View from Washington: Theranos 5 - We ain’t done yet

So Elizabeth Holmes has been found guilty. Just over a week ago, a jury found convicted the former CEO of failed blood-test company Theranos on four of 11 counts brought by the US government, three of wire fraud and one of conspiracy to defraud investors. Holmes was found not guilty of four otherss and the jury could not reach a decision on three more.

After a four-month trial, the verdicts appear to set boundaries on how far you can go in faking it until you make it. Moreover, while Holmes introduced allegations of abuse by her former partner (and fellow C-level Theranos exec) Ramesh ‘Sunny’ Balwani, an apparently sympathetic jury decided they were largely irrelevant to the actual charges.

What might surprise you on that last point is how much of Silicon Valley’s ‘me too’ community was relieved. They saw Holmes’ and her lawyers’ use of a so-called Svengali Defence as a distraction from rectifying tech’s now undeniable and much broader problems with gender as well as race.

So that wraps things up, yes? Well, not quite. There has been plenty of instapunditry over the last few days, much of it perfectly valid. But Holmes has yet to be sentenced and that matters in terms of how the trial has been pitched and perceived.

It is worth remembering that the Theranos scandal has struck a nerve not just because of the sums involved – around $1bn (£736m) fraudulently raised from investors like Rupert Murdoch, Henry Kissinger and venture capitalists – but also the fact that Holmes lied about public health. Theranos’s Edison box was marketed and installed in major chemists’ chains (albeit briefly) and the test results it provided were of variable quality.

That aspect of the scandal played only a secondary role in court. The four counts on which Holmes was found not guilty concerned defrauding consumers who paid for Theranos tests. With US law as it stands, these were always going to be tough to make because of the need to make a direct connection between the defendant and the consumer. By contrast, Holmes herself admitting that she had added company logos suggesting corporate endorsements to her sales pitch to investors provided clearer evidence – so the prosecution directed most of its efforts towards that strand.

However, for justice to be ‘served’, there are those who think that the presiding judge, Edward Davila, should take the broader implications of the Theranos scandal into account.

Each count on which Holmes has been found guilty carries a maximum tariff of 20 years, although it is unlikely she will serve that long however Judge Davila determines.

In her favour, Holmes is a first-time offender and a new mother. Her description of manipulation and abuse by Balwani was powerful, according to reporters who were in the courtroom.

However, since the scale of such a fraud is defined as the main criterion for sentencing – and again, the number was essentially $1bn – this may temper leniency. Similarly the politics behind the case are thorny.

Does Judge Davila want to send a message to Silicon Valley as whole? Plenty of commentators think he should. The practices exposed in the Theranos case are, it is claimed, more widespread than might be assumed. They have only come to light here because of tenacious reporting – most importantly by former Wall Street Journal reporter John Carreyrou – and are usually swept aside to avoid investor embarrassment or simply accepted in a model that says only one-in-four VC investments are successful.

And then there is the question of how Theranos is framed in the context of the much greater opiates scandal working its way through the US justice system – and where the absence so far of criminal charges is playing poorly with the public. The pandemic has served to heighten general concerns here while exposing weaknesses in the US legal system when it comes to addressing medical malfeasance at the criminal level.

Given all that, sentencing guesses range from no jail time but heavy financial restitution through to five and then on to 10 years at the upper end. But, for now, they are just guesses.

So, we’re not done yet. Judge Davila has unenviable decisions to make. We may get some idea as to when that could happen soon. There is an upcoming hearing to consider the future of the cases where the jury could not agree. But don’t be surprised if the Judge now moves forward carefully and over a fair bit of time.

His call will frame all the commentary we have seen so far, and could even upend much of it.

Update: Late US time on Tuesday (11 January), after this article was published, it emerged that the government and Holmes' defence lawyers have agreed on a date of September 12 for sentencing. They are now asking Judge Davila to ratify that. This should allow for the separate Omicron-delayed trial of Ramesh Balwani to be completed with, depending on its outcome, sentencing for both accused then possible simultaneously. The government is also set to drop the three counts against Holmes on which the jury could not agree.