Theranos Trial: United States vs. Elizabeth Holmes (Closing Arguments and Trial Summary)

"What we've got here is... failure to communicate." -- Cool Hand Luke (1967)

Halfway through the government's closing, I realized why trial was inevitable. The government sees Elizabeth Holmes' actions through a prism of patient-related misconduct: disaster in the Normandy lab, a botched pregnancy test, and a false HIV positive. The government believes if it hadn't sued Theranos, the company would have continued harming patients. You can almost hear prosecutors' internal monologues: "How many human guinea pigs does a medical device company get before its CEO becomes culpable? Don't you realize one of the experimental pigs could have been you?" Therein lies the rub: because the S.E.C. and C.M.S. intervened timely, Theranos did not cause substantial injuries as it transitioned from assay research to more complex clinical testing (i.e., beta phase to production). Post-bankruptcy, Theranos' victims weren't patients but investors, thus inducing non-civil charges as deterrence. 

At the same time, Holmes never concealed inadequate academic credentials or minimal lab experience, which made her dependent on others' opinions. Multiple scientists informed her some Theranos device--if not the third version, then the fourth version--would mitigate exponentially increasing healthcare costs while improving overall access. Several documents and emails prove Holmes' belief in Theranos' limitless scientific possibilities, and a person more marketer than lawyer can honestly say she misunderstood the difference between possibility and probability. 

Though Holmes sincerely believed in her products, evidence of clinical lab issues should have dissuaded Theranos from offering its services publicly--at least if communication between different departments had been optimal. (I remember an email in which only internal Theranos employees--or maybe it was "friends and family"--were invited to a "public" testing, indicating Theranos knew its proprietary devices weren't ready for the general public even as it tried satisfying Walgreens' expectations.) The prosecution argued Holmes' "fork-in-the-road" moment occurred in 2009, when Theranos experienced financial difficulties; however, it's more likely Holmes committed fraud--just not wire fraud--when balancing, many years later, Walgreens' expectations, patient safety, and her company's future.

We know Holmes intentionally delayed CEO Steven Burd and stalled the Theranos-Safeway relationship by refusing assistance regarding device modifications. She was able to do so because Mr. Burd is one of the finest gentlemen to ever walk this earth, a man willing to give the benefit of doubt to anyone not openly brandishing a knife. Unfortunately for Holmes, Walgreens expected revenue from Theranos to be an integral part of future plans rather than an ancillary one like Safeway and could not be as generous as Mr. Burd. We know this not only because of emails, but because defense lawyer Lance Wade, in his opening statement, admitted Theranos got ahead of itself when Walgreens required it to meet contractual deliverables, thus leading to a modified agreement and the unanticipated opening of a centralized lab in Arizona.

For wire fraud to exist beyond a reasonable doubt under the government's theory, Holmes would have had to acknowledge serious problems before 2015, i.e., before the C.M.S. audit. 

From the defense's closing statement

In his opening statement, AUSA Leach focused on Theranos' financial difficulties in 2009, "forgetting" Theranos wasn't a software company easily able to channel-stuff or backdate contracts after quarter-close. Having recently prosecuted Autonomy's CFO, Leach must have seen another successful brown man and copied-and-pasted his legal strategy and briefs. The problem? Autonomy was a software company; Theranos was a hardware company with a software component. Furthermore, as defense attorney Kevin Downey pointed out, "Statistical evidence is critical to the government's case." How many failed blood tests would indicate, to a non-scientifically trained mind, enough deviation from the norm in order to require mental re-alignment away from the realm of possibility? We don't know, because the government never presented an unbiased expert.

What about the defense's argument that Holmes never sold a single share? ("Crooks cash out, criminals cover up, and rats flee a sinking ship. She didn't do any of that.") It could have been much less convincing had the government called an expert to evaluate Theranos' proposed 2013 dual class stock restructuring: 

“On January 14, 2014, the stockholders of Theranos acted by unanimous written consent to, among other things, effect a forward stock split and implement a dual class structure.” (From Forbes' Peter Cohan) 

If Holmes supported modifying Theranos' shareholder structure to receive preferences--i.e., ownership making her as unaccountable as Mark Zuckerberg within Facebook/Meta--then after 2014, her shares weren't intended to be sold and could have eventually been placed into a dynasty trust. You'd need a tax lawyer to explain all of this, but s/he could have also helped the jury understand recognized and deferred revenue, complex terms used several times without adequate explanation.

