Attorneys for disgraced Theranos founder Elizabeth Holmes are still trying to keep her luxurious CEO lifestyle out of her upcoming trial because it ‘risks invoking class prejudice’.
The government has alleged that before Holmes’ fall from grace she employed personal assistants to run her luxury shopping sprees, traveled by private jet and stayed at exclusive hotels.
Prosecutors have argued that such a lifestyle was fueled by her fraud.
But according to a filing submitted on Tuesday and obtained by CNBC, her lawyers wrote that she earned a salary and benefits commensurate with her position as the blood-testing startup’s CEO.
They argue that the evidence says nothing about her motive, ‘if it did any CEO could be said to have a motive to commit fraud’.
‘Rather the real value of the evidence to the government is to paint a (misleading) picture of Ms Holmes as a woman who prioritized fashion, a luxurious lifestyle, and fame, and to invite a referendum on startup and corporate culture,’ the attorneys said.
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Attorneys for Theranos founder Elizabeth Holmes are still trying to keep her luxurious CEO lifestyle out of her upcoming trial because it ‘risks invoking class prejudice’. Holmes is pictured arriving at the White House (left) in 2015 and at the 2015 Time 100 gala (right)
Holmes is seen sitting next to then-vice president Joe Biden during a visit to Theranos manufacturing in Newark, California, in July 2015. Biden toured the facility and took part in a roundtable discussion on preventive health care at the time
The attorney continued: ‘Evidence regarding the purchase of expensive clothing, makeup and self-care products, and other goods (again, none of which are alleged to be beyond her means), which the government intends to introduce through otherwise irrelevant emails by Ms Holmes’ personal assistants, does not establish a motive to commit fraud.’
Instead, they said, the government’s argument ‘seeks to inflame by appealing to stereotypes of class and gender’.
Theranos became a big name in Silicon Valley led by Holmes, a Steve Jobs-obsessed leader who wore black turtlenecks everyday like her Apple idol, something her attorneys also noted in the filing.
‘The government ignores that Ms Holmes was criticized for wearing the same outfit every day,’ the attorneys wrote.
Holmes attracted investors and venture capital firms and the company was valued at $9billion before crashing in 2015.
Now, she and her ex-boyfriend Ramesh Balwani are awaiting their day in court after being accused of falsely claiming the company’s machines could perform breakthrough blood tests with a single drop of blood, duping investors out of millions and misleading doctors and patients.
She and Balwani are accused of scamming investors out of more than $700million.
Tuesday’s filing marks a second attempt by her attorneys to block prosecutors from mentioning her wealth, spending habits and luxurious lifestyle during her fraud trial.
Federal prosecutors had previously revealed that while investigators were closing in on Theranos, Holmes was using company funds to fund an extravagant lifestyle that included ‘travel on private jets, stays in luxury hotels, and access to multiple assistants’.
Elizabeth Holmes (center), the founder and former CEO of Theranos, arrives for a court hearing in San Francisco in this January 2020 file photo. Federal prosecutors allege that she used company money to fund a lavish lifestyle including luxury trips and hotel stays
Holmes (pictured), a Stanford University dropout, launched her Palo Alto blood-testing start up in 2003. She and Balwani are accused of scamming investors out of more than $700million
Luxury lifestyle experiences of Elizabeth Holmes that prosecutors could outline in March trial
The attorneys for Elizabeth Holmes are trying to block prosecutors from allowing details about her luxurious lifestyle as a CEO into her upcoming March trial. Federal authorities allege Holmes used funds from investors to subsidize an extravagant lifestyle while peddling a fraudulent product
Some of those luxury lifestyle experiences that could be outlined in her March trial are as follows:
1. Events and dinners, including the 2015 White House State Dinner and the Time 100 Gala in 2015
2. Flights on private jets
3. Luxury trips and exclusive hotel stays
4. Luxury shopping sprees
5. Multiple personal assistants
‘Although Defendant’s assistant was an employee of the company, she handled a range of non-business tasks for Defendant, including personal clothes and jewelry shopping, home decorating, food and grocery buying, and other items,’ prosecutors said.
According to a filing submitted in November 2020 and obtained by CNBC, the government alleged that Holmes ‘had her Theranos-paid assistants run personal errands, perform personal tasks, and purchase luxury goods’.
But her defense attorneys claimed that prosecutors are trying to the motive argument based on the assumption that Holmes’ lavish lifestyle may have motivated her to ‘commit fraud to acquire or maintain that lifestyle’.
‘The amount of money Holmes earned in her position at Theranos, how she chose to spend that money, and the identities of people with whom she associated simply have no relevance to Ms Holmes’ guilt or innocence,’ her attorneys wrote in the motion at the time.
