Former Prosecutor Analyzes Theranos CEO Elizabeth Holmes’ Trial

Douglas Blair /

“Fraud over failure.” That’s what prosecutors argued Theranos founder and CEO Elizabeth Holmes chose, according to former prosecutor and Heritage Foundation legal fellow Zack Smith. Holmes was accused of defrauding investors with promises of new medical technology that would have revolutionized health care. Smith joins “The Daily Signal Podcast” to discuss the ins and the outs of the trial.

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Listen to the podcast below or read the lightly edited transcript:

Doug Blair: Our guest today is Zack Smith, a former assistant U.S. attorney and a legal fellow in the Meese Center for Legal and Judicial Studies at The Heritage Foundation. Zack, welcome to the show.

Zack Smith: Thanks so much for having me on, Doug. I appreciate it.

Blair: Of course. So let’s talk about the trial of Theranos founder and CEO Elizabeth Holmes, which just wrapped up. Holmes was found guilty on four counts of defrauding investors out of 11 counts that were brought forward. Let’s dive into the case, but let’s get started with a bit of a primer. Who was Holmes? What was she on trial for? And then, why was this case important?

Smith: Sure. Those are all great questions, Doug. And I will add one thing, she was originally indicted along with her then-boyfriend, Sunny Balwani, on 11 counts back in June of 2018, but the government actually superseded that indictment, which just means they brought forward a new indictment, and they added an additional charge.

So when she went to trial, she was actually facing a 12-count indictment, two counts of conspiracy to commit wire fraud and then 10 counts of substantive wire fraud charges as well. So these were very serious charges and there was a lot going on at the trial.

But in terms of who Elizabeth Holmes was, she started Theranos, which was a medical testing company, they were really trying to push the envelope in terms of what can be accomplished with testing blood samples. They were supposed to be able to run lab tests using only a very small amount of blood, and they were supposed to be able to run them more cheaply and more quickly than the traditional methods that were then in place at that time.

Elizabeth Holmes, she dropped out of Stanford when she was 19 years old to found Theranos, becoming CEO. And she really gained a lot of national attention and rose to prominence beginning in 2013 when she and Theranos began aggressively marketing their supposed testing capabilities.

And what happened around starting in 2013 and afterwards really laid the groundwork for a lot of the charges that were ultimately brought against her and a lot of the information that came out at trial.

This is the type of trial and story you tend to see on something like “American Greed” or another true crime-type show. It’s a white-collar case. She’s accused, again, of potentially committing wire fraud, defrauding investors, defrauding customers, and it’s really a fascinating story in a lot of ways.

Blair: Now, one of the things that struck me when you were saying that is that the government itself actually added in an extra charge, instead of 11, it became 12 because the government did an extra charge on this. Does that normally happen? Is that a weird thing or is this normal?

Smith: No, that’s pretty normal. I mean, look, I think what’s important to emphasize, a lot of the other high-profile trials we’ve seen going in the past year or so have been also criminal cases but they tend be violent crimes—theft, murder, those types of trials.

Which, not to diminish the importance or complexity of taking those cases to trial, but this type of white-collar wire fraud trial, conspiracy to commit wire fraud trial, is a completely different beast. This trial took almost three months to complete, 15 weeks. There were over 30 witnesses who took the stand at the trial, and ultimately over 900 exhibits were presented at the trial.

That’s a huge undertaking, it’s an incredibly difficult task to try a case of this size, this complexity. And so what happened in this case really wasn’t out of the ordinary for these types of white-collar fraud-type trials, they are just very difficult to bring. And in fact, the government often supersedes its original charging document, its original indictment to add additional charges as further evidence becomes available.

Blair: One of the things, as I was reading this, was she was only found guilty on four of those counts. It seems like the vast majority of the counts she was not found guilty. What was the rationale for finding her guilty on four counts but not the other ones?

Smith: Well, there were really two different buckets that I think we can put the majority of the charges in. One is she and Sunny Balwani were accused of defrauding investors, potential investors they were trying to get to invest in Theranos. And then they were also accused of committing wire fraud, defrauding customers, doctors, and patients who were supposed to use this technology.

And by and large, the counts she was found guilty on, she was found guilty of three substantive counts of wire fraud, basically using interstate wires, which can be things like the phone, the internet to commit fraud, to get folks to invest in Theranos, and conspiracy to commit wire fraud in regards to those same types of investors.

So she was found guilty on basically the allegations that she defrauded investors, but she was acquitted, by and large, on charges that she defrauded patients and customers.

