SAN JOSE, Calif. (CN) — Disgraced Theranos founder Elizabeth Holmes faces decades in prison after a federal jury on Monday found her guilty on 4 of 11 counts of fraud and criminal conspiracy, bringing to an end a trial filled with technical details that began in early September.
The 12-person jury deadlocked on three charges and exonerated Holmes on four others.
The verdict largely corroborates Holmes' very public fall from grace. Once the darling of the news media and the face of female entrepreneurship in Silicon Valley, Holmes is now a convicted fraudster who jurors found lied to investors and patients to try and help salvage her foundering company.
Prosecutors, led by U.S. Attorneys Jeff Schenk, Robert Leach and John Bostic, successfully argued that despite Holmes’s obvious diligence in founding and building her company, she made a series of criminal decisions in 2010 through 2013 and lied to investors about Theranos’ portable blood analyzers when she knew the technology was deficient.
“Elizabeth Holmes made a decision to defraud her investors and then her patients,” Schenk said at the top of a lengthy closing argument. “She chose fraud. She chose to be dishonest with investors and patients. It was not only callous, but it was criminal.”
Jurors largely agreed, though they cleared Holmes on charges related to patients. Holmes also dodged one of two conspiracy charges.
The jury deadlocked on fraud charges relating to three investors who gave Holmes over $10 million in the final days of 2013. She did not fare as well with the charges involving much larger investments — including $100 million from one and $38 million from another.
Prosecutors argued Holmes was running out of money in 2010 and to save her company she began misleading investors and journalists about the efficacy of her portable testing devices. Throughout the three-year period that followed, Holmes forged a logo from Pfizer and other major pharmaceutical companies in a deceptive effort to show that other major companies in the health care industry approved of Theranos’ technology, when in fact most companies passed on opportunities to partner with Holmes.
She told investors and journalists that Edison devices were being used on medevac helicopters operated by the U.S. military, when in fact, the military was only studying the potential use of such devices and whether they would be of use.
She misrepresented the financial condition of her company, implying to investors that the company was bringing in revenue on par with expenses. In fact, the company had been hemorrhaging money and needed an infusion of outside money to stay solvent. The company mistreated employees like Erika Cheung and Tyler Schultz, who began to question whether Theranos’ technology was sufficient for a rollout in the health care market. Those employees were silenced and then forced to sign nondisclosure agreements before being harassed by Theranos attorneys when they told their stories to The Wall Street Journal in 2015.
The defense, led by Kevin Downey, tried to offer the jury an alternative narrative that said Holmes never lied about testing accuracy but was instead forward-focused on the company’s potential.
Downey noted Holmes never sold a share of stock, hardly the actions of a fraudster.
“You know how to use your experience and your common sense to evaluate a person’s intent,” Downey said during closing arguments. “At the first sign of trouble, crooks cash out, criminals cover up and rats flee a sinking ship.”
He told the jury Cheung and Schulz were silenced because they revealed trade secrets integral to the company’s viability. He said both were low-level employees who did not know enough about the comprehensive operations to be reliable whistleblowers.
Downey also argued Holmes was coy about the use of third-party machines, not because of some fraudulent scheme but to protect trade secrets related to the modification of such machines to be able to process smaller samples of blood.
“Did she intentionally make misrepresentations to people to induce them to invest in her company?” Downey asked at one point. “Evidence says she did not, much less satisfy the necessity to get beyond a reasonable doubt.”
But the jury did not buy this narrative, opting to believe the prosecution’s version of events regarding Holmes and clearly endorsing their contention that they proved the fraud allegations beyond a reasonable doubt.
Holmes faces a maximum penalty of 20 years in prison plus substantial fines when she is sentenced at a later date.
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