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Prosecution corners Elizabeth Holmes over potential falsehoods to media

In one of the best days for the prosecution in the Elizabeth Holmes trial, the Theranos founder acknowledged she wished she had stated the company's testing ability and technology differently than what appeared in the 2014 magazine article that catapulted Holmes and her company to fame.

SAN JOSE, Calif. (CN) — The prosecution dug in on Theranos founder Elizabeth Holmes during a second day of cross-examination, leaving Holmes to fend off a flurry of questions about whether she told investors things about her company she knew to be untrue. 

Holmes — who has performed well on the stand to date — appeared weary after six days of testimony, four of direct examination followed by two days of probing cross-examination. 

As has been the case with the prosecution since the beginning, there was not a single dramatic moment in its lengthy cross, but instead a steady drone of questions meant to build a foundation of evidence that Holmes intentionally misled investors beginning in 2013 and stretching through 2016, when her company began to flounder toward bankruptcy and dissolution. 

“You don’t have a memory of trivializing the CMS’ report to Ms. Peterson?” asked Assistant U.S. Attorney Robert Leach in a characteristic exchange. 

“I don’t think I did that,” Holmes said. 

The answer was fairly representative of the day for Holmes, who repeatedly said she didn’t think she did certain things, had trouble remembering details, wasn’t sure about details and gave answers like “I’m sure I did.” Her memory seemed to improve considerably during redirect.

CMS refers to the Centers for Medicare and Medicaid Services, a federal agency that gave Theranos’s clinical blood analyzing labs an unfavorable report in 2015. Ms. Peterson refers to Lisa Peterson, who handled investments for the billionaire DeVos family and had recommended the family invest $100 million into Theranos in around 2013. 

Peterson testified previously she was told Theranos was given glowing reports about its testing capacity, that its devices were being used by the U.S. military on medevac helicopters and that outside pharmaceutical companies had validated Theranos’s technology. 

On Tuesday, Leach sought to show that Peterson’s reliance was based on misrepresentations by Holmes herself during her time as CEO. 

Safeway CEO Steven Burd also testified previously that Holmes told him that Edison devices, small portable blood analyzers, were being deployed on medevacs, but Holmes contested that testimony on Tuesday. 

“I don’t think I said that,” Holmes said of Burd’s testimony. Along with Burd and Peterson, Brian Moore, head of a hedge fund called PFM, has testified he believed Theranos' technology had been used by the military on helicopters.

The military did not deploy Theranos devices, although it did pursue a joint study with the company at one point.

In some of the most successful moments of the trial for the prosecution, Leach got Holmes to acknowledge that several of the claims made in a 2014 Fortune Magazine cover story were not factual.

For instance, Holmes acknowledged Theranos' lab could not conduct the same amount of blood tests as a traditional lab while using a smaller footprint.

Holmes is also quoted in the article as saying Theranos did not buy blood analyzing machines from third parties. The jury has heard Theranos, in fact, used Siemens machines modified to be able to process small blood samples to conduct the vast majority of its blood tests for Safeway and Walgreens. 

Holmes said the reason she and others within the company were coy about the use of Siemens machines was because of trade secrets related to the modifications. But prosecutors pointed jurors to the article and argued Holmes didn't lie by omission, but actually made false claims to Fortune's writer Roger Parloff.

Holmes also said in the article that Theranos could offer 200 tests with hopes to offer as many as 1,000 tests, which the jury has heard was not the case. 

“Is the statement that Theranos offers more than 200 blood tests and is ramping up to offer more than 1,000 inaccurate?” Leach asked. 

“I believe that now,” Holmes said, implying she thought the statement was accurate at the time. Holmes has repeatedly said that employees tasked with running the various aspects of Theranos were assuring her that the company’s technology was running without significant problems. 

Leach next combed through Holmes’ testimony before the U.S. Securities and Exchange Commission and attempted to tease out contradictions. 

For instance, in the present trial, Holmes said she didn’t remember telling Peterson that the contractual relationship with Safeway was going well in 2014 — it was not — but she testified before the SEC that she may have told Peterson that all was well. 

Those contradictions may help the prosecution undermine Holmes' credibility. Holmes has performed well on the stand to date but appeared to scuffle through portions of Tuesday’s cross. 

Holmes did have the opportunity to reply to the prosecution’s framing on redirect, where she once again affirmed that much of her silence regarding Theranos' operations, while ostensibly misleading, was enlisted to protect the company’s intellectual property which contained much of Theranos’ value. 

“We tried to take every step possible to protect intellectual property,” Holmes said during redirect. She said that meant educating employees and taking actions toward employees who breached their nondisclosure agreements. 

Toward the end of the day, Holmes’ attorney Kevin Downey talked about whistleblowers Erika Cheung and Tyler Schultz, attempting to establish that Holmes reached out to Cheung after she heard about her concerns but to no avail. 

Likewise, Downey talked to Holmes about Schultz’s conclusions about test accuracy, some of which were based on incorrect math, according to Holmes. 

Holmes and her attorneys will likely take the first part of Wednesday to address the military medevac testimony and some of the most damaging parts of the cross-examination, including the multiple falsehoods attributed to Holmes in Parloff’s Fortune article. 

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Categories / Criminal, Securities, Technology, Trials

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