Now, I do want to add one clarification, Doug, there were actually three substantive counts of wire fraud, as it related to investors, that the jury couldn’t reach a verdict on, they were deadlocked. And so those charges, she was not found guilty of those charges, she was not found not guilty of those charges, just the jury could not reach a verdict on three counts of the indictment.

So those charges could still potentially be tried again by the government. Now, I doubt the government will try her again on those charges, but that certainly remains an option going forward.

Blair: What in particular about those three specific charges caused the jury to find a mistrial? It seems like the other ones there was acquittal, the other ones she was found guilty. What with those three charges was like, “We can’t find a verdict”?

Smith: It’s hard to say. We don’t really know what goes on in the jury room unless a juror comes forward and talks to the media or talks to the lawyers.

Now, in this case, there has been at least one juror who’s come forward to offer some insight into what happened in the jury deliberation room, why the jury reached certain conclusions, but we don’t really know why the jury deadlocked on those specific charges.

It could be something to do with the credibility of the witnesses, whether they thought the government had reached their burden of proof of proving those charges beyond a reasonable doubt, which is the highest burden we know in American law, or whether there was some other factor at play.

But really, at the end of the day, all we know is that at least on those three charges, some jurors wanted to convict, some jurors wanted to acquit, and ultimately, that they could not reach a decision.

Blair: You mentioned that it is possible for Holmes to go on trial again for some of these charges. You said it was unlikely, why do you think that is?

Smith: Well, it’s unlikely because even though Elizabeth Holmes was charged with 12 counts in the indictment, the ultimate penalty she faces more or less remains the same whether she is convicted on those three additional charges or the four charges that she was already convicted on stands.

And the reason for that is, for each count of conspiracy to commit wire fraud or each count of substantive wire fraud, the maximum penalty is 20 years in prison or a $250,000 fine plus paying any restitution she might owe.

And typically, the judge could run those sentences consecutively, which is one after another for each count. But more typically, judges tend to run sentences concurrently, meaning she would serve time on all counts simultaneously.

So at the end of the day, the ultimate amount of time she’d likely serve in prison wouldn’t change probably much, if at all, even if she were to be convicted on those additional charges.

Blair: OK. So the trial is over, we’ve gone over a little bit of what happened, maybe what some of the jurors were thinking, maybe what some of the jurors possibly could have been thinking. Now that it’s over and we have all this information, what are your impressions of how this trial went? How did all go down?

Smith: Well, I think it was a very difficult case to bring to trial. And you really saw two competing themes at trial.

The prosecutors basically took the theme that Elizabeth Holmes picked fraud over failure, that Theranos was in trouble when it started coming to light that her company couldn’t substantiate all the claims that it had been making, that it looked like some of the business deals she had been touting—particularly with some very large pharmaceutical chains like Walgreens—were in trouble. And so they essentially said, rather than having her company fail, she chose to commit fraud.

Now, the defense’s theme, pushing back against that idea, was essentially that business failure isn’t fraud, and that their position was that Elizabeth Holmes was a hardworking individual who was trying to do the best that she could for her company, but that she did not commit fraud in the process of being the CEO of Theranos.

Now, obviously, the jurors sided with the government on at least four counts of the indictment, they sided with the defense on other counts, and again, they couldn’t reach a verdict on three of those counts. But what was really interesting to me, Doug, is the fact that Elizabeth Holmes actually took the stand after trial and testified in her own defense. That is a somewhat unusual move.

Typically, most defense attorneys—not always, but typically—caution their clients against taking the stand to testify. A criminal defendant does not have an obligation to testify at trial, the criminal defendant does not have to prove anything at trial, the burden of proof rests entirely with the government.

So it’s typically seen as a somewhat risky move for a defendant to testify, because at that point it essentially becomes a credibility contest between the government’s witnesses and the criminal defendant—who does the jury believe?

So the fact that Elizabeth Holmes did take the stand, that she stayed on the stand over the course of multiple days of trial, that was a somewhat surprising move from my perspective and really a bold move by Holmes and her defense team.

Blair: I want to follow up on that because this isn’t the first time in one of these high-profile cases that the accused has gone up on the stand themselves. I’m remembering the Kyle Rittenhouse trial where Rittenhouse himself went up on the stand, and that was viewed as an abnormality or an aberration from the norm.

Do you find that maybe this is something that’s going to become more common as time goes on, as this seems to be a strategy that more and more of these high-profile cases are starting to follow?

Smith: I think it’s really going to be a case-by-case determination. There’s another recent high-profile case, the Ghislaine Maxwell sex trafficking trial. In that case, Maxwell did not take the stand … presumably, so that she couldn’t be cross-examined by prosecutors on some of the very damaging information that came out of that trial.

