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Villain? Do-gooder who failed? A jury will decide as fraud trial of Theranos founder Elizabeth Holmes kicks off

Attorneys for Elizabeth Holmes accused federal prosecutors of trying to paint their client as a villain and a fraudster by selecting certain facts, when in fact, Holmes tried assiduously to build a reputable and profitable company driven by a noble mission but simply fell short. 

(CN) — Attorneys for Elizabeth Holmes acknowledged the disgraced former CEO of the blood-testing company Theranos made mistakes in her role as the leader of the Silicon Valley company but did not commit fraud as accused by the federal government.

The high-profile trial unfolding at the federal courthouse in San Jose, California, the heart of Silicon Valley, featured the prosecution unfolding many of the well-known allegations regarding Holmes' period as CEO — including faking documents from large pharmaceutical companies that attested to the efficacy of the miniature blood-testing machine she supposedly pioneered and using competitors' blood-testing equipment to carry out tests ostensibly performed by Theranos' innovative technology

But many watching the trial were more interested in how the defense team would counter the charges that have circulated in the press for the past five years. 

“Failure is not the same thing as fraud,” said Lance Wade, attorney for Holmes. “The evidence will show you that Elizabeth Holmes did not commit crimes. Instead, she devoted her life and her work to this company and its mission.”

Wade noted that Holmes started the company when she was 19 years old with her college savings after dropping out of Stanford University and worked tirelessly, often seven days a week, to build a company that employed hundreds of people at its peak to offer more and better testing to patients. 

“The government has presented the events of this company through a dirty lens,” Wade said. “They have pointed to select facts to portray the company unfavorably and portray Miss Holmes as the villain.”

The defense said they will provide the context to show Holmes may have made mistakes out of naivete, but only in the interest of serving her company. She owned shares worth billions of dollars when the company was at its peak and never sold a single one — hardly the act of a fraudster looking to get rich quick, Wade said. 

“If she intended to defraud incredibly wealthy investors, don’t you think she might sell some of her stock to take advantage, to try to cash in,” he asked the jury. 

Holmes sat in a packed courtroom in San Jose on Wednesday, dressed in a dark gray suit and a white blouse. She made no visible gestures during the morning portion of a trial that is expected to last four months.

She also donned a blue surgical mask required as a condition of in-person attendance at the federal courtroom. Her attorneys have expressed a preference that she not wear a mask as they will attempt to humanize Holmes as a hardworking female CEO who made mistakes and was at times led astray by her more seasoned business partner Sunny Balwani, whom she met when she was 18 and he was 37.

“Trusting and relying on Mr. Balwani as her primary adviser was one of her mistakes,” Wade said. 

In his opening arguments, U.S. Attorney Robert Leach also acknowledged Holmes was a dedicated CEO who spent countless hours in the office grinding to get her company ahead of the competition. But he said it was that determination that caused her to cheat once it became clear that the walls were closing in and the technology she invested in did not work. 

“Out of time and out of money, Elizabeth Holmes decided to lie,” Leach told the jury. 

In 2010, as Holmes and Balwani were calling the bank to make sure they could cash a check to meet payroll, they met with Safeway and Walgreens and claimed a miniature blood analyzer could conduct a vast array of blood tests with a single prick of blood from a finger. 

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“But Theranos could not run any blood test in less time and with less cost,” Leach said. Instead, Theranos used the very large clunky machines Holmes and Balwani derided as defunct to prospective customers and investors to conduct the blood tests they claimed were being run on Theranos' innovative machines.

“Holmes shared revenue projections with Safeway and Walgreens that vastly overstated what it would achieve in 2011 or any period and falsely represented they were breaking even,” Leach said. 

Holmes told Walgreens and Safeway that their testing technology was comprehensively validated by 10 of the 15 top pharmaceutical companies in the world, Leach said. They also produced an internal document touting the efficacy of their technology and ascribed these effusive attestations to Pfizer and Sharing Plough, when, in fact, Pfizer had decided to cease doing business with Theranos. 

“They dazzled Walgreens and Safeway with these false claims,” Leach said. 

The two companies invested millions as did other venture capital firms. 

“From 2013 to 2015, Theranos raised hundreds of millions of dollars based on false and misleading representations,” Leach said. 

Using journalists from the Wall Street Journal and Fortune Magazine, Holmes planted stories that vastly overstated the efficacy of her technology, which led to further investment and a sharp increase in the value of her company, Leach said.

But Wade told a different story. 

“The evidence is going to show you that the investors in this case are incredibly sophisticated people who knew the risks,” Wade said, adding that in fact the hedge fund managers and venture capital firms were eager to blame Holmes for their own roles in encouraging their clients, friends and family to invest in a prospect that went south.

Wade said the risks the Federal Drug and Administration would withhold approval of the testing technology was spelled out in all the documents and that investors knew they were pouring money into a speculative enterprise. 

“You had to be a multimillionaire to invest in Theranos and many of the investors were billionaires,” Wade said. 

But Leach said Holmes’ knowledge of faulty tests didn’t just hurt wealthy investors who should have known better. It harmed regular Americans who made decisions based on faulty test results. 

“There was a pregnant woman who was advised to change her medication regime based on a faulty Theranos test that inaccurately said she wasn’t pregnant,” Leach said. “Holmes' own brother said the pregnancy tests were causing significant patient complaints.”

But Wade said those complaints were actually minuscule and fell well within the range of typical blood testing errors that occur throughout the medical laboratory testing industry.  

“She believed the tests were accurate and reliable,” Wade said. 

In the court of public opinion, Holmes — who has been the subject of books and documentaries — has been disgraced. She reached a plea agreement with the Securities and Exchange Commission that will not allow her to run a company for 10 years. 

But the lengthy and elaborate opening statement by Wade indicates that the government will have a challenge in meeting its burden of proof to demonstrate Holmes was intent on defrauding investors and patients and not simply a business owner trying to keep her floundering company afloat. 

“This is a case about lying and cheating to get money,” Leach said. “That’s a crime on Main Street and it’s a crime in Silicon Valley.”

For Wade, Holmes never capitalized on her fraud by selling stock and instead tried her best to make good on the investments provided to her and her business, but ultimately failed. 

“Many businesses, both large and small, ultimately fail. More fail than succeed,” he said. “But failure is not the same thing as fraud.”

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