Silicon Valley Ambition or Artifice: The Elizabeth Holmes' Trial

This podcast was recorded in November, 2021. The transcript has been edited for length and clarity.

1. Introduction

Sydney Bloch: Hey everyone, it’s Sydney Bloch. 

Elise Hawkins: And Elise Hawkins. 

Sydney Bloch: And today, we’re going to be debriefing the Elizabeth Holmes trial.

Elise Hawkins: I’m really looking forward to today’s discussion.

2. Significance of the Elizabeth Holmes Case

Elise Hawkins: So, to start, can you just give us a little bit of background about the Elizabeth Holmes case? 

Sydney Bloch: Of course. Essentially, Elizabeth Holmes is an entrepreneur in Silicon Valley, and she starts a business called Theranos. She markets her business in a crucial gap in the health care system, focusing on blood collecting and testing, which is typically an expensive, long, and not equally accessible process. Theranos touts its unique ability to perform a full range of blood tests from a small amount of blood — as minimal as a finger-prick, at even faster speeds. The main idea is that people can go into the Theranos wellness centers and essentially take charge of their own health care.

Elise Hawkins: That sounds like an interesting proposal. So, how did Holmes distinguish herself from the many other Silicon Valley entrepreneurs with comparable idiosyncratic ideas?

Sydney Bloch: Well, Holmes is an extremely persuasive speaker, a paragon of having the courage of her convictions. She’s able to acquire a board full of famous men, many ex-government workers in high positions, who afford her credibility and vouch for her. She’s able to accumulate a stunning amount of investments and in 2014 is dubbed by Forbes to be the “world’s youngest self-made woman billionaire”. 

Elise Hawkins: This all sounds pretty promising. Where did it start going wrong?

Sydney Bloch: By the end of 2015, Theranos and its proprietary technology are at the center of controversy as a series of articles are published claiming that Theranos isn’t everything it’s built up to be. And that’s really the beginning of the end for Theranos and Elizabeth Holmes. Journalists start digging into her company, FDA agents show up to their headquarters, the SEC investigates Holmes, and she’s forced to pay $500,000 in fines. Investors sue on the basis that they were lied to, and by 2018, Theranos is almost out of money and Holmes’s reputation is in shambles. In a normal case, this is where the controversy would end, but the US government has decided to charge her with multiple crimes. Can you talk a little bit about the legal side of it — what she’s being charged with? What are the indictments?

Elise Hawkins: Yeah! Holmes really has the charges stacked up against her right now. She and her business partner, Sunny Balwani, were first charged in June of 2018 by the U.S. attorney’s office in the Northern District of California. Following two more indictments, the last of which was brought against her in July of 2021, she and Balwani now face 10 charges of wire fraud and two counts of conspiracy to commit wire fraud. If she’s convicted, she’ll face up to 20 years in prison. 

3. The Trial

Sydney Bloch: Can you talk a little bit about the trial?

Elise Hawkins: Of course. The Holmes and Balwani trials have been separated. The Holmes trial started in September and is expected to take around three months. This was, however, after a series of delays related to the Coronavirus pandemic and Holmes’s pregnancy. Balwani will go on trial in January of 2022. I think it’s important to note here why Holmes is being charged on so many different accounts. Holmes has allegedly misled two distinct groups. First, her investors. She reportedly misled some of her most prominent investors by lying about profits and the efficacy of her machines. For example, in 2015, she reported that Theranos was on track to do more than 1 billion dollars in profits when, in reality, they had only made around $100,000. Secondly, she misled her patients. One man who used Theranos machinery ended up falsely testing positive for HIV-Aids. The impacts of her behavior have been really devastating to her consumers, and I think that’s a big reason for the severity of the charges. Misleading investors is one thing, but tampering with people’s health is another. I suspect that this will contribute to some difficulty for the Holmes defense as they try to convince the jury that she doesn’t deserve these charges. What do you think is the prosecution's best case?

Sydney Bloch: Well, so far in the trial, the prosecution has focused mainly on the fact that Holmes lied over and over again to secure funding and support. They showed an alleged report that Theranos showed investors that said pharmaceutical companies were endorsing her technology. In actuality, this was never the case. The prosecution is pushing that point that just because this is the culture of Silicon Valley, that doesn’t make it right, or legal. If this is a crime somewhere else, simply being in Silicon Valley shouldn’t and doesn’t make you immune. 

Elise Hawkins: That makes a lot of sense. Are there any potential problems that you see the prosecution facing?

Sydney Bloch: Well, one hurdle for the prosecution is that they have to prove that Holmes knew she was defrauding investors, not just that she was lying. In other words, they have to prove that she knew the technology wasn’t working and told people otherwise. The prosecution has exposed documents in court of employees telling her about problems that are occurring with her proprietary testing machines. It seems pretty clear that she knew about the problems and chose to present varying information to secure funding from investors. So right now, it seems like a pretty damning case against Holmes. Can you talk a little about how the defense is approaching the trial and what they seem to think is their most convincing argument?