And so there’s always a risk that a defendant runs when they take the stand to testify, is how credible they’ll come across, how credible they will present themselves to the jury, and how they will deal with what’s very problematic information that they’ll probably be asked about by the prosecution.

And I think, to some extent, that may have happened in this case. When Elizabeth Holmes was on the stand answering questions from her own defense attorneys, she … seemed to be very forthcoming, very loquacious, she talked a lot.

But when the prosecutors got up to cross-examine her, start asking her some very difficult questions, some very problematic questions, from her perspective as a criminal defendant, all of a sudden she couldn’t remember certain things, she didn’t appear to be as forthcoming as she had been when answering questions from her own lawyers.

And so how that ultimately played out with the jury, we don’t really know. Based on the one juror that’s come forward and talked to the media, his view was that she did not appear to be very credible at all times on the stand. And so, it certainly could have backfired by her taking the stand, and that’s certainly a risk that any criminal defendant runs when they do in fact take the stand at their trial.

Blair: One of the things that struck me as interesting was this charge that was brought forward multiple times was wire fraud.

The popular narrative obviously is that she lied about these blood tests, we talked about that at the beginning of the show, that this was revolutionary technology that would revolutionize the health care industry. What does wire fraud necessarily have to do with that, why not just regular fraud?

Smith: Well, I think that’s a great question, Doug, and it’s one that comes up quite a bit. This was a prosecution that was implemented by the federal government, so there has to be a federal hook to it.

Most types of fraud, if you defraud someone when entering into a business contract, if you defraud someone for petty theft, the host of most fraud charges are going to be state court crime, they’re going to be governed by state law, prosecuted by your local district attorney or your state attorney general.

So there had to be some federal charge to get this case under the jurisdiction of federal prosecutors and into federal court. And the way that’s most commonly done for these types of cases is through that wire fraud charge, either mail fraud or wire fraud. In this case, it was wire fraud.

And that just means that in committing the fraud, the defendant used some type of interstate wire communication, which can be something like a telephone, today more typically is the defendant uses the internet, email, electronic mail, website in some way to commit this fraud. And so that wire fraud statute is just the federal statute, the hook essentially, to get this case into federal court under the purview of federal prosecutors.

Blair: Interesting. One of the things I’d also like to follow up on is, in other trials that have been so high profile, we’ve seen that witness testimony can be crucial to the outcome. Was there a particular emphasis on witnesses in this trial or was this more evidentiary-based? Was this more like, “Look at what she’s done, here’s the proof”?

Smith: Both. One of the things in white-collar wire fraud cases is they tend to be very document-intensive. I mentioned earlier there was over 900 exhibits presented at trial, that’s an astonishing number. It’s a much more document-intensive, much more paper-intensive process than something like a gun or drug trial would be.

But there were also a number of witnesses who took the stand at this trial. And one of the things I think that garnered a lot of attention for this trial initially, not only the amount that Elizabeth Holmes and Sunny Balwani were alleged to have defrauded investors of, it was a very large sum of money, but also some of the high-profile names who were potentially going to be witnesses in this case.

Former Secretary of State Henry Kissinger sat on the board of directors for Theranos. At one point George Shultz, who’s now deceased, sat on the board of directors for Theranos, as well as he was former secretary of state. And then Jim Mattis, the former Marine Corps general, former secretary of defense, also sat on the board of directors. And in fact, Jim Mattis actually testified at the trial.

So I think having these high-profile individuals potentially be witnesses in the case and then actually having some of them be witnesses in the case certainly garnered a lot of attention, I would suspect also caught the attention of the jury as well.

Blair: So we’ve now learned what the intricacies of the trial are, what now happens to Elizabeth Holmes? Does she go to jail? Does she pay back the money? What is the consequence for Elizabeth Holmes?

Smith: Great question. Well, I think, Doug, one of the things to emphasize, Elizabeth Holmes and Sunny Balwani were originally indicted together, they faced the same charges, but they were actually severed for trial. Which means that Elizabeth Holmes was tried by herself, and so Sunny Balwani now has to face his own trial, which is set to begin in a few weeks.

And frankly, if I were Sunny Balwani, I would be very uncomfortable right now for a couple of reasons. One, he’s already seen that the jury convicted Elizabeth Holmes on four counts of the government’s case.

The government’s essentially gotten an opportunity to see what works for the jury, what doesn’t work for the jury. So I suspect they’ll be better positioned going into the trial of his case as well. And so Sunny Balwani certainly still faces, I think, a very difficult task in defending himself against these charges.

