Theranos founder Elizabeth Holmes’ fraud trial resumes: Court will hear from three former co-workers

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Theranos boss Elizabeth Holmes’ fraud trial will resume after a COVID-related pause Tuesday – with three witnesses who back prosecutors’ case against Holmes set to appear.    

Danise Yam, Erika Cheung and Daniel Eldin, all former co-workers who have been backed by federal prosecutors to tell their versions of events, will appear in a San Jose, California, court later today.

The trial initially started with opening statements last Wednesday but was then put on hold after a juror said he potentially had exposure to Covid-19 shortly after first witness Danise Yam shared allegations about poor auditing practices there. 

In previous media appearances or separate court cases tied to Theanos, the three witnesses backed up the government’s key arguments on the former health tech company’s secretive culture, as well as its alleged deception tactics and coverups. These claims include misleading investors about its finances and not following federal regulations.  

If found guilty, Holmes will be charged with ten counts of wire fraud, two counts of conspiracy to commit wire fraud and up to 20 years in jail if convinced of the felony charges in a case that has captivated Silicon Valley and the biotech world.

PICTURED: Erika Cheung speaks onstage during the HBO documentary investigating the rise and fall of Theranos, called 'The Inventor: Out of Blood in Silicon Valley'

Theranos founder Elizabeth Holmes’ fraud trial resumes today after jury will hear from three former co-workers who’ve previously backed prosecutors’ claims that Holmes lied: witness So Han Spivey, who also goes by Danise Yam (left) and Erika Cheung (right)

Elizabeth Holmes (L), founder and former CEO of blood testing and life sciences company Theranos, leaves the courthouse with her husband Billy Evans after the first day of her fraud trial last Wednesday in San Jose, California

Elizabeth Holmes (L), founder and former CEO of blood testing and life sciences company Theranos, leaves the courthouse with her husband Billy Evans after the first day of her fraud trial last Wednesday in San Jose, California

The now-dissolved blood-testing corporation’s controller, Danise Yam, whose legal name is So Han Spivey, is set to continue her testimony that began last week about the company’s allegedly shoddy financial operations, which saw it ignore guidelines calling for regular audits followed by most other firms. 

According to court filings, two other key witnesses will testify soon after Yam: Erika Cheung, a former Theranos lab worker who alerted federal regulators to problems at the company, and Daniel Edlin.

Edlin was Theranos’ project manager who reported directly to Ms. Holmes. He is likely to be asked about technology claims Theranos made to the United States Defense Department and drugstore operator Walgreens Boots Alliance Inc, the holding company of pharmacy chains Walgreens and Boots.

The firm is accused of lying that it was able to diagnose a multitude of health conditions with a simple blood test, and further lying to Walgreens in order to set up a partnership which saw testing deployed at the retail giant’s drugstores.  

In his opening statement, Robert Leach, one of the prosecutors and an assistant U.S. attorney, told the 12-person jury that Holmes lied to investors, business partners and patients to keep money flowing and continue to make the startup profitable.   

‘This is a case about fraud, about lying and cheating to get money,’ said Assistant U.S. Attorney Robert Leach. ‘It’s a crime on Main Street, and it’s a crime in Silicon Valley.’ 

By contrast, Holmes’s attorney described his client as a dedicated entrepreneur who may have been, naive but whose only crime was to believe in the mission of the startup, only to see it fall due to business obstacles. 

‘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,’ Wade told jurors.

Federal prosecutor Robert Leach wasted little time vilifying Holmes in opening arguments

Federal prosecutor Robert Leach wasted little time vilifying Holmes in opening arguments

Defense attorney Lance Wade delivers opening arguments. Court documents suggest he will argue that Balwani abused and manipulated Holmes, which Balwani denies

Defense attorney Lance Wade delivers opening arguments. Court documents suggest he will argue that Balwani abused and manipulated Holmes, which Balwani denies

A witness testifies during the trial of Theranos founder Elizabeth Holmes at Robert F. Peckham U.S. Courthouse in San Jose, California last Wednesday

A witness testifies during the trial of Theranos founder Elizabeth Holmes at Robert F. Peckham U.S. Courthouse in San Jose, California last Wednesday

Holmes was a Stanford University dropout who started Theranos in 2003 at age 19. She grabbed headlines with her vision of a small machine that could draw a drop of blood from a finger prick could run a range of tests more quickly and accurately than those in conventional laboratories.   

However, the Wall Street Journal’s investigative reporting uncovered the fact that Theranos technology didn’t work – and that Thernanos bosses knew full-well of its shortcomings, but did not come flean.

The Journal also showed how the company was playing catch-up to cover up its failures. And included the manner in which the company’s operations affected the lives of patients, many of whom had their health jeopardized by the unreliable blood test results. 

Yam oversaw Theranos’s technology for 11 years. Prosecutors say that the company lost significant amounts of money, around ten million dollars, during her time at the company, while misleading investors, saying it was having great success with its lab testing devices. At one point, Theranos lied about the products, saying that it could diagnose more than 200 conditions with a few drops of blood from a finger prick.

In her testimony last Wednesday, Yam said that her job included selecting which vendors to pay and moving money so that employee paychecks cleared due to the company not having any meaningful sources of revenue. 

