Nearly 20 years after she founded Silicon Valley blood-testing company Theranos — which soared to a $9 billion valuation on claims that its machines could conduct a full array of tests on just a few drops of blood — Elizabeth Holmes’ meteoric rise and dramatic fall will be laid bare in federal court, exposing Silicon Valley’s most infamous startup failure. Nationwide interest in the proceedings, one of the highest-profile criminal cases in Bay Area history, has been primed by two documentaries, a best-selling book and news that Jennifer Lawrence will star as Holmes in an upcoming movie. Holmes was a 19-year-old Stanford University dropout when she founded the now-defunct Palo Alto company in 2003 and convinced powerful people to fund and back her vision. Today she’s 37, the mother of a newborn, and about to be tried on a dozen felony fraud charges that could put her in prison for two decades. Now, some of those powerful people may be called to testify at her trial, which gets underway Tuesday with jury selection. Legal experts say the evidence against her appears strong but she may yet walk free. Prosecutors allege that before Theranos went belly up in 2018, Holmes and former company president Sunny Balwani bilked investors — including media magnate Rupert Murdoch and the Walton family of Walmart fame — out of more than $700 million, and defrauded doctors and patients with false claims about their technology. Holmes and Balwani, who is to be tried separately, have denied the allegations. The trial will showcase Silicon Valley’s startup culture in its glory and its warts, from worship of industry disruption, whiz-bang innovations and high-profile entrepreneurs to hype-fueled pursuit of investors’ cash. The case revolves around a central question: Did Elizabeth Holmes — who appropriated the black turtleneck of legendary Apple co-founder Steve Jobs — go beyond hype into willful deception? Understanding Holmes’ intent will not be simple, said UC Berkeley Haas School of Business professor Jennifer Chatman. Holmes may have stuck to her faith in Theranos’ technology and its early promise despite deficiencies that emerged, Chatman said. “My sense is that she believed that the idea could bear fruit, even when the evidence pointed in another direction,” Chatman said. “She also clearly was trapped by escalation of commitment and the sunk costs — the investment, the group of high-level people she involved, her own reputation were going to take an irrecoverable hit if she didn’t produce the outcome she had promised.” But in 2018, the U.S. Securities and Exchange Commission accused Holmes of “an elaborate, years-long fraud” and she agreed to pay a $500,000 penalty and be banned for 10 years from serving as an officer or director for any public company. Still, Stanford Law professor Robert Weisberg said, Holmes doesn’t fit the picture of the white-collar fraudster that the public associates with “calculators” like Ponzi schemer Bernie Madoff. “She’s just going to try to create reasonable doubt about whether she had intent to defraud,” Weisberg said. Possible witnesses, according to court filings, include prominent Theranos board members: former U.S. Secretary of State Henry Kissinger; former U.S. secretaries of defense James Mattis and William Perry; and former U.S. Centers for Disease Control Director William Foege. Also on the list are Tyler Shultz, who spent eight months working at Theranos then blew the whistle on what he’d seen; former Theranos lab director Adam Rosendorff, and former lab associate Erika Cheung, another whistleblower. Over the months of pretrial proceedings that followed Holmes’ June 2018 indictment, possible defense strategies emerged. One Holmes lawyer told Judge Edward Davila that exaggeration about products in Silicon Valley “is something that is done.” And in a court filing, Holmes’ lawyers suggested that the “sophistication” of Theranos’ investors made it unlikely that they had been bamboozled by Holmes. In one court hearing, a Holmes lawyer argued that Theranos performed 7 million to 10 million tests so incorrect outcomes were “the proverbial one in a million.” However, prosecutors claim thousands of patients received unreliable Theranos tests, including a male falsely found HIV positive, a pregnant woman falsely informed she was miscarrying, and a woman told she wasn’t pregnant who had a potentially deadly ectopic pregnancy. The prosecution plans to call as witnesses 11 patients who allegedly received inaccurate test results, arguing that those patients are “bricks in the wall” of evidence about problems in the company’s technology, with internal emails showing Holmes knew about the issues. Documents released by Davila on Saturday and relating to what Holmes’ lawyers called “the issue of guilt” show she plans to claim Balwani — with whom she had a long-running intimate relationship — abused and coerced her. A filing from his legal team indicates she plans to claim he sexually abused her in addition to allegedly psychologically and emotionally abusing her. A filing from Holmes’ lawyers referred to her “potentially debilitating” symptoms of post-traumatic stress disorder. Balwani’s team in a filing said he “categorically denies” her claims. Holmes, according to a court filing, is likely to testify in court about her claimed abuse by Balwani. Holmes’ fate may rest on how much sympathy jurors develop for her, Weisberg said. Her new baby could pull heartstrings, he said. Her tech career is likely over, and members of the jury may wonder, “Why are we doing this? The woman has been chastised,” Weisberg said. Holmes’ 10-member legal team comes mostly from Williams & Connolly, a Washington, D.C. firm known for representing powerful people in high-stakes cases, including former President Donald Trump during the Russia probe, Bill Clinton in his impeachment, and Oliver North in the Iran-Contra Affair. In pretrial proceedings, Holmes’ defense has been led by Lance Wade — who has represented CEOs of some of the world’s biggest companies — and Kevin Downey, who specializes in prominent, complicated cases and has also represented leading CEOs, along with clients under congressional investigation. Also appearing for Holmes has been appeals specialist Amy Saharia. The government has a four-member team of local U.S. Department of Justice lawyers prosecuting the case, including John Bostic and Jeff Schenk from the department’s San Jose office. Schenk led the successful criminal prosecution of PG&E over the deadly 2010 San Bruno gas pipeline explosion. Bostic, a Stanford Law graduate, has an undergraduate degree in molecular biology from Yale University and represented clients including Comcast and computer hardware maker HTC before joining the government six years ago. Judge Davila is a Palo Alto native, former defense attorney and state judge who joined the federal bench in 2011 after being nominated by President Barack Obama. Jury selection is scheduled for two days. The trial is set to start Sept. 8 and run for about three months. Davila will be presiding over a trial whose outcome is decidedly unclear, Stanford’s Weisberg said. “All of this just lies in un-chartable territory about jurors’ reactions to these strange circumstances.”
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