two years, too few to really make an impact. The district has had an acting U.S. attorney, Stephanie Hinds, since March.

Yet another reason is that Silicon Valley is a very rich place. That does not make government prosecutions impossible. But it ensures that top-flight defense attorneys can be brought in, making cases like Ms. Holmes’s neither short nor simple.

Finally, there is a sense in Silicon Valley that failure — whether a company that went under or an investment that was lost — is best kept in the family, far away from prosecutors, regulators and the media. Investors are supposed to be sophisticated, and a case like Ms. Holmes’s can reveal just how foolish and naïve they were. The same is true of employees.

Better to just forget about anything suspicious than allege fraudulent activity. After all, you wouldn’t want to miss out on the next opportunity.

Lawyers for Ms. Holmes, 37, may be betting that their client — who charmed investors and partners as she built Theranos to a $9 billion valuation before it collapsed — will be persuasive and charismatic enough to get 12 jurors on her side.

“They think they are behind, and they have a smart, likable, young, attractive witness,” said Neama Rahmani, who is the president of the West Coast Trial Lawyers and a former federal prosecutor. “And she thinks she’s going to talk her way out of it.”

Ms. Holmes’s testimony may also be the only way to show that she did not intend to deceive anyone, Mr. Rahmani said. She can speak about her relationship with Ramesh “Sunny” Balwani, 55, Theranos’s former chief operating officer and her former boyfriend. In court filings, she has said he was emotionally abusive and controlling. He has denied the allegations.

Ms. Holmes may also be hoping to present herself to the jury as a sympathetic figure. She had a baby in July and has showed up to the courtroom carrying a diaper bag and holding hands with her mother.

But by speaking in court, Ms. Holmes is taking a risk. That’s because she has previously made many statements about Theranos — both under oath and in media interviews — which prosecutors can grill her on.

“She’s going to be the best witness for herself, or the worst,” Mr. Rahmani said. “She may just kind of hang herself, so we’ll see.”

On Tuesday, Danielle Baskin, a spectator, also brought black turtlenecks, blond wigs and red lipsticks — a nod to Ms. Holmes’s signature look when she ran Theranos — as well as energy drinks with the handmade labels “Badder Blood,” “Bitter Blood” and “Better Blood.” She set up shop outside the courthouse before a security guard told her she couldn’t sell goods on federal property.

“I’m interested in the theatrics of how she bends words and shifts energy and how she crafts a story,” Ms. Baskin, 33, who drove from San Francisco with two friends, said of Ms. Holmes.

Ms. Baskin said she was the founder of Dialup, a voice chat app, and added that she was not a fan of Ms. Holmes. “I don’t have sympathy for her because she was lying the whole time, and I know women with brilliant ideas who can’t put on an act and fail at fund-raising,” she said. “She’s an example of why the system was broken.”

Emily Saul, a reporter for the podcast studio 3uncanny4, has become the unofficial keeper of the line, noting everyone who arrives and standing on a bench inside the courtyard once the gates open to corral people.

On Monday, the first person arrived at 12:15 a.m., saving a spot for a friend of the Holmes family who “preferred to be anonymous.” At 3:45 a.m., two blond women known as “Holmies,” who had dressed in black turtlenecks during opening statements in September, arrived dressed in different clothing. They hugged Ms. Holmes and her boyfriend, Billy Evans, and sat in the row reserved for the defense.

On Tuesday, spectators included a high school student and her mother from Palo Alto, Calif. Their presence led to a wave of laughter when “Karrie and Karrie’s mom” were announced in line.

At 5 a.m., the Starbucks around the corner opened. People left the line and returned clutching red holiday cups and paper bags with bagels or breakfast sandwiches. When the courthouse gates opened around 6:15 a.m., more than 50 people were in line. Only 34 fit in the courtroom. At 7:30 a.m., the doors to the courthouse opened.

Ms. Holmes arrived around 8:15 a.m., flanked by Mr. Evans and her mother and surrounded by cameras and microphones.

“God bless you, girl boss!” one person called as she entered the courthouse.

In just under two hours of testimony, Ms. Holmes pushed back against accusations that she had lied about Theranos’s work with drug companies. She also pointed the blame at the scientists and doctors who had worked at her start-up, saying she believed what they had told her about Theranos’s technology.

And throughout it all, Ms. Holmes’s defense bolstered the idea it has been pushing since the start of the trial: She may have made mistakes, but failure is not a crime.

“We thought this was a really big idea,” Ms. Holmes said about Theranos’s machines, which she once promised could run a long list of medical tests from just a few drops of their blood.

It was her second day of testimony in a trial that has gripped Silicon Valley and become a referendum on start-up culture and just how far entrepreneurs will take their hubristic claims of changing the world. For her lawyers, the idea on Monday was to show the kernel of truth that may have existed in some of the most blatant misrepresentations that prosecutors attributed to her.

Ms. Holmes, 37, has been charged with 11 counts of fraud and conspiracy to commit fraud. She has pleaded not guilty. If convicted, she faces up to 20 years in prison.