The company got through the period by taking out a loan, personally backed by Ramesh ‘Sunny’ Balwani, the company’s onetime number-two executive and Holmes’s former boyfriend. 

Smart has since sought to pin the blame on Balwani, calling him a bully. He faces a separate trial over the same fraud in 2022, and also denies the charges.  

Yam added that Theranos hadn’t requested a financial audit in seven years and that parts of the company’s finances were hard to decipher, despite it being her job area. A detailed chart shown in court displayed the company’s surging net losses over the years: $11.5million in 2009, $16.2 million in 2010 and $27.5 million in 2011. 

In a previous deposition, taken for a civil lawsuit brought by Theranos investors that settled for an undisclosed sum, Yam discussed how Theranos booked revenue of $150,000 in 2014, yet that same year Holmes and her top deputy approached investors with projections of bringing in $113million in revenue in 2015, according to the Wall Street Journal.

Theranos never turned a profit during its existence, according to a Federal Bureau of Investigation interview Yam included in court records. 

Theranos (whose former Palo Alto HQ is pictured) never made a profit, according to a Federal Bureau of Investigation interview with Ms. Yam included in court records.

Theranos (whose former Palo Alto HQ is pictured) never made a profit, according to a Federal Bureau of Investigation interview with Ms. Yam included in court records.

Erika Cheung, who made appearances in a documentary and TED talk about Theranos, notified The Centers for Medicare and Medicaid Services (CMS) to what she thought were constant safety and quality-standard violations in Theranos’s laboratories. 

In 2015, Cheung wrote a nearly 1,800-word letter to the main U.S. labs regulator alleging that Theranos had ignored standards for staff credentials, used expired lab supplies on a frequent basis and that its proprietary testing devices had ‘major stability, precision and accuracy problems.’  

CMS described similar findings after inspecting the company’s labs. Theranos later cleared all of the test results performed on its machines, and reached a settlement with CMS under which Theranos voluntarily closed its labs.

Edlin was a friend of Ms. Holmes’s brother, Christian Holmes, at university and he was also employed at Theranos. He was in charge of managing Theranos’s client relationships, including pharmaceutical giant Walgreen, and its rapport with the Defense Department, according to court records filed by prosecutors. 

In an earlier deposition in the investor lawsuit, Edlin said Holmes had staged a demonstration of its technology for Walgreens executives. After draw blood from several Walgreen officials, Theranos didn’t conduct the blood test on the company’s devices that were brought in for the demo, Eldin said. Instead, they brought them to Theranos’s laboratory to test on different devices, Edlin added.

Elizabeth Holmes leaves the United States Federal Courthouse in San Jose with her husband Billy Evans last Wednesday

Elizabeth Holmes leaves the United States Federal Courthouse in San Jose with her husband Billy Evans last Wednesday

Theranos founder Elizabeth Holmes and her partner Billy Evans leave the Robert F. Peckham U.S. Courthouse last Wednesday after the delivery of opening arguments in her trial

Theranos founder Elizabeth Holmes and her partner Billy Evans leave the Robert F. Peckham U.S. Courthouse last Wednesday after the delivery of opening arguments in her trial

Despite his high-ranking position and his close relationship with Holmes, Edlin said in the deposition that there were often times that he didn’t know what the company was doing and didn’t learn until 2016 that the company was using third-party devices for many tests, years after the company’s foundation.  

Prosecutors have also released doting text messages between Theranos founder Elizabeth Holmes and her secret lover and chief operating officer.

The text messages between Holmes and Ramesh ‘Sunny’ Balwani offer a window into their scramble to combat fraud allegations, and may undermine her defense that she was a pawn manipulated by an abusive lover.  

The text messages were sent just before the Wall Street Journal published its explosive report exposing alleged fraud and misrepresentations at Theranos.

The messages show how Holmes and Balwani raged when they learned of the looming report, and schemed to identify and discredit the insider sources who had spoken to the Journal.

The two also fumed that the Journal asked whether they were living together as secret lovers, with Balwani slamming question as ‘tabloid journalism.’

The text messages between Holmes and Ramesh 'Sunny' Balwani (above in 2019) may undermine her defense that she was a pawn manipulated by an abusive lover

The text messages between Holmes and Ramesh ‘Sunny’ Balwani (above in 2019) may undermine her defense that she was a pawn manipulated by an abusive lover

'You are breeze in desert for me. My water. And Ocean,' read the messages from Holmes to Balwani in May 2015, which were released by prosecutors on Tuesday

‘You are breeze in desert for me. My water. And Ocean,’ read the messages from Holmes to Balwani in May 2015, which were released by prosecutors on Tuesday

‘Shocking this guy thinks he has the right to ask this question for wsj,’ Balwani wrote in one message.

However, the messages also seem to confirm that Holmes and Balwani were living together, or at least shared a pet. One message from Holmes asks how their ‘baby bird’ is doing and whether a friend could feed it.

The messages could seriously undermine Holmes’ claim that she was manipulated by Balwani and in an abusive relationship. Balwani, who faces trial on fraud charges next year, denies any allegations of abuse through his attorney.

Holmes’ rise and fall has already been the subject of documentaries, books and podcasts, feeding the fervor that has built up around a trial that has been delayed twice since she was indicted nearly three years ago. 

Once hailed as a billionaire on paper, Holmes is now facing a sentence of up to 20 years if convicted of the felony charges. 

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