Theranos Trial: United States vs. Elizabeth Holmes, Day 15 (And So It Goes)

Part 1: The Case of the Reluctant Jurors 

Why bother with juries when they favor the lesser educated or the remainder after others shirk civic responsibility? In simpler times, it made sense to allow each community, represented by a cross-section of residents, to enforce its own standards of conduct. The smaller the community, the more residents invest in community service. (Note: when the right to a jury was established, the thirteen colonies' entire population was only two million people.) A smaller town might have a different definition of obscenity than a metropolitan city, and a pluralistic society in which landowners could determine their future is preferable to a judge who might be in the pockets of the governor or local police. Additionally, community standards change, and a federal judge enjoying a lifetime appointment will, at some point, become less familiar with social mores than his or her neighbors.

Judge: "The two what? What was that word?" 

Vinny Gambini: "What word?"

Judge: "Two what?"

Gambini: "What?"

Judge: "Did you say youts?"

Gambini: "Yeah, two youts."

Judge: "What is a yout?"

Gambini: "Excuse me your honor, two youths."

-- My Cousin Vinny (1992) 

Today, a juror asked to be excused on the basis of her religious beliefs. Since no one had reason to doubt an older Asian-American woman saying Buddhism required her to forgive sins--presumably nonviolent ones--she was excused. Drama arose when Alternate Number 2, who would replace Juror Number 4, suddenly claimed she, too, could not continue. To my surprise, Number 4 was the same juror who, during voir dire, said she might not be able to understand everything because English was her second language. This time, alone, she repeated her concerns and expressed reservations about punishment, which jurors, as fact-finders, do not decide. The judge gently explained a federal jury draws from broad geographic regions and assumes diversity, thus allowing different levels of linguistic ability. Unsuccessful twice in seeking dismissal, she is now part of the jury that will decide Elizabeth Holmes' fate. I believe she will cause a hung jury, because she is reluctant to be present and because she has substantial similarities with Holmes. A woman with lily-white skin born in Central or South America who speaks perfect English would have surely attended private schools growing up. Consequently, on a relative basis, Alternate Number 2 comes from money. The result of Number 4's religious beliefs is that Elizabeth Holmes will now be judged by someone essentially a brunette version of herself, but with more humility. Though Wilhelm Wagner's Brünnhilde has not sung, it is all but over for the government.

Perhaps now we should step back and examine America's jury system. We know African-American defendants are convicted at far higher rates than European-Americans, with only money able to transcend race. Foreigners who view America's ample consumer choices or who call Americans materialistic forgo a deeper analysis: if only money can guarantee a fair trial, then money must be your primary motivator if you value freedom or if you are suspicious of your government's integrity. Here, money, even on a relative basis, will likely secure Holmes' freedom regardless of anyone's interpretation of the law. If I am correct, inherited wealth trumps not just politics, but the law itself. Is anyone surprised?

Humanity has yet to formulate a justice system that treats everyone fairly. Religion, man's original attempt at law, remains intact not only because it understands humanity's predilection to sympathize based on visual and financial characteristics, but because it seeks to overcome such innate tendencies through abstraction. Broadly speaking, Judaism and Islam combine compassion with clear rules; Christianity, which rebelled against intellectual elitism, avoids strict rules and prefers storytelling. Regardless of their mix of imagination and order, the three Abrahamic religions have not succeeded in removing segregation from humanity's earthly presence, though Islam has been most successful. (Islam's prophet, an Arab orphan hunted by pre-Islamic Arabia's merchant class for freeing an African slave, was granted refuge in Abyssinia; as such, it is unsurprising he would favor less racial segregation and more straightforward rules to ensure racial harmony.) 

Our failure to perfect ethics within diverse societies has preserved racial and religious segregation while empowering a surveillance state. After all, once an omniscient God is imagined, why not also the state? Unable to trust ourselves to overcome positive and negative bias, objective camera lens ought to have been an improvement; unfortunately, when the cameras use easily-manipulated digital platforms, they pit governments and multinational corporations against each other while leaving individuals less secure. Seventy years of humanity's philosophical and legal failures have taken us from Vietnam's napalm-soaked jungles to Mars rovers with scarcely more wisdom than our racially-enlightened Muslim ancestors fourteen hundred years ago. Elizabeth Holmes and her marketing machine may be a byproduct of Western civilization's success from 1511 to 2001, but she is not villainous enough to be put on a cross. She will go free or she will plea.

Part 2: Safeway Health

Former Safeway CEO Steven A. Burd testified. I praised him in 2009, and after hearing him testify, my opinion is unchanged: "I became a huge fan [of Burd]. He doesn't avoid questions, knows his company inside-out, is focused, and projects professionalism and confidence without arrogance." Burd worried about escalating healthcare costs as early as 2009, so his alliance with Theranos--which intended to cut healthcare costs--should have been an ideal match. 

