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Elizabeth Holmes’ trial begins with opening statements

<i>Nick Otto/AFP/Getty Images</i><br/>Elizabeth Holmes' trial set to begin with opening statements on Wednesday. Holmes
AFP via Getty Images
Nick Otto/AFP/Getty Images
Elizabeth Holmes' trial set to begin with opening statements on Wednesday. Holmes

By Sara Ashley O’Brien, CNN Business

Elizabeth Holmes and the US government faced off in a San Jose federal courtroom in the long-awaited criminal trial of the founder and former CEO of Theranos.

In opening arguments Wednesday, the government sought to convince jurors that the Stanford University dropout intended to mislead investors, patients, and doctors about the capabilities of her company and its proprietary blood testing technology in order to take their money as she found herself running out of time and resources to make the technology work.

“This is a case about fraud, about lying and cheating to get money,” Robert Leach, the lead prosecutor, said in an opening statement. “Out of time and out of money, the defendant decided to mislead,” Leach added.

Holmes, who founded Theranos in 2003 at age 19 with the lofty mission of revolutionizing blood testing, has pleaded not guilty. Holmes faces up to 20 years in prison.

“Elizabeth Holmes did not go to work every day intending to lie, cheat and steal. The government would have you believe her company, her entire life, is a fraud. That is wrong. That is not true,” Lance Wade, an attorney for Holmes, said in opening remarks.

He described Holmes as “all in” on Theranos’ mission of making testing cheaper and more accessible. “She worked herself to the bone for 15 years … She poured her heart and her soul into that effort,” he said. “In the end, Theranos failed and Ms. Holmes walked away with nothing. But failure is not a crime. Trying your hardest and coming up short is not a crime.”

Holmes arrived at the courthouse around 8 am local time and was quickly surrounded by cameras on all sides. During the opening arguments, she sat upright in her chair in court, with a pen in hand. Support for Holmes in the courtroom includes her mother and her partner Billy Evans, with whom she recently had her first child.

The defense has more of a tightrope to walk with jurors with its opening statement, according to legal experts. Holmes’ camp will seek to “balance their desire to surprise the government … and their desire to let the jury know that there is another side to the government’s story,” Nancy Gertner, a former US federal judge and senior lecturer at Harvard Law School, said before the opening arguments began.

But Holmes also has an “advantage,” according to George Demos, a former Securities and Exchange Commission prosecutor and adjunct law professor at the UC Davis School of Law. “She only needs to convince one of the 12 jurors that, as a woman, she was subjected to a markedly different standard, and that failure in business does not automatically equate to fraudulent activity,” he said.

“One of the most celebrated CEOs in Silicon Valley”

Holmes’ story once had the hallmarks of a Silicon Valley legend. Once hailed as the next Steve Jobs, she catapulted her startup to a $9 billion valuation on the promise that technology could efficiently test for conditions like cancer and diabetes with just a few drops of blood taken by finger stick. (She claimed the inspiration for the company was her fear of needles.) She secured key retail partners like Walgreens and Safeway, and was lauded on magazine covers as the richest self-made woman. Then, the dominoes started to fall after a 2015 investigation into its testing methods and capabilities by the Wall Street Journal; three years later, the company dissolved.

“The defendant’s fraudulent scheme made her a billionaire. The scheme brought her fame, it brought her honor, and it brought her adoration,” Leach said in the opening statement. “She had become, as she sought, one of the most celebrated CEOs in Silicon Valley and the world, but under the facade of Theranos’ success, there were significant problems brewing.”

Through exhibits teased in his opening statement, Leach alleged the company used everyone from the media to pharmaceutical companies to perpetuate an image that it was more capable and innovative than it was in reality.

Leach said Holmes misled Walgreens and Safeway as far back as 2010 with “grandiose claims” as she sought deals, and that Holmes “told patients their tests were accurate and reliable” when “they were not,” potentially putting them at risk.

Holmes’ defense attorney said the government has presented the events of Theranos through “a dirty lens,” ultimately portraying Holmes as a “villain.” He urged jurors to view the company through a clean lens, one of everyday life of a company in Silicon Valley.

