Theranos No. 2’s Trial Starts in Shadow of Holmes’s Conviction

Prosecutors laid out their case against former Theranos Inc. President Ramesh “Sunny” Balwani at the start of his criminal trial, two and a half months after a jury convicted Elizabeth Holmes of defrauding investors

Former Theranos President Sunny Balwani Attends Criminal Trial.
By Joel Rosenblatt
March 23, 2022 | 09:55 AM

Bloomberg — Prosecutors laid out their case against former Theranos Inc. President Ramesh “Sunny” Balwani at the start of his criminal trial, two and a half months after a jury convicted Elizabeth Holmes of defrauding investors.

In the federal courthouse in San Jose, California, where Holmes’s trial was held, lawyers for the U.S. on Tuesday asked jurors to find Balwani guilty of the same charges that the founder of the blood-testing startup faced.

Assistant U.S. Attorney Bob Leach went to great lengths in his opening argument to tie Balwani to Holmes, depicting the alleged fraud as a conspiracy between the two, deepened by their secret romance.

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Repeatedly starting sentences with “Balwani and Holmes,” the prosecutor told jurors that the company president took his position and title without any previous experience in blood testing or medical background.

“What he did have was a connection to Elizabeth Holmes,” Leach told the jury. Balwani was her romantic partner since around the time Holmes founded Theranos in 2003 until 2016, he said. “The evidence will show that Balwani and Ms. Holmes were partners in virtually everything -- including their crimes.”

Besides working together in the ways one would expect a chief executive officer and president to collaborate, Holmes and Balwani “worked in the same way you’d expect romantic partners to share information,” Leach said.

They “regularly and intimately connected” and “candidly explained to each other how bad things were at Theranos” as they were simultaneously telling investors about its strength and innovation, the prosecutor said.

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Echoing a theme the government hammered at Holmes’s trial, Leach said that by 2013, the executives were “running out of time and running out of options” as attempts to get Theranos machines and tests in Walgreens and Safeway were foundering and the company had failed to win regulatory approval.

Under that pressure, Leach said, Balwani and Holmes resorted to lying to investors about the capabilities, results and acceptance of Theranos technology.

Meanwhile, Balwani privately told Holmes in emails and texts that Theranos would solve its problems with “hybrid solutions” and through prayer. Balwani called the company laboratory “a disaster zone,” according to Leach, who told jurors Balwani’s description included “an expletive that I can’t repeat here in court.” Balwani bragged in his messages to Holmes “about Theranos’s abilities to run circles around the regulators,” the prosecutor said.

While jurors will see and hear much of the same evidence and testimony relayed to the jury that convicted Holmes, Leach also previewed how the government’s case will underscore Balwani’s role.

As the primary Theranos contact for Walgreens, Balwani wasn’t receptive when a co-lab director at the startup escalated concerns about blood-testing inaccuracies, Leach said. The scientist “was given the back of the hand and he resigned that day,” the prosecutor said.

But even while delineating Balwani’s role, Leach circled back to the alleged conspiracy in which the couple “together became billionaires.” Due to fraudulent misrepresentations to investors, Balwani’s 28 million shares in the startup at the company’s high point were valued at $500 million, Leach said, noting that Holmes held shares estimated to be worth $4.5 billion.

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Holmes was convicted of four out of 11 counts of conspiracy and wire fraud and acquitted of four counts she deceived patients, while her jury was unable to reach a unanimous consensus on three other counts.

Legal experts have said Holmes faces a decade or more in prison, though her term may depend on what prosecutors unearth about how culpable Balwani was.

In Balwani’s defense, his lawyers are likely to emphasize the “sweat, blood, and tears” he poured into Theranos, said Seth Kretzer, a criminal defense lawyer based in Houston.

In 2009, when the company was almost out of cash, Holmes turned to Balwani for a $12 million line of credit. That same year, Balwani was appointed president and chief operating officer. His attorneys may highlight Balwani’s back-seat role as Holmes soaked up the glamor the Theranos ascent garnered, Kretzer said.

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It will be a hard sell to jurors, he said, as Holmes’s lawyers also highlighted the fact that she never sold any of her Theranos shares, and that her fortune sank with the company’s.

“Sunny can only point the finger at Elizabeth,” and argue “she kept him in the dark,” Kretzer said. “The defense is trying to plant enough doubt that they hope the jury doesn’t lower the boom.”