Theranos Trial: United States vs. Elizabeth Holmes, Day 6 (Rope a Dope?)

Defense attorney Lance Wade is either an idiot or a genius, and I can't decide which. His cross-examination of Theranos' whistleblower and former lab worker Erika Chung was so tedious, I fell asleep for a few seconds.

Ms. Chung is more petite than expected. When escorted to a floor where her brother or cousin was waiting, she barely reached my shoulders in the elevator. Chung is attractive and becomes more attractive every time she speaks. (Holmes is pretty, too, but in a different way--more "Texas oil tycoon third wife" than Chung's "girl-next-door.") No lawyer would win friends or influence people by antagonizing Chung, and as a result, Wade's cross-examination was deliberately obsequious. (At one point, Wade recommended the movie "Good Will Hunting" to Chung.) 

Wade wanted to prove Theranos was reaching its stated goals, even if success didn't occur during Chung's approximately 6 months' tenure. To that end, Wade showed Chung several lab documents and asked her to confirm his understanding of them. Chung was forced to acknowledge Theranos, despite not producing the technology it promised, was inching towards it. In other words, Theranos wasn't a scam--PhDs, MDs, and many others were producing real reports and standard operating procedures that could someday benefit patients. Wade repeatedly asked Chung to confirm the names on each lab document's signature page, including the lab director, who was either an MD or PhD. 

For now, the defense has modified "Blame Balwani" to "Blame the Nerds"--anything to distract the jury from "The Buck Stops with the CEO." If shiny buildings didn't work, then maybe shiny degrees will. (In a sense, Theranos is depending on images, whereas the government is depending on logic.) Around this time, I involuntarily fell asleep. Sure, the documents were relevant, but a company as lawyered-up as Theranos--to the point where a director's grandson, Tyler Schultz, spent 400,000 USD on legal fees because of Theranos--will create paper trails. It doesn't mean the paper trails are useful or meaningful. For example, one document from the U.S. Army Burn Center listed a Major Kevin K. Chung, M.D. as a "Principle Investigator." How does anyone with an advanced degree sign his name right above a mistake a high school student would catch? 

Also, Major? A Major is one of the Army's highest ranks. It's true Dr. Chung would automatically become an officer as a result of his advanced degree, but that doesn't mean he would be entitled to become a Major. (Chung is a common surname, so I assume no relationship between Erika and Kevin.) George Schultz, a Theranos' board member, is a WWII Army veteran. (One of Theranos' labs was nicknamed "Normandy"--not a coincidence.) Did George Schultz, a former Secretary of State, pull strings outside the normal RFP process to assist Elizabeth Holmes? Are the amateurishly written documents the result of backdoor dealing that never involved compliance or legal teams pre-2015? George Schultz is dead, Congress is preoccupied with other matters, and government lawyers receiving steady paychecks aren't interested in auditing the Army, so we'll never know.

"This thing we call corruption is like cancer. It infects everything, and is hard to cure. It even has stages of its own, just like cancer." -- Enuani (2009), By Inno Chukuma Onwueme & Malije Onwueme

What we do know so far? During the time Chung worked at Theranos, the company was nowhere near achieving Holmes' claims. By April 2014, Theranos was working on writing sets of actions that could be used to program the Edison machine (aka TSPU aka mini-lab). Meanwhile, as long as the software wasn't ready, no one could reliably create hardware specifications. In April 2014, Theranos was using traditional, out-of-the-box machines for blood testing because it was trying to reverse-engineer the processes within those machines. At that time, Theranos' hardware for fingerstick testing was vaporware, i.e., didn't exist. 

At one point, Wade argued Theranos didn't endanger patients in 2014 because quality control (QC) testing didn't use patient samples. You almost feel sorry for employees who, upon realizing they couldn't test patient blood using Theranos' technology, decided to use traditional machines until kinks were worked out. (The traditional machines were housed on a separate floor than the in-development Edison devices--again, not a coincidence. Chung realized what was happening only because she worked in both labs.) When the kinks resisted resolution, some employees--not necessarily lab technicians--began cutting corners by "cherry-picking" data so protocols would pass QC testing. Question: if Theranos' QC testing was failing, why was Holmes telling investors and journalists Theranos was on track to produce revolutionary technology?

