Federal prosecutors responded to a barrage of attempts by Theranos founder Elizabeth Holmes to have fraud charges against her thrown out, saying her lawyers had made no attempt to meet the requirements for a judge to revisit a decision. Prosecutors also attacked Holmes’ claim that they were using a “cryptic” definition of “investors” against her.
Holmes, charged with 12 felony fraud counts in connection with her defunct Palo Alto blood-testing startup, in late August filed a group of motions seeking dismissal of charges and the indictments against her. Among her five Aug. 28 petitions to Judge Edward Davila in U.S. District Court in San Jose was a request that he nix seven charges on the basis that prosecutors have introduced a “cryptic and tortured definition of the term ‘investors’” that “would expand exponentially the scope of the alleged scheme to defraud.”
In another motion, attempting to have indictments against her thrown out, she claimed Davila had erred earlier when he agreed with prosecutors that the indictments sufficiently alleged that she and co-accused former Theranos president Sunny Balwani had “a duty of trust” to investors.
Prosecutors addressed that claim in a short filing this month that said although Holmes’ team was trying to get the judge to revisit his decision to uphold the indictments, they had made no attempt “to meet the standards for reconsideration.”
Holmes, a Stanford University dropout who founded Theranos in 2003, is charged with allegedly bilking investors out of hundreds of millions of dollars, and defrauding doctors and patients with false claims that the company’s machines could conduct a full range of tests using just a few drops of blood. She and Balwani have denied the allegations.
Prosecutors, responding to Holmes’ claim that they were using an unclear definition of “investors,” said her petition to Davila “appears to stem from strategic concerns rather than genuine confusion or concern.”
Holmes’ motion had said prosecutors were using loose language that could see people and entities classed as potentially defrauded investors just for having “engaged in transactions” with Theranos. “Which business partners?” Holmes’ lawyers asked in the filing. “How is the government alleging that such business partners ‘invested’ in Theranos?”
Her team, prosecutors argued in response, should understand “investors” according to common sense and its usual meaning, in this case meaning “individuals or entities who paid Theranos money in exchange for Theranos securities.”
Also, the feds said, “there is no requirement that an indictment disclose the name of each victim who was defrauded during a far-reaching fraudulent scheme,” adding that they weren’t even required to prove individual victims were defrauded because “the wire fraud statute criminalizes the scheme itself regardless of whether it is completed.”
The individuals and entities who invested include “certain business partners” along with members of the Theranos board and others who put their money into “purpose-built firms,” prosecutors argued. All are “readily identifiable” using the terms of the indictments, prosecutors’ filing said. “As to business partners, both Safeway and Walgreens qualify as investors under any reasonable definition of the term,” the filing said.
Theranos’ machines had been available for patient use at Walgreens stores in Palo Alto and Arizona. Safeway built clinics for Theranos machines in hundreds of stores but testing never started, the Wall Street Journal has reported.
Forbes in 2015 pegged Holmes’ net worth at $4.5 billion, based on an estimated $9 billion valuation for Theranos and her ownership of half the company’s stock. But the Securities and Exchange Commission has said Holmes never sold any stock, and that between 2013 and 2015 she received a salary of $200,000 to $390,000 per year. In a March 2018 settlement with the SEC, Holmes agreed to pay a $500,000 fine within a year.
Holmes faces a potential 20-year prison sentence, up to $2.75 million in fines, and possible restitution to investors the government alleges lost more than $700 million. The federal government has said that if she’s found guilty, it will go after any ill-gotten money or assets she may have. Plaintiffs in a separate civil case are seeking unspecified damages.
Her criminal trial, twice delayed because of the coronavirus pandemic, is scheduled to start in March.