Her testimony has been the star attraction at a trial where more than 30 witnesses have been called over the past three months into a San Jose, Calif., courtroom to testify. Ms. Holmes had watched the proceedings quietly, her expression obscured behind a medical mask. On Friday, the prosecution had rested its case.

Ms. Holmes is the rare Silicon Valley executive to be tried on fraud charges. While the world of tech start-ups is known for its culture of hustle and hype, few have risen as high or fallen as dramatically as Theranos — and even fewer of their leaders have been indicted on accusations that they lied to investors. Over 13 years, Theranos raised nearly $1 billion in funding, valuing it at $9 billion. After The Wall Street Journal revealed in 2015 that Theranos’s technology did not work as advertised, the company unraveled. It shut down in 2018.

Ms. Holmes’s decision to testify is a risky one that shocked the courtroom out of its Friday afternoon lull last week. She has opened herself up to cross-examination by prosecutors and also risks perjury.

But experts have argued that she had no choice but to defend herself, given the evidence presented by prosecutors. That has included text messages that showed Ms. Holmes was aware of Theranos’s technology problems and testimony about faked demonstrations of its abilities. Prosecutors also revealed that after an employee, Erika Cheung, spoke to regulators about problems in the Theranos lab, the start-up hired a private detective to follow her.

“They think they are behind, and they have a smart, likable, young, attractive witness,” Neama Rahmani, the president of the West Coast Trial Lawyers and a former federal prosecutor, said of Ms. Holmes. “And she thinks she’s going to talk her way out of it.”

One key point made by prosecutors was that Theranos could never conduct more than 12 different blood tests on its own machines. It secretly used blood analysis machines from companies like Siemens to run most of its tests, but proclaimed it could do hundreds or thousands at various times.

Ms. Holmes’s lawyers have for weeks tried complicating the prosecution’s narrative. They have pointed to patents created by Theranos. They have hammered investors for not doing enough diligence on the start-up before eagerly writing checks to fund it. And they painted Ms. Holmes as inexperienced and unqualified to run a lab, directing blame for Theranos’s failure at those who were experienced and qualified.

But on the stand, Ms. Holmes presented herself as an impressive and ambitious chief executive when describing the early days of Theranos. She detailed a patent that bore her name for an early concept of the company, as well as the help she got from Channing Robertson, a respected scientist and Stanford University professor who joined Theranos’s board. She was relaxed and confident, smiling widely and nodding before answering questions.

On Monday, her direct examination continued in chronological order. Her lawyers walked through the details of preliminary studies that Theranos had done with a number of drug companies in 2008, 2009 and 2010. They also noted that Theranos’s technology had performed well in those early studies with Merck, AstraZeneca, Centocor, Bristol Myers Squibb and others.

Representatives from Pfizer and Schering-Plough testified earlier that they had evaluated Theranos’s technology and had come away unimpressed.

But the point of Monday’s testimony was to show that Theranos did work with drug companies rather than not at all. Ms. Holmes testified not only about the clinical studies but also about a study published in a peer-reviewed journal.

That strategy allowed her to focus on Theranos’s early successes and the conversations she had with each potential partner, while glossing over the outcomes of those conversations.

Ms. Holmes also tried to shift the blame, noting that she learned about Theranos’s technology from the scientists and doctors who worked in the company’s lab. She testified that she believed them when they said the technology worked. The implication: Ms. Holmes could not have intended to deceive investors if she believed the technology was real.

Prosecutors face a challenge in proving that Ms. Holmes intended to defraud investors. The push-pull between showing that she was aware of Theranos’s problems and that she simply relied on what others told her has been a recurring theme in testimony.

Emails between Ms. Holmes and Ian Gibbons, a former chief scientist at Theranos, also painted a rosy picture of Theranos’s technology.

“I understood that the four series could do any blood test,” Ms. Holmes said, referring to a version of Theranos’s machines, described by Mr. Gibbons.

Judge Edward J. Davila of U.S. District Court for the Northern District of California instructed jurors that many exhibits, including the emails between Ms. Holmes and her lab workers, should be taken as an indication of her “state of mind” rather than the truth of the situation.

Monday’s court session ended with Judge Davila again rebuking spectators over the volume of their typing, reminders of the many interruptions and delays that have plagued the trial since it began in August.

Direct testimony of Ms. Holmes is expected to last through Tuesday. She will then face cross-examination from prosecutors.

A fraudulent report

In 2010, Theranos created a 55-page report that prominently displayed the logos of the pharmaceutical companies Pfizer, Schering-Plough and GlaxoSmithKline. Investors such as Lisa Peterson, who manages investments for the wealthy DeVos family, and Walter Mosley, whose clients include the Walton family, testified that the report had helped persuade them to invest in Theranos.

The problem? Pfizer, Schering-Plough and GlaxoSmithKline had not prepared or signed off on the report. While prosecutors did not establish that Ms. Holmes created the report, witnesses like Daniel Edlin, a former Theranos senior product manager, testified that she had signed off on all investor material.

An investor letter

Theranos spent years discussing with the Department of Defense the possible deployment of its technology in the battlefield, but no partnership materialized.

Yet Ms. Holmes told potential investors in a letter that Theranos had signed contracts with the U.S. military — claims that helped persuade them to invest, the investors testified.

