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Prosecution makes its case against Elizbeth Holmes as trial winds down

The prosecution presented its evidence of fraud, making a compelling case that Elizabeth Holmes did try to make her business succeed, but when faced with failure she chose to lie to investors to keep it afloat. The defense, on the other hand, attempted to raise doubt in the minds of the jurors.

(CN) — The prosecution concluded months of testimony by saying Theranos CEO Elizabeth Holmes chose to lie to investors and patients during the highly anticipated closing arguments on Thursday in San Jose. 

U.S. Attorney Jeff Schenk detailed the evidence that Holmes knew the Theranos portable blood analyzer was not working and would never work, but continued to exaggerate the accuracy of the tests to investors and patients for financial gain. 

“Elizabeth Holmes made a decision to defraud her investors and then her patients,” Schenk said at the top of the lengthy closing argument. “She chose fraud. She chose to be dishonest with investors and patients. It was not only callous but it was criminal.”

Schenk attacked many of the lines of defense brought up during the trial, such as Holmes being unaware of the problems in the clinical lab, being under the spell of her more experienced business partner Sunny Balwani, that she hid her use of third-party testing machines to protect vital intellectual property and that she put logos from major pharmaceutical companies like Pfizer, Schering Plough and others to indicate previously completed validation surveys. 

“She did not tell investors about third party devices,” Schenk said. 

In fact, when Parloff asked her if she used machines from other companies, she explicitly said no.

“Trade secrets do not give her the right to make false statements,” Schenk said. The government has often argued that Holmes used the press in 2013, through a series of articles, to spread false information about what Theranos technology was capable of and how the company was currently processing tests. 

“In the Fortune article, she says that each Theranos device can run any test,” Schenk said. “This isn’t aspirational, it’s not about the future, it is a statement about what is currently available.”

Kevin Downy, attorney for Elizabeth Holmes, sought to punch holes in the edifice of these arguments by saying that Holmes added logos from pharamaceutical companies because she performed successful validation tests with those very companies and that in many cases Holmes sent the documents to the very companies whose logo appeared on the page. 

“There was a 14-month partnership between Pfizer and Theranos and Dr. Weber had no involvement,” Downey said. Shane Weber was one of the government witnesses, who worked for Pfizer and testified that the company did perform a multi-month validation study with Theranos but decided it was not interested in the company’s technology. 

But Downey said Weber was not privy to the full scope of the relationship between the two companies as they continued to communicate well beyond Weber’s tenure at Pfizer. 

“Dr Weber had a limited view,” Downey said. 

It was a trend that Downey kept harping on, saying that witnesses like Erika Cheung and others did not know the full story as it related to Theranos' operations. 

Downey insisted that Holmes was secretive about the use of third-party machines because they believed they had developed a breakthrough, that if discovered, would forfeit a competitive advantage. 

Theranos, after it engaged with a contract with Walgreens to perform blood tests in the stores, processed many blood tests at a centralized lab in Palo Alto, as opposed to on the actual portable blood analyzers. 

Many investors said they were surprised when they found out this detail, saying they had been led to believe that all blood testing was performed on the portable hardware devices developed by Theranos. 

But Downey said Holmes couldn’t tell investors because of the risk of trade secret disclosure. But Holmes did disclose the fact to the Theranos board of directors and to two federal agencies, the Food and Drug Administration and the Center for Medicare and Medicaid Services, which regulates blood analyzing laboratories. 

“She made very broad disclosures to the FDA,” Downey said. 

All Downey has to do is raise reasonable doubt among the jurors, but some of the statements Holmes made in the Fortune article that catapulted her to her brief moment of fame and fortune, continue to linger as bad facts for the defense. 

“The trade secret excuse is a red herring,” Schenk said matter of factly. 

If the jury sides with Schenk, Holmes could be looking at a jail cell. She is facing 11 counts of fraud and conspiracy to commit fraud. She is accused of defrauding investors and patients, one of whom was a pregnant woman who took medication in line with a patient who was not pregnant, imperiling her unborn child. 

The prosecution had a good day Thursday. The trial began in September and for months it seemed like the government was muddling through the evidence failing to make its points while allowing the defense to raise reasonable alternatives to their explanation. 

But Schenk delivered an organized and concise rejection of some of these explanations. 

He said the placement of the logo in itself is not a big deal, but that Holmes used it to try and trick investors into believing that Pfizer supported Theranos technology even after their partnership expired. 

While the defense has repeatedly pointed to the fact Holmes never sold her stock, the government refuted that point persuasively on Thursday, saying Holmes needed to retain her majority of shares so that she could control the company. 

“She could not give voting power to someone else,” Schenk said. 

But Downey is also trying to raise doubt in the minds of the 12 jurors, reminding them that Holmes appointed a 12-person board of illustrious individuals to oversee her operations. 

“Is this the type of board you would appoint for the purposes of a criminal conspiracy?” he asked the judge. 

Downey maintained that Holmes operated in a manner that was above board and tried to do right by patients and investors who gave her company considerable sums, but made mistakes due to inexperience and failed, which is not a crime. 

“She believed she had invented a very valid form of technology that she submitted to the FDA to take it to the market,” she said. “She had no fear of showing the technology outside the company.” 

Downey ended the defense’s closing argument and will resume it Friday morning. The prosecution will then give a rebuttal before the jury begins deliberations, which are expected to commence Friday afternoon. 

If the previous aspects of this trial are any indication, expect deliberations to be prolonged. 

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