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Monday, June 24, 2024 | Back issues
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Fraud trial of Sunny Balwani, former exec at Theranos, set to kick off

Witnesses in the trial of Theranos founder Elizabeth Holmes painted Balwani as domineering and paranoid about industrial espionage.

SAN JOSE, Calif. (CN) — Chapter two in the Theranos legal saga kicks off this week in Silicon Valley, approximately two months after Elizabeth Holmes, the now-disgraced former founder and CEO of the blood-testing company, was found guilty on four counts of fraud. This time, her business partner and former boyfriend Sunny Balwani, will stand trial on multiple fraud charges with opening arguments set to begin as early as Tuesday.  

Balwani stands accused of defrauding investors who poured millions of dollars into the blood testing company thinking the technology that supposedly allowed people to conduct a wide variety of blood tests by using a single drop of blood would revolutionize the health care industry. 

At issue is whether Holmes and Balwani drastically oversold the capabilities of their device and their technology: instead of being able to perform more than 200 tests, the small device called an Edison could perform about a dozen blood tests with varying degrees of reliability. 

Holmes' lawyers argued during her trial that the CEO was kept largely in the dark about the device’s problems and that she believed her company would eventually iron out the problems. A federal jury didn't buy the defense and found Holmes guilty on four of 11 counts of fraud and criminal conspiracy. 

Somewhat surprisingly, Holmes did not try and lay the blame for the company’s problems at Balwani’s feet. During her surprise testimony, a tearful Holmes recounted how she was subjected to abuse at the hands of Balwani, including of a sexual nature. But during closing arguments, her attorneys avoided blaming Balwani, who had significantly more business experience than Holmes when he joined Theranos in 2009. 

He worked at Microsoft and Lotus software in the 1990s and then went back to Stanford, where he met Holmes. He was 37 at the time and she was 18, having just graduated high school. 

Jury selection commenced last week and it is clear both sides will have difficulty in selecting jurors who are not already familiar with the media fallout from the downfall of Theranos that began in 2015. 

Balwani’s attorneys are also seeking to admit some evidence from the Holmes trial, including Holmes' own admission that she added a Pfizer logo to documents given to prospective investors in 2014 without the pharmaceutical company’s knowledge. 

It is also clear from evidentiary arguments at the preliminary phase of the trial that Balwani will foist much of the blame of Theranos’ failures on Holmes, with his lawyers claiming Balwani was in much the same boat as investors who believed in Holmes' stories only to realize later they were predicated on deception. 

But the government will argue Balwani had a powerful hand in the company and steered Holmes toward the deceptive practices that undid the company and will likely land Holmes in jail when a federal judge sentences her this fall.

One of the main questions for those following both cases closely is whether Holmes will testify in the case against Balwani. The government could still cut a deal for a lighter sentence in exchange for incriminating testimony against Balwani — although insiders believe Holmes is considering an appeal so that's unlikely.

Others believe Holmes was the real big fish for prosecutors and they wouldn’t tarnish that case which they worked diligently to prosecute to get a conviction of the right-hand man. 

Balwani and Holmes were initially slated to be tried together but asked for separate trials fairly early on in the process. 

Holmes testified under oath during her trial that Balwani exerted control over her actions both at the company and at home. But Balwani’s lawyers will tell jurors that he was in the same boat as investors, led down the primrose path by a charismatic and charming but dishonest individual. 

Many of the former Theranos employees in the Holmes trial, including Erika Cheung — the main whistleblower who brought about the downfall of Theranos — said they had more interactions with Balwani than Holmes and that Balwani was brusque and domineering. 

Books and documentaries about Theranos’s unraveling also paint Balwani as a heavy-handed manager with an “in your face” style.

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Categories / Business, Criminal, Securities, Technology, Trials

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