Even if the government had presented unbiased accounting and securities experts, because the charge is wire fraud, not ordinary fraud, an unbiased scientific expert would have also had to evaluate Theranos' assay work pre-2014 as well as clinical lab work after C.M.S.'s 2015 inspection. At that point, the prosecution should have identified the moment Holmes' mental state shifted from possibility to reasonable probability (of failure), then discussed relevant wire transfers between 2013 and 2014 and thereafter. By not connecting the dots more clearly, the government arguably failed to meet its burden of proof for anyone unable to understand the legalese in Walgreens' contracts.

Do you remember Leach's opening statement in September? I do. He specifically pointed to 2009, 2011, and 2013--before the CMS inspection. My handwritten notes show Leach mentioned 2009 three times; 2011 once; and 2013 three times. Leach did mention 2014, not in relation to a wire transfer, but to a news article. The year 2015 was mentioned once, as an example of when a lab director finally did "meaningful work." (Bostic's rebuttal mentioned 2009 at least twice.) 

A smart attorney would have started in November 2013--when Theranos began offering some tests to the public--then linked payments made in December 2013, February 2014, and particularly October 2014. Such an approach wouldn't have prevented Holmes claiming ignorance of significant issues prior to CMS's 2015 lab inspection, but it would have focused the trial. (Note: I don't practice criminal law and I haven't read the indictment, but on its face, 18 U.S. Code § 1001 looks more appropriate than wire fraud.)

Is AUSA Robert S. Leach--who imprisoned Autonomy executive Sushovan Hussain while Mike Lynch and Stephen Chamberlain still roam free--incompetent, a legal crusader against the brown and foreign, or both? Applying Occam's razor, the answer is more prosaic: like Holmes, who entered a zone of confidence following moderately successful milestones, Leach started believing his own palaver without doing the work necessary to get from concept to result. More specifically, the government took the easy way out by using previously-drafted charges against Holmes and Balwani, which it then had to modify twice in response to motions from Holmes' defense team. Listen to AUSA Bostic's rebuttal:

A fraud committed to ensure the success of a company is a motive... "The disease that plagued Theranos was not a lack of effort, it was a lack of honesty... The evidence at trial demonstrated there were very serious problems with Theranos' technology... [Holmes] committed these crimes because she was desperate for this company to succeed... We admire people who set out ambitious goals and set out to achieve them. This case went bad when she made the other choice. She turned to breaking the law."

Now imagine Bostic prosecuting fraud or concealment rather than wire fraud, which requires trying to obtain money or property. Doesn't his rebuttal align perfectly with an ordinary fraud or simple concealment case?

An acquittal or hung jury means Leach has wasted thousands of government hours; yet, he may still be entrusted with prosecuting the wrong charge against someone he (incorrectly) believes is Sushovan Hussain II. Having just realized the path Leach took subconsciously, I'm surprised more taxpayers aren't outraged. How did an incompetent, rude, overweight manikin lead such a high-profile federal case, especially when AUSA John Bostic is clearly the superior trial lawyer? Is the ability to copy-and-paste indictments and legal authorities more prized than common sense in the D.O.J. and U.S. Attorney's Office?

If you want to know what I learned after three months of trial attendance, here you go: at the government's table sits racism, Islamophobia and incompetence. On their right, they are flanked by inexpertise, overconfidence, and legacy preferences. Ladies and gentlemen, welcome to the United States, where prejudice, stupidity, and marketing have been given a national stage since August. Don't Americans deserve better? 

© Matthew Mehdi Rafat (December 2021) 

ISSN 2770-002X

Bonus I: I believe the most relevant jury instruction is the following: 

To convict Ms. Holmes of wire fraud based on omission(s) of material fact(s), you must find that Ms. Holmes had a duty to disclose the omitted fact(s) arising out of a relationship of trust. That duty can arise either out of a formal fiduciary relationship, or an informal, trusting relationship in which one party acts for the benefit of another and induces the trusting party to relax the care and vigilance which it would ordinarily exercise. 

[Deceitful statements of half-truths may constitute false or fraudulent representations. (Wire Fraud, 9th Circuit Model Jury Instruction 8.124)]

If jurors have been paying attention, they'll ask the court to clarify the term, "fiduciary."

Bonus II: regarding Elizabeth Holmes' voice, check out the Sanas company. Yes, there's a Stanford University connection. 

Update: at 4:10pm PST on January 3, 2022, the jury returned the following verdict: 4 counts, not guilty; 3 counts, deadlocked; and 4 counts, guilty. The government proved 4 of 11 counts/charges, indicating it overcharged.