In terms of Elizabeth Holmes, she will not be sentenced until after the trial of Sunny Balwani takes place. After that point, I suspect she would probably appeal the conviction and potentially the sentence as well. But for now, she currently remains free on bail.

She could also try to cut a deal with the government, potentially testify against Sunny Balwani in his trial. And so there’s a lot of unknowns that remain.

Now, I will say, Doug, the maximum penalty on each count that Elizabeth Holmes was convicted is 20 years in prison, a $250,000 fine, and any restitution. I strongly doubt that the judge will sentence Elizabeth Holmes to that maximum of 20 years in prison.

I suspect she will serve some time in jail, maybe even a lengthy jail sentence given the dollar value of the fraud that she was found guilty of. But in terms of what that exact sentence will look like, there’s a lot of unknowns that still need to be resolved.

Blair: Do we see this secondary trial as being as high profile as the first?

Smith: In some way, yes. In other ways, no. Sunny Balwani was not the face of Theranos like Elizabeth Holmes was. Elizabeth Holmes got a lot of press attention, in some quarters of the media she was touted as potentially the next Steve Jobs, who’s the founder and CEO of Apple for many, many years. So I doubt it will be as high profile.

We’ve already heard a lot of the allegations, even some very salacious allegations, that came out at Elizabeth Holmes’ trial. And I suspect there may also be a strong possibility that Balwani and his lawyers may even be trying to cut a deal with the government themselves. So I would not be surprised if before the trial begins, some type of plea agreement is reached between Balwani and the government.

But it certainly will be very interesting to watch what happens over the next several weeks when there will still be a lot of movement taking place both for Elizabeth Holmes and for Sunny Balwani.

Blair: Does the verdict that the jury reached strike you as appropriate? And why or why not?

Smith: Well, I think that’s really a determination for the jury to make. The jury sat through all 15 weeks of trial, heard the evidence presented.

I will say, I think the fact that they took a relatively long time to deliberate signals that they took their responsibilities seriously, that they parsed through the facts, the evidence that the government presented to support each charge, that they took seriously their responsibility to make sure that the government presented evidence to support each charge beyond a reasonable doubt.

And so, look, at the end of the day, Elizabeth Holmes was found guilty of committing wire fraud to the tune of almost $144 million, that’s the dollar loss amount just on the counts of conviction, which is a very large amount.

The other thing I’ll mention, Doug, whenever someone is convicted in federal court, there’s the maximum sentence, the statutory maximum, but as part of the sentencing process, an office within the federal court, the probation office, will conduct a sentencing guidelines inquiry, which takes into account a wide range of factors—the defendant’s criminal history, the nature of the crime, the dollar loss amount of the crime—and will come up with a proposed range of what the sentencing guideline range should be for the judge to consider when sentencing the defendant.

Now, what that range will ultimately be, we don’t know that yet, but I have seen some suggestions based on the facts that came out at trial, based on the dollar loss amount—the very large dollar loss amount in this case—that the sentencing guidelines range could be somewhere between the 210- to 262-month range. The guidelines are calculated in months, but that shakes out somewhere between 17.5 years to 22 years as a guideline range of imprisonment for Elizabeth Holmes.

I doubt the judge will impose a sentence that is that lengthy for Holmes given her first time offender status, essentially. But if that does in fact shake out to be the guideline range, that would be a very, very lengthy sentence for Elizabeth Holmes.

Blair: As we begin to wrap-up, I wanted to ask you something more meta. We’ve been discussing that this is a high-profile trial in a spate of high-profile trials that have come about recently. Obviously, we were talking about the Maxwell trial, the Rittenhouse trial a little bit. What are the impacts of all of these highly televised trials and highly reported on trials on the justice system?

Smith: Well, that’s a loaded question, Doug, and a tough one to answer, to be honest. But I will say, in terms of this specific trial, I think the biggest impact may be felt in Silicon Valley and the way business is conducted there.

A lot has been said that the culture in Silicon Valley, especially with a lot of these startup businesses trying to raise funds from investors, from other sources, that they essentially have a “fake it until you make it” mentality.

And so I do suspect, going forward, investors, hopefully, will do more due diligence about the companies they’re investing in. And companies and founders and other individuals who are trying to raise funds will hopefully be more careful with their representations they’re making to these potential investors and recognize that if they do cross the line and start making fraudulent representations, that the potential is there that the federal government or even state authorities could indict them and hold them criminally accountable for their fraudulent conduct.

Blair: Interesting. That was Zack Smith, a former assistant U.S. attorney and a legal fellow in the Meese Center for Legal and Judicial Studies here at The Heritage Foundation. Zack, thank you so much for your time.

Smith: Of course. Thanks so much for having me on, Doug.

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