Under Burd's leadership, Safeway successfully managed healthcare costs and sought further improvements: 

[In 2009] Safeway had "flat-lined" healthcare costs, while its competitors had seen 38% increases in costs. Mr. Burd hasn't seemed to sacrifice quality, either. During the [shareholder] meeting, a Safeway employee and cancer survivor stood up and shared an emotional story about how Safeway helped her fight and beat cancer. Mr. Burd was recently invited to the White House to discuss his success in managing healthcare costs with President Obama. 

Regarding business, Burd testified Safeway made "1 to 3% on each dollar of sales." With such low margins, Safeway wanted to leverage its real estate to diversify revenue. Through Theranos, Safeway expected to earn 10 USD average gross margin per [blood] test, plus a 1.50 USD fee per test (from network partners). To get there, Safeway was willing to invest 55 million USD in cash; 30 million USD for (Edison) cartridges; 25 million in convertible notes; and 30 million for store remodeling, a number that underestimated eventual costs. 

The government confirmed Holmes' claims about the Edison: tests would take 20 to 30 minutes; one cartridge could do "95% of tests"; and "test samples [would] result from a fingerstick." Burd also revealed a new issue: in order to handle multiple customers at a time, he expected to stack Edisons on top of and next to each other. (Only later would Burd be told "going live" required solving a heating problem arising from Edisons being too close together.)

The government had some wins but also stumbled during Burd's testimony. When showing slides from Theranos' presentation decks, government attorney Robert Leach asked whether the Edison image matched the Theranos device Burd saw. Burd responded, "I saw a similar device," one that wasn't stackable--indicating he realized the Edison was a work in progress rather than a finished product. In another line of questioning, Burd again confirmed he saw "some version of it," referring to a discrepancy between the image of the Edison in slides and the one he was shown.

The government then displayed "pro forma" financial projections in which Theranos told Safeway it anticipated 223 million USD in revenue and 167 million USD in operating expenses the following year, indicating near-profitability. What is "pro forma"? It's an accounting method allowing companies to predict revenue based on hypothetical scenarios; in other words, pro forma statements are not firm numbers, nor are they considered as reliable as the standard "GAAP" method. Burd knows this; so does Leach. Does the jury? 

Other documents shown by Leach again confirm the Edison was a work in progress: "Theranos has developed and is developing generations of 'mini-lab' devices..." Look at the language carefully. Yes, it uses a conjunction, but it's clear the Edison is a work in progress. Tellingly, Burd admitted knowledge of both fingerstick and vials: "We knew they were drawing fingerstick and vials," but assumed standard equipment was being used for calibration. As for FDA-approval, Burd testified, "I don't know what an FDA-approved machine is," indicating contracts signed in 2011 did not specifically mandate FDA approval. If Safeway subsequently demanded FDA approval and other addenda, then Theranos' delays--and subsequent compromises--seem more justified. Indeed, on December 18, 2012, Burd sent the following email to Elizabeth Holmes: "I am not looking for a firm launch date because that may be premature." 

The bad news? Burd appears to have believed the reason for the delayed launch date was due to "newly acquired DOD business" that "could save someone's life." In other words, Burd, a stand-up gentleman, was willing to accept delays so as not to interfere with life-saving business elsewhere. (Like I said, I'm a huge fan of Burd.) Though the term "battlefield" was not specifically used, Burd testified Elizabeth Holmes told him of a "medical need in the military" in remote outposts (for the Edison) and that Theranos was "in medevac helicopters." With a four-star general on the board of directors, Burd didn't press the issue, and Burd cited the "composition of the board" when discussing statements about Theranos and the military. If Holmes' lawyers are unable to show an Edison was on a medical evacuation unit at least once, Holmes is in trouble; however, based on earlier questioning, it appears the defense can show an Edison was somewhere on a helicopter under AFRICOM's jurisdiction.

Part 3: Media Planning

Upon exiting the building, I saw three media networks interviewing a lawyer. During filming, a hardworking janitor crossed the federal court to the bankruptcy court, and in the process, his trolley made some noise. The lawyer, a seasoned media contact, temporarily stopped the interview, shaking his arm in frustration. If you didn't already know, nothing you see on mainstream networks is left to chance. The interviewees generally know the questions beforehand and have already prepared their answers. Such planning results in glossy television but also intellectual infantilism. The same lawyer refused an iPhone video interview with me, then appeared unfamiliar with Holmes' earlier SEC deposition. Most TV experts aren't really experts--they're just people who've had time to plan their answers. When put on the spot, they crumple or exit.

American culture, once the envy of the world, has prioritized marketing and storytelling over facts and law. If you're reading this two hundred years from now, some of us did the best we could to make a difference. It didn't matter. RIP American cultural leadership: 1945 to 2001. May you have better luck with your lawyers.

© Matthew Mehdi Rafat (2021)

ISSN 2770-002X 

Marty, reading digital newspaper in 2015: "'Within two hours of his arrest, Martin McFly, Jr. was tried, convicted and sentenced to fifteen years in the state penitentiary.' Within two hours?"

Doc: "The justice system works swiftly in the future now that they've abolished all lawyers." 

—  Back to the Future II (1989)