Former Theranos founder and CEO Elizabeth Holmes leaves court. She faces charges of conspiracy and wire fraud for allegedly engaging in a multimillion-dollar scheme to defraud investors. Photo / Getty
Former Theranos founder and CEO Elizabeth Holmes leaves court. She faces charges of conspiracy and wire fraud for allegedly engaging in a multimillion-dollar scheme to defraud investors. Photo / Getty
The trial of Elizabeth Holmes, the former Theranos chief executive, and Ramesh Balwani, its chief operating officer, is setting up to be the most extensive corporate prosecutions since executives at Enron were tried in 2006.
And if the case gets to trial, one intriguing question is how Holmes and Balwaniwill defend themselves.
A recent filing by Holmes, which was joined by Balwani, who goes by Sunny, outlines a possible defence: put the government on trial by claiming that regulators improperly brought actions against the company for its blood analysis technology.
Holmes' lawyers in the filing demanded records from the Food and Drug Administration and the Centres for Medicare and Medicaid Services related to their interactions with John Carreyrou, a reporter for The Wall Street Journal who broke the story about problems with Theranos' technology. He later wrote a devastating portrayal of the company, "Bad Blood: Secrets and Lies in a Silicon Valley Startup," that paints a picture of questionable practices in the company's operations.
The defence claimed Carreyrou's interactions with the federal agencies, including efforts to urge others to report problems at Theranos to regulators, is "exculpatory" information that must be turned over to the defendants.
"In evaluating the government's case, the jury should be aware that an outside actor, eager to break a story (and portray the story as a work of investigative journalism), was exerting influence on the regulatory process in a way that appears to have warped the agencies' focus on the company and possibly biased the agencies' findings against it," the filing states.
The demand for the communications is based on what is known as the Brady doctrine, named for the Supreme Court's 1963 decision in Brady v. Maryland. In that case, the court held that prosecutors must turn over any evidence to a defendant that is both material and exculpatory. In the Brady case, prosecutors failed to disclose evidence that the defendant did not kill the victim but that a co-defendant committed the crime. That would have supported an argument for a reduced punishment.
In demanding the communications with Carreyrou, Holmes' defence appears to be creating a picture that government regulators overreacted when a reporter from The Wall Street Journal pushed them to investigate and misunderstood what was going on at Theranos.
But will putting the government on trial succeed? There is at least a possibility it could. The prosecution bears the burden of proving conspiracy and fraud beyond a reasonable doubt. One way the defence could undermine the government's case would be to raise questions about possible bias and create enough doubt among the jurors that they vote to acquit.
Not only is such a defence difficult to mount, but it is also a high-risk, high-reward tactic. It will depend on showing that the regulators were flawed in their analysis of the technology Theranos was using.
Prosecutors may combat any claim of government misconduct by focusing on the patients who used Theranos' blood tests at Walgreens pharmacies in Arizona and were misled about their efficacy. The patients are likely to be much more sympathetic to a jury than wealthy investors claiming Theranos deceived them.
Holmes is also seeking documents from the Centres for Medicare and Medicaid Services about Theranos' compliance with laboratory requirements. The defence appears to want to show that Holmes did not make any false statements about how it operated its laboratory and that the agency was motivated in part by contacts with Carreyrou. In the filing, Holmes' lawyers claim that the documents "would demonstrate the degree to which the agency let improper considerations or external pressure cloud its regulatory decisions and bias its findings."
Making Carreyrou the centrepiece of the defence carries some risk. Regulators often respond to reports in the media and doing so does not necessarily make their investigation biased or improper. It is unclear whether the defence might even try to call Carreyrou as a witness, but that too would be a risky strategy. Carreyrou has an extensive background in the company's operations and could end up hurting the defence.
Focusing the case on the regulators also means Holmes and Balwani would be unlikely to testify, but by shifting the focus away from the two defendants and onto the government, there is at least the potential for an acquittal.
