The disgraced leader faces an uphill battle, but ”there’s a lot of things going for her as a defendant,“ one expert says
Once celebrated as a rare young female entrepreneur in the biotech industry, former Theranos CEO Elizabeth Holmes kicked off her criminal trial this week with an unusual defense based on domestic abuse and mental health suffering at the hands of her former business and romantic partner Ramesh “Sunny” Balwani.
Attorneys for Holmes, who faces 12 criminal counts of fraud and conspiracy for lying to investors and others about her now-dissolved company’s blood-testing technology, said last year they planned to raise her mental condition as part of their defense. Recent documents show they may now introduce evidence against former Theranos COO Balwani for emotionally, sexually and psychologically abusing her. (Balwani, who is awaiting a separate trial next year, has vehemently denied the abuse claims.)
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But experts say using domestic abuse and Holmes’ mental state as defense could come with major hurdles. The defense will have to show a connection in how these circumstances ultimately influenced Holmes’ actions at the company and her overall intent to defraud. For one, partner abuse typically happens behind closed doors between two people. Holmes and Balwani had kept their intimate relationship under wraps.
“Without all that material evidence, it’s going to be difficult to use that defense,” Robert J. DeGroot, a criminal defense attorney based in New Jersey, told TheWrap. “It’s a real calculated risk to put her on.”
“The government will probably have evidence showing her decisiveness, making complex public decision-making presentations where she is articulate, calm under fire and seems perfectly at ease enjoying the discussion,” he said. “That may be a real challenge for the defense.”
There are elements to this defense that could work in Holmes’ favor, though, said Jack Sharman, a white-collar defense and government investigations lawyer at Lightfoot, Franklin & White LLC in Alabama. Holmes’ attorneys could attempt to position her as the young female CEO who was surrounded by management and board members who were older and had more business experience than she did. Holmes started Theranos when she was 19 and later dropped out of Stanford University to run the startup.
“Most white-collar defendants are middle-aged white men. A young female defendant is unusual, so that may cause the government and the defense to rethink some narratives in what is best for them,” Sharman told TheWrap.
In their opening statements Wednesday, prosecutors in San Jose, California, focused on Theranos’ glorified technology and the leaders’ false claims to other companies (including Walgreens) and investors. Meanwhile, the defense argued that Holmes — who faces face up to 20 years in prison — was a hard worker who believed in improving health care, adding that she made mistakes in underestimating the business challenges. The defense maintained that failing at her business does not mean she committed fraud.
Theranos, founded in 2013, was once valued at $9 billion, with Holmes as the face of a high-flying startup promising proprietary tech that could run full-range clinical tests using just a few drops of blood. Investigations into its devices and test results would later prove otherwise, yet the company managed to lure investors and board members from beyond the tech sector — from media mogul Rupert Murdoch to former U.S. Secretary of State Henry Kissinger.
In a corporate fraud case like this, experts found it unusual that Holmes is relying on a domestic abuse defense. This could be due to the fact that there are fewer women in executive positions, and therefore fewer are charged in these criminal cases. Most cases of domestic abuse involve female victims.
“An interesting point — both for jury selection and the trial in general — is the fact that Holmes is a female defendant, which is quite rare in white-collar cases,” Sharman said. (The jury for Holmes trial is made up of seven men and five women.) “Furthermore, she appears to be offering a domestic abuse theory as part of her defense, another unusual aspect for a white-collar criminal trial; therefore, lawyers on both sides may be navigating a somewhat unfamiliar landscape.”
Keri Axel, a partner at Waymaker LLP in Los Angeles, agreed that most white-collar cases usually concern business partners. In this case, Holmes and Balwani were in an intimate relationship for years and lived together, keeping their romance a secret from investors. The couple met in 2002 when she was 18 and he was 37.
Holmes’ attorneys have offered documents that allege Balwani verbally abused Holmes, controlled her diet, sleep and appearance, as well as threw sharp objects at her and surveilled her calls, emails and text messages. But federal prosecutors have obtained text messages throughout 2015 that do not support a picture of abuse, but rather intimate exchanges between the couple. In some instances, they discussed a shared pet and how they missed each other. “You are breeze in desert for me, my water and ocean,” Holmes texted Balwani at one point.
Some of that evidence may be used to rebut the domestic abuse theory, undermining the argument that Holmes was being controlled and abused — and consequently did not have the intent to defraud. But the defense could very well contend that text messages don’t provide a comprehensive view into people’s relationships or mental state, Axel said.
“Written communications are not always a full picture of what’s in somebody’s head. People are not as good in written communication as they think they are. Defense is likely to point out that it’s not as clear,” Axel told TheWrap.
It’s unclear if Holmes will take the stand and experts are divided on whether she should. Holmes could use the opportunity to talk about her mental state and suffering, and also accuse Balwani of the abuse and convince the jury with her own words. But it could also backfire and discredit her if the opposite happens.
“Some jurors will think you are somebody’s puppet under their control, or you’re not. You can’t be both,” Sharman said.
Yet Holmes’ charm and appeal were part of what won over many of Theranos’ high-profile investors and supporters and allowed the company to raise some $800 million — whether or not her persona and charisma can help her or hurt her now is up to the jury. “There’s a lot of things going for her as a defendant,” DeGroot said. “She is a physically attractive person. She’s articulate. There’s sort of an aura about her that you don’t see with someone with mortgage fraud or phony appraisals. A startup run by a woman, that certainly has great appeal.”
Having tried hundreds of these cases, DeGroot continued, his decision to put a client on the stand would weigh on whether he or she can stand up to cross examination. “The group of people prosecuting her are very experienced white-collar prosecutors,” he said.
Complicating matters more is also the deluge of press coverage and entertainment that have emerged since the Theranos scandal. The rise and fall of Holmes and her company have been captured in the documentary “The Inventor,” as well as featured in hit podcasts “The Dropout” and “Bad Blood.” Amanda Seyfried will star as Holmes in a Hulu series next year, and Jennifer Lawrence was tapped to play Holmes in another movie project.
“The problem for Elizabeth Holmes is that this makes it really hard for her to get her side of the story out,” Axel said. “That’s a real challenge given that the press has already created a narrative about what happened. It makes it very hard for her to get a fair trial.”
Although jurors were instructed not to follow news coverage of the case, being candid and objective are often difficult even if people have the right intentions. “That issue’s been around since there are juries, but the problem has been exacerbated by the penetrating ability of these various platforms,” Sharman said. “It used to be you were worried about radio stations and a few newspapers. Now you have this ability to influence this whole jury before they are even called to duty. It makes it far more difficult to have an impartial jury.”