Who is Elizabeth Holmes, really?
Would you rather be a failure or a fraud? Judging by the opening statements in Elizabeth Holmes’ wire fraud trial, those seem to be Holmes’ options.
Here’s Robert Leach, assistant U.S. attorney, who is prosecuting the case against Holmes: “This is a case about fraud, about lying and cheating to get money,” Leach says. “That’s a crime on Main Street and a crime in Silicon Valley.” But according to Lance Wade, Holmes’ attorney, Holmes is just another failed startup leader: “In the end, Theranos failed. And Ms. Holmes walked away with nothing. But failure is not a crime.”
Now, by the time the first day of the trial ended, the first witness had only just been introduced. There are plenty more witnesses and apparently just a whole fuckload of documents ahead of us. But my impression is that the prosecution is going to have an uphill battle to show Holmes’ intent to deceive, a crucial part of the case.
According to the government, Theranos didn’t start life as a fraud, so that’s nice. Instead, in 2009, Holmes was rapidly running out of money. Worse, things with its pharma partners weren’t going so well — Pfizer and Schering-Plough, two huge drug companies, had cut it loose. Theranos was having a hard time making payroll.
“Out of time and out of money, Elizabeth Holmes decided to lie,” Leach said.
So Holmes started seeking investments, making the kind of grandiose startup claims we’re all familiar with from the tech industry. (Theranos was a medical company, but never mind.) Holmes gave revenue projections to Safeway that overestimated what Theranos could achieve, and gave Walgreens a report that suggested Pfizer had endorsed their tech. Leach’s allegations about a Pfizer memo that had been shown to investors were astonishing. See, according to him, it was forged. Pfizer’s letterhead might have been on the memo but Pfizer didn’t put it there. I expect we’ll be hearing from Pfizer about this.
Other allegations from Leach included that Holmes misled investors about Theranos’ relationship with the military — claiming that the company’s mini analyzer was deployed in military helicopters, and saving lives, when its only relationship with the military was a small 2010 study at the Army burn center in Texas. According to Leach, Holmes also deceived investors about the readiness of the analyzer. And! Despite having zero revenue in 2012 and 2013, Holmes went around telling investors that revenue would be $140 million in 2014. (It was actually $150,000.)
We’re going to be hearing from some former Theranos employees who tried to tell Holmes and Balwani that the analyzers weren’t working as promised. One of them was fired. The other was ignored. And when Holmes’ own brother, who she’d hired, told her that Theranos’ pregnancy tests had problems, she ignored him. Leach promised the jury would see “email after email” showing that Holmes was aware of the problems — but unlike the Pfizer memo, we didn’t see any specific emails.
And Elizabeth Holmes’ media persona made an appearance as well. According to Leach, favorable press coverage was a major way that Holmes was able to raise money — saying she “approved” this glowing WSJ piece and timed up a press release with it meant to lure investors. He also said that this Fortune article contained lies.
But those pieces do contain some truths, Leach said. Holmes was in full control of Theranos. “She owned it, she controlled it, the buck stopped with her,” Leach said. “She sweated the details. She was in charge.”
While the prosecution was specific, the defense was playing for sympathy. Wade opened by telling us about Holmes packing up her belongings into her car after Theranos went under. Then he took us back in time to Holmes dropping out of college at 19, after patenting a miniaturized system that would perform tests and give a result. According to Wade, Holmes’ co-defendant who is being tried separately, Sunny Balwani, encouraged her to drop out. “Trusting and relying on Balwani as her primary advisor was one of her mistakes,” Wade says.
In Wade’s telling, Holmes was a wide-eyed naif — and nothing was really her fault. See, Balwani was responsible for the clinical labs where things were going wrong for patients, and financial modeling was also his job. Walgreens and Safeway pressured Holmes into marketing herself. So, at the suggestion of a board member, she hired marketing firm Chiat Day. (Not much mention was made of Elizabeth Holmes, Girl Genius, thought we did see an ad about Theranos’ inexpensive testing.) Also, Walgreens pushed Holmes into agreeing to a phased approach to testing — Theranos hadn’t duped it into thinking it was using its own machines.
Oh, and the inaccurate results? Sure, that can happen in any lab, Wade said. Holmes believed the tests were accurate and reliable and used them herself, as well as recommending them to her family. Balwani had oversight of the labs, and besides, the lab directors are legally responsible for safe and accurate testing, not Holmes. Some of those lab directors are going to testify and I am very interested to hear what they have to say!
And although two years’ worth of Theranos’ tests were thrown out, Wade argued that we’ll be hearing from only 20 patients and doctors who got bad results — when 8 million tests were performed. (Wade did not bring up the tests that had been voided.) Just 20 out of 8 million is an awfully small number of inaccurate tests, Wade said. He even did some showy math for the jury: that’s 0.00025 percent of all tests. This suggests that Theranos’s tests were actually very accurate and that the prosecution is cherry-picking — but it leaves out those voided tests. That is an enormous omission!
As further evidence that Holmes believed in Theranos, Wade announced that Holmes hadn’t sold any of her shares. “She passed on every opportunity to sell,” he said. She could have made hundreds of millions of dollars, but she was in it for the mission, not money, he said. Now, it’s kind of hard to sell shares of a private company — not impossible! — but I don’t know what kind of agreements might have been in place about her ownership stake. After the omission about the two years’ worth of tests getting shitcanned, I don’t buy much of what Wade is selling. What else is he leaving out?
If Wade is to be believed, Holmes is responsible for almost nothing. She was young, after all, and a college dropout. She worked seven days a week at Theranos but somehow could not possibly be responsible for anything except her dream of success. And while Wade hinted at the abuse allegations Holmes made about Balwani — he “sometimes had a temper, could lash out, did not always treat people kindly” and in Holmes’ relationship with him, “there was another side to it that most people never saw” — he never directly argued that abuse was a factor in Holmes’ actions. I’m guessing this is because having Holmes take the stand is a risky move, and if the case hangs on the abuse allegations, she’ll have to testify to the abuse. After all, most people didn’t even know the two of them were in a relationship.
This trial is just beginning, and a lot hinges on the testimony we haven’t yet heard and emails we haven’t yet seen. But the outlines of the story each side is telling are clear. For the prosecution, proving that Holmes isn’t a dimwitted figurehead might be tough — the standard, after all, is “beyond a reasonable doubt,” and Wade hammered hard on the presumption of innocence. Okay. But with so much blame being shifted to Balwani, the question arises: if the defense really wants to argue this is merely the story of failure due to naïveté, then what exactly was Elizabeth Holmes doing at Theranos? She was apparently breaking her back there every day for fifteen years! Wade suggested she was primarily working on the tests and making bad decisions, but surely if that were all she was doing, she probably could have taken some weekends off.