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Elizabeth Holmes’ Verdict: ‘Fake It Until You Make It’ May Land You in Jail

January 05, 2022

Posted in Blog

Elizabeth Holmes’ Verdict: ‘Fake It Until You Make It’ May Land You in Jail. the woman who founded the failed company Theranos and sparked an investment craze of more than $750 million based on lies, is guilty of four of 11 fraud charges after a lengthy criminal trial in federal court in San Jose. The case illustrates there are legal limits on what you can say and do to attract investment in your company.

Ms. Holmes, who was on the cover of magazines and the focus of articles and TV pieces that couldn’t say enough good things about her, potentially faces decades in jail. Her promise of revolutionizing blood testing and healthcare never happened. The technology her company developed never fully worked. Holmes was found guilty of defrauding investors of more than $140 million.

Theranos, marketed and sold to investors through deception, the appearance of being “the next big thing,” and refusals to release information, was once valued at $9 billion. At the peak of her ill-gotten gains, Holmes’ wealth was estimated at about $4.5 billion. The company started in 2003, and its downfall began in earnest after a 2015 Wall Street Journal article exposed problems with the company and its tests. It ceased operations in 2018.

What is Wire Fraud? How Did Holmes Commit It?

Holmes faces sentencing for three counts of wire fraud and one count of conspiracy to commit wire fraud to raise money for her company. Holmes was found not guilty on four counts of defrauding patients who used Theranos blood tests. The jury didn’t agree on a verdict on three counts of deceiving investors, according to the New York Times. Her legal team will probably find a reason to appeal her conviction, which may or may not be successful.

Federal law states that to be guilty of wire fraud, the defendant must have:

  • Devised or intended to develop a scheme or deception to defraud, or for obtaining money or property by false or fraudulent pretenses, representations, or promises
  • Transmitted or caused to be transmitted through wire, radio, or television communication in interstate or foreign commerce writings, signs, signals, pictures, or sounds to execute such scheme or deception

Holmes could be sentenced to up to 20 years in jail for each count, plus a $250,000 fine and payment of restitution to those she defrauded.

After a four-month trial, the jury spent seven days deciding the outcome announced yesterday. Midway through deliberations, they asked the judge to listen to a recording of a 2013 call Holmes had with investors, which was made without Holmes’ knowledge.

She told investors that their testing device could perform any blood test, and Theranos was on track to earn over a billion dollars. She also implied the devices were used on military medevac helicopters. None of it was true, reports NBC.

Holmes Has Spent a Lot of Time With Lawyers. She May Spend a Lot of Time With Inmates

Holmes’ criminal conviction is just the latest development in years of legal actions against her and Theranos. The federal Securities and Exchange Commission (SEC) settled fraud charges against Theranos and Holmes in 2018, reports Reuters.

In part of the settlement, Holmes had to return millions of company shares to Theranos, pay a $500,000 fine, and not serve as an officer or director of a public company for ten years. The agency claimed she and Theranos’ former president, Ramesh “Sunny” Balwani, made many false and misleading statements in investor presentations, product demonstrations, and media articles about its blood-testing technology.

Balwani refused to agree to the SEC settlement. He’s also criminally charged for his role in the company. His trial is scheduled to start next month.

A potential class-action civil lawsuit was filed in Arizona. Plaintiffs are Walgreens customers who claim Theranos, Holmes, Balwani, and the drug store chain (a former partner with Theranos) took blood samples knowing the testing technology didn’t fully work. It’s alleged that because of the defendants’ actions, many customers had unnecessary or potentially harmful medical treatments or didn’t get medical help for illnesses they had but were missed by the blood tests.

Holmes appeared in a phone conference representing herself in the case in January 2020, after her attorneys withdrew their representation the prior September. They stated they hadn’t been paid in more than a year and didn’t expect to ever be fully compensated for their work, according to the Los Angeles Times. Lawsuits against her by investors and Walgreens were settled by July 2018, reports Marketplace.

Where’s the Line Between Aggressive Marketing and Fraud?

It’s rare that a company founder is criminally charged with fraud and even more unusual that one’s convicted. Selling one’s vision for a company and its potential to possible investors and others needs to be grounded in facts. Transparency, not deceit, should be your standard operating procedure. It should be clear your cheerful, positive opinion is labeled as such.

If you want to discuss how to walk this line, that you believe you’re the victim of investment fraud, or that you’ve been accused of committing it, call FocusLaw at 714-415-2207. We can talk about your situation and your best options for moving forward.