December 10, 2013: email from Erika Chung to Ran Hu: "The QCs are still failing."

February 4, 2014: email from Erika Chung: "I don't feel comfortable running the patient sample."

At least the defense's strategy is more clear: Theranos wasn't only Edison. It had three areas of innovation: assays; software; and hardware. The assays had to be finished before the software; and the hardware required software. Theranos was on track with respect to the assays--its 176 patents and 235 specialized tests prove it. Holmes was indeed part of something "real and innovative," if only she'd had more time.

April 11, 2014: email from Tyler Schultz to Elizabeth Holmes: "a significant portion of the our data is just noise."

The prosecution, of course, sees it differently. Holmes knew she was out of time and lied to investors to prop up her company and her image. After 2009, Theranos had no real revenue and emails with the company's most senior accountant prove Holmes knew investor cash, not revenue, was driving Theranos. The company survived only because of Ramesh Balwani's personal loan, then investor cash. How did Holmes get the cash necessary to keep going? By lying to investors and misleading the public, including journalists. 

Wade is countering the prosecution's claims of intentional fraud by showing progress in or after 2015--when Erika Chung was no longer employed at Theranos. How many assays involving fingersticks were in development? Twelve, said Erika Chung, wisely adding none of them were validated. (i.e., none of them had passed QC, which aims for an error rate of 1% or less.) Wade: here's a document an M.D. signed that clearly states QC needs to happen "daily." Do you agree with that? Erika Chung: yes, not adding the obvious fact that a document can say one thing while people do another. 

Lawyers know juries reach verdicts based on likability, not law. Because Chung is so credible, Holmes may need to testify to prevent the jury from sympathizing more with Chung than herself. The stage has been set: the blond Brahmin vs. the degreed Dalit. Is Wade playing a risky game of "Rope-a-Dope" against Chung, absorbing her credible statements while anticipating the prosecution's fall regarding intent? We won't know until the verdict. For now, just like Theranos, Holmes seems to be betting on hope. 

© Matthew Mehdi Rafat (2021) 

Bonus: Wade exposed his Minnesotan (or was it Bostonian?) background by pronouncing the common Indian surname "Patel" as "Pah-tel." 

Bonus: the prosecution ought to show the Edison's insides. A photo or diagram of the robotic arm moving small test tubes into slots would help everyone understand the intended hardware. At this point, we don't need to understand how the samples were diluted or exactly how the cartridges worked, but it's very difficult for a non-scientist to follow some of the testimony without a short video or better diagram of the Edison. 

Bonus, for the law students: the prosecution and defense battled over whether the business records exception to hearsay applied to certain emails. The prosecution made sure to say it wasn't applying the exception to all emails, only particular ones. Were the emails records of casual conversations--conversations of limited relevance to the business--or were they part of a standard process used to memorialize actions taken in the regular course of business? 

The facts favoring the prosecution were as follows: 1) the emails were sent to a group email created by the company; 2) employees who had access to the group email had a duty to send them; 3) the emails memorialized events or issues in a way similar to a corporate secretary taking notes at a meeting, i.e., they preserved a record of dealings in the ordinary course of business; 4) the company created the group email as a tool whereby specific employees could communicate with each other for lab purposes and in doing so, create a collection of electronic records others could rely on or refer back to; and 5) the collection of emails sent to this particular address and the ones being asked to be admitted were critical to the lab's functioning and were not gossip or casual conversations. 

One email that could have been considered more prejudicial than probative was admitted to show notice to the CEO and not for the truth of the matter asserted. To mitigate the possibility of prejudice, the judge instructed the jury that the email was being admitted for a limited purpose and they should not rely on the email as probative of the truth.