‘Many CEOs live in luxurious housing, buy expensive vehicle and clothing, travel luxuriously and associate with famous people – as the government claims Ms Holmes did,’ her attorneys said.
Last month, federal authorities alleged that the company destroyed incriminating evidence proving that it engaged in fraud.
Prosecutors submitted a filing in January claiming that Theranos executives destroyed data that proved their blood-testing product was inaccurate. Knowingly misleading investors by providing false data is a federal crime.
The company knew about its inaccurate testing data that was collected over a period of three years, according to The Register.
The data ‘was stored on a specially-developed SQL database called the Laboratory Information Systems (LIS),’ according to the court filing.
The database ‘even flagged blood test results that might require immediate medical attention, and communicated this to the patient’s physician’.
Federal authorities also allege Holmes and Balwani, 56, used funds from investors to subsidize an extravagant lifestyle while peddling a fraudulent product.
Holmes and Balwani have pleaded not guilty to charges they defrauded investors, doctors and patients by falsely claiming Theranos could revolutionize medical lab testing with technology that could enable a wide array of tests with a few drops of blood.
The company’s COO, Ramesh ‘Sunny’ Balwani (seen above in a San Jose courtroom in November 2019), is also charged with fraud
Holmes is set to go to trial March 9 after it was pushed back due to the coronavirus pandemic. Balwani will face trial separately and at a later date. She and Balwani were originally indicted in June 2018.
Before its collapse, Theranos boasted that it had developed a test that would allow patients to receive results in minutes after providing a drop of blood.
But federal prosecutors allege that Theranos executives knew their product was only half-reliable, as the failure rate for the tests was 51.3 per cent.
‘In other words, Theranos’s TT3 blood test results were so inaccurate, it was essentially a coin toss whether the patient was getting the right result,’ prosecutors said, citing the company’s own data.
A grand jury investigating fraud claims against the company subpoenaed the database, only for the company to allegedly destroy it.
‘On or about August 31, 2018 – three months after a federal grand jury issued a subpoena requesting a working copy of this database – the LIS was destroyed,’ the federal government alleges in its court filing.
‘The government has never been provided with the complete records contained in the LIS, nor been given the tools, which were available within the database, to search for such critical evidence as all Theranos blood tests with validation errors.
The government also alleges that Balwani hired a crony and paid his firm $10million over seven years to run the database.
Theranos entered into a contract with IncRev Corp, which was run by Shekar Chandrasekaran, a friend of Balwani’s, according to the court filing.
In 2017, Theranos imposed cost-cutting measures. As a result, the firm stopped uploading data into the database.
Nonetheless, IncRev was still paid $159,000 a month to maintain it, according to prosecutors.
The feds allege they have internal company emails which prove that Theranos and its lawyers worked to conceal the findings in the database from the grand jury.
Theranos’ ground-breaking invention, a machine Holmes claimed could perform hundreds of tests on a drop of blood taken from a pin-pricked finger, was exposed as a humiliating sham
Instead of handing over all of the data with the inaccurate results, Theranos only provided backup of the database, meaning that the evidence given was incomplete and investigators needed to piece it together with other findings.
The backup data that was given to investigators was only accessible through a computer password that Theranos executives couldn’t remember, according to prosecutors.
‘The government retained a computer forensic expert to assist in retrieving this data, who found that the “key” file on the hard drive, required to reconfigure the SQL database, is itself encrypted by a distinct password (not the one provided with the transmittal letter to open the hard drive), and cannot be opened,’ according to the court filing.
As investigators were demanding to see the database, Theranos decided to shut down the facility that housed the database in Newark, New Jersey.
Company executives were warned beforehand by IT contractor Michael Chung that taking apart the hardware and servers would make it ‘almost impossible to recreate the database.’
But the company went ahead and shut down the database anyway, denying both its own executives and the government access to the database.
The federal government alleges that Chandrasekaran was fully aware of the implications of shutting down the Newark facility.
Holmes, a Stanford University dropout, launched her Palo Alto blood-testing start up in 2003 when she was 19 years old.
A notoriously secretive company, Theranos shared very little about its blood-testing machine with the public or medical community.
Holmes said she was inspired to start the company in response to her fear of needles.
But an investigation by The Wall Street Journal in 2015 found that Theranos’ technology was inaccurate at best, and that the company was using routine blood-testing equipment for the vast majority of its tests.
If convicted, she and Balwani and they could each face maximum penalties of 20 years in prison and a $2.75million fine, plus possible restitution, the Department of Justice said.