Although Elizabeth Holmes was absent from the San Jose courtroom where her ex-boyfriend and Theranos’ former chief operating officer Ramesh “Sunny” Balwani’s felony-fraud trial started Tuesday — and where she spent many months on her way to her January fraud conviction — the founder of the failed blood-testing startup played a central role in the prosecution’s opening argument.
Holmes and Balwani, federal prosecutor Robert Leach told the jury, “were partners in everything, including their crimes.”
Balwani, 56, wearing a charcoal suit in U.S. District Court, is charged with a dozen counts related to the downfall of Palo Alto-based Theranos, founded by Holmes in 2003 when she was a 19-year-old Stanford University dropout.
Leach focused on Balwani when telling the jury about problems inside the company’s laboratory, which Balwani purportedly managed. Leach claimed Balwani “skewed the medical decisions patients were making and put them at risk.” But Leach laid alleged responsibility for inaccurate revenue predictions given to investors on both. “The defendant and Holmes knew the rosy falsehoods that they were telling investors were contrary to the reality within Theranos,” Leach alleged.
When Balwani’s lawyer, Steve Cazares, took his turn for an opening statement, he addressed the fact that jurors said during jury selection that they had heard of the case, and of Holmes. “The headlines and the sensational stories about Theranos and Elizabeth Holmes have no place in this trial,” Cazares warned.
Holmes’ rise and fall from charismatic young female startup founder to convicted felon spawned a best-selling book, Hollywood movie and now a TV series starring Amanda Seyfried. Although Balwani has received far less attention, he became a key focus in Holmes’ trial when she took the stand to make explosive claims that during their romantic relationship of more than a decade, he controlled how she worked and what she ate, and forced sex on her when she displeased him. She also suggested in her testimony that Balwani, running the firm’s laboratory operations, was responsible for dangerous deficiencies in the lab identified by a federal regulator. However, she also acknowledged that Balwani reported to her, that she fired him in 2016, and that as CEO, the “buck stopped” with her. And under cross-examination, Holmes wiped away tears when reading aloud loving messages she exchanged with Balwani, including his calling her “God’s tigress and warrior,” to which she responded, “Coming from my tiger, means the whole universe to me.”
Holmes four-count conviction included one count for conspiring with Balwani to defraud investors. He and Holmes were indicted together in 2018, but Judge Edward Davila separated their trials in March 2020 at Balwani’s request.
Prosecutors allege Balwani, conspiring with Holmes, defrauded investors and patients with false claims that the company’s technology could conduct a full range of tests using just a few drops of blood from a finger-stick. Holmes, 38, was found guilty in January on four counts of fraud related to investors who lost a collective $144 million. Her jury found her not guilty on charges related to patients. The federal government has pegged investor losses at more than $700 million. The investor-related counts against Holmes and Balwani totaled $156 million. Leach on Tuesday did not mention Holmes’ abuse claims against Balwani.
Cazares on Tuesday gave the jury a rundown of Balwani’s life and resume, telling them his client was born in South Asia, with three sisters and two brothers — who were in the courtroom Tuesday — to a family of farmers and factory owners. Balwani and Holmes, who is nearly 20 years his junior, met in Beijing in a Mandarin-language program, and became reacquainted when both were at Stanford University in 2004, Cazares said. Although the two then became romantically involved, and lived together in Balwani’s apartment, she had founded Theranos in 2003 and he did not join it until 2009, Cazares noted, putting distance between his client and the notorious Holmes. “Elizabeth Holmes, not Sunny, founded Theranos and built Theranos,” he said.
Balwani invested $5 million of his own money in Theranos and guaranteed a $10 million loan for the company, and never sold any of his shares, despite having the option to make hundreds of millions of dollars, Cazares said. “He joined Theranos because he believed in Theranos’ technology,” Cazares asserted. “He didn’t join Theranos because Elizabeth was his girlfriend.”
Prosecutors only have a handful of examples of patients receiving false test results out of millions of tests given, and the revenue predictions given to Theranos investors were not forecasts but “models” that investors were told depended on business growth, Cazares argued.
The trial’s opening was delayed once after a possible coronavirus exposure to someone in the courtroom for jury selection, and on Monday a juror was excused after complaining of a fever and sore throat. Tuesday’s opening had even appeared in jeopardy over what Davila called a “Silicon Valley glitch in our system,” but the IT problem was quickly resolved. Balwani’s trial is scheduled to last two months.
Like Holmes, who is scheduled to be sentenced in September, Balwani faces up to 20 years in prison for each count, although legal experts do not expect either to receive prison terms anywhere near the maximum possible.
