Out For Blood: Elizabeth Holmes' Trial​

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By Robyn Ma​


The Story

Once dubbed the next Steve Jobs, Elizabeth Holmes now faces fraud charges from the US Securities and Exchange Commission (SEC) and a federal grand jury.

After dropping out of Stanford, Holmes started up Theranos, a company developing blood-testing technology for instant diagnoses from just a few drops of blood (Fierce Biotech). The healthcare company, once valued at $9bn, attracted a range of investors, from high-profile backers such as Rupert Murdoch to corporate partners like drugstore Walgreens (CNN; MSN).

Where did it all go wrong?

Theranos’ downfall started with The Wall Street Journal’s John Carreyrou and his investigation into the company. According to Carreyrou, Holmes “commercialized a medical product that she knew did not work” (CNBC). In 2018, a class-action lawsuit was brought forward by nine patients who had used Theranos’ technology. Victims include those who were misdiagnosed with positive HIV results (Aljazeera).

Investors were misled into thinking Theranos’ equipment was used by the US Department of Defense and that the company would gain over $100m in revenue in 2014. In reality, their revenue barely hit $100,000 (SEC).

Representatives for Holmes argue that misrepresentations come from her ambitions, rather than deliberate fraud. Known as a 'puffery defense', the attempt to pass off her comments as optimism will mean it is down to jurors to decide whether there is a “substantial distance between what was claimed and what was true” (CNN).

They will also attempt a mental health defense, claiming Holmes’ secret relationship with chief operating officer Ramesh “Sunny” Balwani was abusive and “eras[ed] her capacity to make decisions” (CNN). However, Carreyrou does not buy “this notion that he was the puppeteer and she was the puppet”, referencing Holmes' control of 99.7% of the voting rights in Theranos (The Guardian).

What It Means For Businesses and Law Firms

How did Theranos get away with it for so long? Firstly, there was an intense culture of fear and secrecy at the firm. Everyone had to sign non-disclosure agreements. Employees who disagreed with Holmes were fired, with “dossiers” built on them for “leverage” (CNN).

Secondly, Holmes made connections with powerful people. She started with Channing Robertson, a Stanford professor who later joined her board, and milked subsequent connections (Guardian). Her attempts to impress included “staging a fake laboratory [for] Joe Biden” (CNN).

What about the broader legal picture?

Despite the Theranos scandal, investors have pumped $200m into start-ups focussing on blood-testing devices (Financial Times). Still, this trial should warn investors to undertake proper due diligence when investing in start-ups.

Further, law firms are looking to the US technology scene as part of their global strategy. Allen & Overy recently opened new offices in Silicon Valley and San Francisco, and recruited seven partners from White & Case’s technology sector (Legal Cheek). Integrating this new team will support Allen & Overy's existing practice across patent litigation, intellectual property and deals for Big Tech clients.

Law Firms Involved: Holmes is being represented by lawyers at Williams & Connolly. Balwani is represented by Orrick Herrington & Sutcliffe (Reuters).