“The reality of what happened at Theranos is far, far more complicated than what you’ve heard about Elizabeth Holmes so far. Far more human and real,” Wade said, urging jurors to consider whether Theranos failed because it was a fraud or because Holmes was a young CEO who “naively underestimated” business obstacles.

“Ms. Holmes remains steadfast in her belief in this technology,” Wade said as he wrapped up the defense’s opening statement.

While entrepreneurs are known for sometimes being overly enthusiastic about their prospects, even in their earliest stages, in what’s often referred to as a “fake it til you make it” mentality, the Department of Justice will seek to prove that Holmes crossed a line and committed fraud by knowingly deceiving investors, partners, doctors and patients.

It will argue that Theranos never successfully developed technology capable of running a full range of clinical tests on its machines with a few drops of blood, but the company nonetheless promoted itself and its devices as capable of doing so.

Recently unsealed court documents reveal that Holmes’ attorneys may seek to defend her by pointing the finger at another Theranos executive, Ramesh “Sunny” Balwani, also Holmes’ ex-boyfriend. The documents disclose that Holmes may claim she experienced psychological, emotional and sexual abuse by Balwani, which ultimately rendered him — not Holmes — in control. (Balwani, who is facing the same criminal fraud charges, will be tried after Holmes; he has also pleaded not guilty and, according to a court filing, “adamantly denies” the abuse claims.)

Holmes’ legal team has indicated she’s likely to speak to the abuse allegations herself, but experts say they don’t expect Holmes’ attorneys to commit to the risky decision of having her testify until the government’s case against Holmes becomes clearer. She is listed as a potential witness in her defense, according to her proposed witness list filed this week. Dr. Mindy Mechanic, who specializes in violence against women, is also among her possible witnesses. (Holmes’ attorney didn’t explicitly mention the abuse claims in his opening remarks but did claim Balwani had a temper. “Like with many personal relationships, there was another side to [Balwani and Holmes’ relationship] that most people never saw.”)

According to Thomas Joo, a professor at UC Davis School of Law who specializes in corporate governance and white collar crime, the defense could have a “potential blockbuster testimony” if Holmes takes the stand. The challenge in the defense’s opening statement will be to tease that potential but not to overpromise, said Joo, noting that the latter could “turn the jury against them.”

A jury of seven men and five women was sworn in last Thursday after Holmes’ attorneys, federal prosecutors and Judge Edward Davila vetted more than 80 potential jurors over the course of two days. They were questioned about everything from their consumption of media pertaining to Holmes and Theranos to whether they or any loved ones have experienced domestic abuse. The jury appeared to be diverse, both ethnically and in terms of age. (Five alternatives were also sworn in.)

A who’s who list of possible witnesses

The government and Holmes have indicated in filings whom they may call on as possible witnesses. Both sides are peppered with well-known names.

The government’s most recent list includes roughly 180 names, including former Theranos staffers: media mogul Rupert Murdoch, once reportedly the company’s largest investor with more than $100 million; David Boies, the prominent attorney who was an investor, board member and legal defense for Holmes and Theranos for a time; as well as former Secretary of State Henry Kissinger and four-star general and future Defense Secretary James Mattis, both once board members. Patients who say they were affected by Theranos’ inaccurate test results are also expected to testify.

Holmes’ list, filed this week, includes several prosecutors on the case, as well as officials from the US Food and Drug Administration and the Centers for Medicare and Medicaid Services. Additionally, Bill Frist, the former Senate majority leader, Riley Bechtel, former chair of the construction giant, and Richard Kovacevich, the former Wells Fargo CEO, all once Theranos board members, are on her list. Reporter John Carreyrou, who broke the story of Theranos in 2015 for the Journal and subsequently wrote the best selling book “Bad Blood,” is also on the list.

Both sides have indicated they have mountains of evidence to potentially introduce. The government’s potential exhibit list runs nearly 240 pages and mentions correspondence between Holmes and Kissinger, emails from Murdoch to Holmes, and text messages between Holmes and Balwani. Holmes’ filing runs nearly 60 pages and mentions emails from Balwani to Holmes, as well as numerous LinkedIn profiles and resumes.

The stakes of the opening statements are incredibly high. “A lot of lawyers believe that cases are won and lost in opening statements,” said Joo. “How much do you promise the jury at this point?”

The trial, which is closed to cameras, is expected to last roughly 13 weeks.

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