Former Theranos CEO Elizabeth Holmes sentenced to 11 years in prison

Even in Club Fed, that's a long time

A federal judge on Friday sentenced former Theranos CEO Elizabeth Holmes to 11.25 years in prison and three years of supervised release for defrauding investors in the failed blood testing company.

Holmes, facing 11 charges, was found guilty in January 2022 of conspiracy to commit wire fraud and three counts of wire fraud, and not guilty on four other charges. Three additional charges could not be resolved by the jury.

In July, former Theranos COO Sunny Balwani, who had a romantic and allegedly abusive relationship with Holmes, was found guilty on all 12 charges that he faced – two counts of conspiracy and 10 of wire fraud. His sentencing is scheduled for December 7, 2022.

Holmes founded Theranos in 2003 and raised at least $700 million from investors who believed the firm had developed a way to detect various diseases using an inexpensive finger-prick blood test.

By 2014, the health technology firm was said to be worth around $9 billion and Holmes was celebrated on the cover of Inc. magazine. Called "the next Steve Jobs" – perhaps not such a great guy in retrospect – she cultivated a look similar to Apple's mercurial turtleneck-bedecked co-founder.

The media fawning for Holmes echoes recent credulous coverage of Sam Bankman-Fried, "the next Warren Buffet" who led cryptocurrency firm FTX until its recent collapse.

By 2015, Wall Street Journal reporter John Carreyrou published a story questioning Theranos' financial situation and its claims. Carreyrou found that Theranos was conducting blood tests with conventional clinical blood testing systems and there were doubts about the company's own technology. Things quickly began to unravel.

In March 2016, a report in the Journal of Clinical Investigation found Theranos tests did not perform as expected and differed from data coming from other clinical testing services. Later that year, Walgreens ended its partnership with Theranos after the testing biz failed to provide expected data.

Two years later, Holmes settled civil fraud charges brought by the US Securities and Exchange Commission. She was fined $500,000 and lost her shares in the company as well as her control over it. Three months after that, in June 2018, the Justice Department filed criminal charges, leading to the shutdown of Theranos and the conviction of both Holmes and Balwani.

To punish Holmes, government prosecutors recommended a 15 year sentence, five less than the statutory maximum. Holmes's attorneys argued for no more than 18 months, because she had already suffered by being stigmatized.

And during the sentencing hearing, as detailed by Law 360 reporter Dorothy Atkins, government prosecutors and defense attorneys offered differing estimates of the losses to Theranos investors. The feds estimated losses at $804 million while Holmes's team insisted the number is somewhere between $40 million and $48 million.

Some of those who lost money investing in Theranos are extremely wealthy, including media tycoon Rupert Murdoch and the DeVos family.

Holmes in an emotional speech told the court that she regretted her failings and having failed the employees, investors, and patients she tried to serve.

US District Judge Edward Davila, after noting that sentencing guidelines based on his findings call for between 135 months (11.25 yrs) and 168 months (14 years), gave Holmes the lower end of the guideline range. Holmes will begin serving her sentence on April 27, 2023, after appeals.

Mark Hastings, a partner at London-based Quillon Law, told The Register in an emailed statement that the decision represents a watershed moment for the tech industry.

"US Authorities have shown that they are clamping down on investment frauds in a sector which to date has seen very few high-level convictions of this nature," said Hastings.

"Holmes' sentence for her role in one of the most egregious examples of investment fraud ever seen in Silicon Valley will come as a stark warning for the entire technology sector, and may play a crucial role in judicial attitudes towards such frauds in the future." ®

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