“We really relied on the fact that they had been doing work for pharma companies and the government for years,” Ms. Peterson said.

Internal emails

Emails between Theranos employees made up the bulk of the prosecution’s exhibits. Some of the emails showed when Theranos hid device failures, removed abnormal results from test reports and fudged demonstrations of its blood testing.

In one case, Mr. Edlin asked a colleague for advice on how to demonstrate Theranos’s technology for potential investors.

Michael Craig, a Theranos software engineer, recommended that Mr. Edlin use the demo app, a special setting on Theranos’s devices that said “running” or “processing” if an error had taken place, rather than display the mistake.

The app would hide failures from the client, Mr. Craig wrote in an email.

“Never a bad thing,” Mr. Edlin replied. “Let’s go with demo, thanks.”

“Out of time and out of money, Elizabeth Holmes decided to lie,” he repeatedly declared.

To make that case, prosecutors called 29 witnesses to the stand. They included eight former Theranos employees, six investors, three commercial partners, two doctors and three patients. From a star-studded list of nearly 200 people the government had listed as potential witnesses, the highest-profile person to appear was former Defense Secretary James Mattis, who had served on Theranos’s board.

Prosecutors presented evidence to show that Ms. Holmes perpetrated deceit, including that she knew of technology demonstrations that hid Theranos’s failures and was aware the company made false claims of working with the military. They also showed that Theranos had used a report with a pharmaceutical company’s logo to imply it had that company’s backing, even though the firm had not signed off on the report. Investors and partners testified that those claims had helped persuade them to give Theranos their business and money.

The prosecution also detailed the dysfunction within Theranos’s lab, which handled the blood tests. Theranos had trumpeted its claim that its tests could discern various illnesses in patients with just a drop of blood.

But Adam Rosendorff, one of Theranos’s former lab directors, spent six days on the stand explaining that the tests repeatedly produced inaccurate and irregular results. Other lab directors testified that they had essentially been figureheads; one spent just five to 10 hours at Theranos over his tenure.

Daniel Edlin, a former senior product manager and Holmes family friend, testified that Ms. Holmes had signed off on Theranos’s marketing and investor materials. He also said Ramesh Balwani, the chief operating officer and Ms. Holmes’s onetime boyfriend, who is known as Sunny, had deferred to her when the two of them disagreed.

“Generally, she was the C.E.O., so she had the final decision-making authority,” Mr. Edlin said.

In other words, they are accused of lying about Theranos’s business and technology to get money. The lies outlined in the indictment include claims Theranos made about its relationship with the military and the status of its partnership with Walgreens. Prosecutors also say that Theranos faked demonstrations of its technology and falsified validation reports from pharmaceutical companies and the financial health of its business.

Wire fraud is a felony that carries a maximum penalty of 20 years and potential fines. Theranos also paid a $500,000 fine to settle civil securities fraud charges with the Securities and Exchange Commission in 2018. It also settled multiple lawsuits with investors and partners before dissolving that year.

Since the criminal indictment, the cases of Ms. Holmes and Mr. Balwani have been separated. Mr. Balwani faces trial next year. Further, some of the charges against Ms. Holmes have been dropped and others added. As of today, Ms. Holmes faces 11 counts of fraud and conspiracy to commit fraud.

She has pleaded not guilty.

Her case has captivated the public — and spawned books, documentaries and even a fan club for Ms. Holmes, 37 — because she was a young female entrepreneur in heavily male Silicon Valley and because she appeared to push the boundaries of start-up culture and hubris to the limit.

Her story initially seemed like the stuff dreams are made of. Ms. Holmes dropped out of Stanford University at 19 and founded Theranos, which promised to decipher people’s health problems with just a drop of their blood. The company raised $945 million from famous venture capitalists and from powerful tech and media moguls such as Larry Ellison and Rupert Murdoch. At its peak, Theranos was valued at $9 billion. Ms. Holmes was lauded as one of the youngest self-made female billionaires.

But it all came crashing down after a 2015 investigation from The Wall Street Journal found that Theranos’s blood-testing technology didn’t work. Theranos shut down in 2018.

Now Ms. Holmes is on trial over a central issue: Did she intentionally mislead doctors, patients and investors as she sought investments and partnerships?

The prosecution spent weeks arguing that Ms. Holmes purposely deceived investors and others while knowing that Theranos’s blood tests were often inaccurate and that the company relied on third-party commercial machines. In opening statements, Ms. Holmes’s lawyers asserted that she was simply a hardworking entrepreneur whose failure to achieve lofty aims did not constitute a crime.

Ms. Holmes vocally defended herself in the media after The Wall Street Journal’s revelations about Theranos. She has continued that stance during her testimony in court. The jusry and the public will also be eager to hear whether she points fingers at others, such as her former business and romantic partner, Ramesh Balwani, who is known as Sunny.

The trial has played out inside a courtroom presided over by Judge Edward J. Davila of the U.S. District Court for the Northern District of California, with no live broadcast of the proceedings. Jury selection began on Aug. 31 and the case is scheduled to finish on Dec. 10.