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Wednesday, May 22, 2024 | Back issues
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Investor tells jury that Holmes bragged about device capability

Another investor detailed how and why he made an investment of nearly $100 million after talking to Holmes about the capabilities of her blood testing device that ultimately could not deliver the advertised results.

(CN) — Another day in the trial of Theranos founder Elizabeth Holmes and another scorned investor takes the witness stand. 

On Tuesday, it was the turn of Brian Grossman, a managing partner at a San Francisco-based venture capital organization called PFM Health Sciences LP, who testified how he met with Holmes and Sunny Balwani, Holmes’s erstwhile business and romantic partner. 

He recounted how he was impressed with the company’s presentation, particularly how it was poised to do $260 million in revenue based on contracts with the U.S. military that would allow medics to use portable blood analyzers on medevacs. 

In damning testimony for Holmes, Grossman told the jury that Holmes herself assured him that the portable devices could do a bevy of tests equivalent or better than traditional testing companies. 

“Ms. Holmes was very clear that they could match every test on the LabCorp and Quest menu,” he said. 

Grossman left impressed and met with his team, developing a list of questions organized into seven different categories aimed at understanding the scope of the technology offered by Theranos. 

Grossman even went to a Walgreens himself and attempted to use one of Theranos’s devices, but was troubled when the device required a draw from a vein, rather than a simple prick of the finger, as advertised. 

He reached out to Balwani about the difficulties, who assured him it was an anomaly but thanked Grossman for pointing out the flaw. Grossman was the only one of the four assorted investors who visited a Walgreens and took the test himself and his diligence in investigating the firm appeared to outstrip the previous witnesses who lost money by investing in Theranos. 

After the extensive process, the hedge fund agreed to invest $96 million.

Grossman asked Balwani to talk to Walgreens about the technology, but Balwani dissuaded him, contending that the company was at a sensitive juncture with Walgreens. 

Lance Wade, attorney for Holmes, who usually sets about undermining the investor's credibility, pointing out their lack of due diligence, was much more cordial with Grossman and asked extensively about the nature of hedge funds. 

“Sometimes you win and sometimes you lose,” Wade asked at one point about the risky nature of investments on behalf of firms like PFM. 

“Yes,” Grossman replied. 

Grossman and others were clearly impressed with Theranos’s board, which featured past and present U.S. defense secretaries and a former U.S. secretary of state, according to emails revealed during cross examination. 

“Wowsy,” replied one employee in response to the board roster. 

But Wade also centered on how Grossman should have known that Theranos took draws from the vein as well as finger pricks, pointing to a press release from that period that said draws are taken from “a micro sample from traditional methods.”  

But Grossman pushed back and said had he known that diluted samples drawn from veins were being processed on modified traditional machines rather than portable blood analyzers he would have never invested. 

But Wade repeatedly queried Grossman as to why after having done all the diligence he described and even after being denied access to people at Walgreens and United Health, the firm still decided to invest. 

Grossman replied that being restricted to Theranos he had to rely on the company for all of its information. 

The testimony presented bad facts for Holmes, particularly in her representations of potential revenue streams and her assertions that the device had the same capability of traditional laboratories in a portable format. However, Grossman also testified Holmes left halfway through the first meeting at Theranos headquarters and that all of his communications afterward were with Balwani. 

Balwani and Holmes are being tried separately, with Balwani’s trial slated for later in the year. Holmes's defense team has yet to reveal their case, but speculation is that she will foist the blame on Balwani, who was approximately 20 years her senior with considerably more business experience. Many of the witnesses have testified that most of their communications were with Balwani although some have directly implicated Holmes. 

Another difficult fact for the government that emerged during Grossman’s testimony is his reliance on advice from Stanford professor Channing Robertson, a fact the defense is likely to seize upon when explaining to the jury that many investors gave money to Theranos for reasons outside of the representations made specifically by Holmes. 

The cross examination of Grossman was cut short at the end of Tuesday afternoon and is scheduled to resume on Wednesday. 

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Categories / Criminal, Health, Technology, Trials

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