Elise Hawkins: The defense's case is really centered around two arguments. First, they’re arguing that the real villain here is Sunny Balwani, not Elizabeth Holmes. Sunny Balwani was Holmes’s long-term partner and the Chief Operating Officer of Theranos until 2016. Recently, Holmes has come out saying that he was abusive and manipulative. Balwani was also overseeing the labs at the time of many of the fraudulent outcomes and was reportedly pressuring Holmes into decisions she didn’t fully support. The defense team is expected to bring in an expert on clinical psychology to analyze the severity of Balwani’s alleged abuse. 

Sydney Bloch: And what is the other main argument that the defense is pushing?

Elise Hawkins: Secondly, the defense is capitalizing on this rhetoric of “failure is not a crime.” Lance Wade, a member of the defense, has repeatedly used this very line, stating “Failure is not a crime. Trying your hardest and coming up short is not a crime.” The defense is arguing that Holmes wholeheartedly believed in her company: she believed that her scientists were telling her the truth about the efficacy of their machinery and she believed that her company would radically change the future of healthcare. So, the team is arguing that yes, Theranos may have fallen short and failed to accomplish what they set out to do, but they are insisting that this failure isn’t a crime. Fraud is only fraud if it’s intentional, and so the defense is really pushing the idea that Holmes was unaware about the real state of her company. 

Sydney Bloch: What are some other methods you think the defense can use to help win over the jury?

Elise Hawkins: The defense can also capitalize on the rhetoric that this is just how things work in Silicon Valley: young entrepreneurs set ambitious and exaggerated goals and are willing to do anything to achieve them. I think it’s still going to be an uphill battle for the defense, but depending on the quality of their testimony and evidence, they could sway the jury. So, what are the implications of the verdict of this case? I have heard a lot of talk around Elizabeth Holmes being the first woman to spearhead the “fake it until you make it” style of Silicon Valley. To what extent is this just a part of Silicon Valley culture, and when does this become fraud? 

Sydney Bloch: Well, you’re totally right. This case is definitely indicative of the larger, pervasive culture of Silicon Valley and startups that endorse a “fake it until you make it” strategy that is often seen as necessary to get companies off the ground. I think this case will address the larger implications of whether or not this culture crosses over into illegal territory. In the past, there have been famous downfalls of startups, but almost none of those had charges brought against them or went to jail. 

4. Implications

Elise Hawkings: So, what do you think happens if the jury finds Holmes innocent?

Sydney Bloch: If Holmes is found to be innocent, I think we would see a continuum of the current tradition of exaggeration bordering on fraud. It may make startups in this environment feel even more secure in manipulating their numbers if they know that they have a precedent like Holmes’ case protecting them in the event they are caught. On the other hand, you could make the argument that letting her off scotch-free establishes that Silicon Valley and their companies are above the law - which could undermine the effectiveness of the startup/Silicon Valley community as people will be more skeptical of future fanatical claims like Holmes’s which would make it more difficult for these companies to flourish and contribute to the tech community. 

Elise Hawkins: And what if she is found to be guilty?

Sydney Bloch: If Holmes is found to be guilty, this could indicate a changing tolerance concerning the Silicon Valley startup culture. It may make companies a little more hesitant to falsify claims to secure funding, but honestly, I don’t think it will have a huge impact. Startups and tech companies in Silicon Valley have been using this method for quite a while and I don’t think that’s going to stop any time soon. Even if Holmes is not found guilty, she still lost all of her money and reputation, and if that isn’t enough to discourage future startups from following in her footstops, I doubt a little jail time will. So based on the major implications of this decision, what do you think the outcome of the trial will be?

Elise Hawkins: I think that given the quantity of evidence the defense has against Holmes, the outcome will most likely be a guilty verdict for Holmes. She’s facing a mountain of evidence and an unsympathetic jury. While nothing is black and white, I think the prosecution has some pretty concrete evidence that’s going to be hard for Holmes to maneuver from. The argument that “this is just how silicon valley works” isn't going to fly against such damning evidence. What about you? Do you agree?

Sydney Bloch: I absolutely agree, I think the outcome will be a guilty verdict. I think there’s too much evidence against her for the jury to buy that the only thing Holmes did wrong was fail. But there is still plenty of time left in the trial and we’ll have to wait to see what curveballs the prosecution and defense throw as the trial comes to an end.

Elise Hawkins: Yes, this is for sure going to be an interesting trial and we’re excited to see the results. 

Sydney Bloch: I’m so glad we were able to discuss this issue and I look forward to seeing the results of this case. Thanks everyone for listening.