Theranos scam: Elizabeth Holmes sentenced to more than 11 years in prison

Elizabeth Holmes speaks at the Fortune Global Forum in San Francisco in 2015. Photo / AP

A federal judge on Friday sentenced disgraced Theranos CEO Elizabeth Holmes to more than 11 years in prison for duping investors in the failed startup that promised to revolutionise blood testing but instead made her a symbol of Silicon Valley’s culture of audacious self-promotion.

The sentence imposed by US District Judge Edward Davila was shorter than the 15-year penalty requested by federal prosecutors but far tougher than the leniency her legal team sought for the mother of a year-old son with another child on the way.

Before Davila handed down his sentence, the courtroom was abuzz when the prosecuting lawyer, John Bostic, claimed that Holmes once said: “They don’t put attractive people like me in jail.”

Holmes’ defence lawyer, Kevin Downey, disputed the claim, saying that the prosecution never called any witnesses during trial who can testify to the alleged remark.

Holmes, who was CEO throughout the company’s turbulent 15-year history, was convicted in January in the scheme, which revolved around the company’s claims to have developed a medical device that could detect a multitude of diseases and conditions from a few drops of blood. But the technology never worked.

The sentencing in the same San Jose, California, courtroom where Holmes was convicted on four counts of investor fraud and conspiracy in January marks another climactic moment in a saga that has been dissected in an HBO documentary and an award-winning Hulu series about her meteoric rise and mortifying downfall.

Holmes, 38, faced a maximum of 20 years, but her legal team asked the judge for a sentence of no more than 18 months, preferably served in home confinement.

Her lawyers argued Holmes deserved more lenient treatment as a well-meaning entrepreneur who is now a devoted mother with another child on the way. Their arguments were supported by more than 130 letters submitted by family, friends and former colleagues praising Holmes.

Prosecutors also wanted Holmes to pay US$804 million ($1.31 billion) in restitution. The amount covers most of the nearly US$1 billion Holmes raised from a list of sophisticated investors that included software magnate Larry Ellison, media mogul Rupert Murdoch and the Walton family behind Walmart.

While wooing investors, Holmes leveraged a high-powered Theranos board that included former Defence Secretary James Mattis, who testified against her during her trial, and two former secretaries of state, Henry Kissinger and the late George Shultz, whose son submitted a statement blasting Holmes for concocting a scheme that played Shultz “for the fool”.

Holmes must report to prison on April 27. After giving birth to a son shortly before her trial started last year, she became pregnant at some point while free on bail this year.

Theranos founder and CEO Elizabeth Holmes (centre) walks into federal court with her partner Billy Evans (right) and her parents. Photo / AP

Although her lawyers didn’t mention the pregnancy in an 82-page memo submitted to the judge last week, the pregnancy was confirmed in a letter from her current partner, William “Billy” Evans, that urged the judge to be merciful.

If Holmes’ pregnancy had a role in determining her sentence, the decision could prove controversial. A 2019 study found that more than 1000 pregnant women entered federal or state prisons over a 12-month study period; 753 of them gave birth in custody.

According to a 2016 survey by the Bureau of Justice Statistics, more than half of women entering federal prison — 58 per cent — reported being mothers of minor children.

Federal prosecutor Robert Leach declared that Holmes deserves a severe punishment for engineering a scam he described as one of the most egregious white-collar crimes ever committed in Silicon Valley. In a scathing 46-page memo, Leach told the judge he has an opportunity to send a message that curbs the hubris and hyperbole unleashed by the tech boom.

Holmes “preyed on hopes of her investors that a young, dynamic entrepreneur had changed healthcare”, Leach wrote. “And through her deceit, she attained spectacular fame, adoration and billions of dollars of wealth.”

Even though Holmes was acquitted by a jury on four counts of fraud and conspiracy tied to patients who took Theranos blood tests, Leach also asked Davila to factor in the health threats posed by Holmes’ conduct.

Holmes’ lawyer Downey painted her as a selfless visionary who spent 14 years of her life trying to revolutionise healthcare.

Although evidence submitted during her trial showed the blood tests produced wildly unreliable results that could have steered patients toward the wrong treatments, her lawyers asserted that Holmes never stopped trying to perfect the technology until Theranos collapsed in 2018.

They also pointed out that Holmes never sold any of her Theranos shares — a stake valued at US$4.5 billion in 2014, when Holmes was being hailed as the next Steve Jobs on the covers of business magazines.

Defending herself against criminal charges has left Holmes with “substantial debt from which she is unlikely to recover”, Downey wrote, suggesting she is unlikely to pay any restitution Davila might order as part of her sentence.

“Holmes is not a danger to society,” Downey wrote.

Downey also asked Davila to consider the alleged sexual and emotional abuse Holmes suffered while she was involved romantically with Ramesh “Sunny” Balwani, who became a Theranos investor, top executive and eventually an accomplice in her crimes.

Balwani, 57, is scheduled to be sentenced on December 7 after being convicted in a July trial on 12 counts of fraud and conspiracy.