Front Burner - Theranos’s Elizabeth Holmes goes on trial

Episode Date: August 30, 2021

Once a darling of Silicon Valley, Theranos’s Elizabeth Holmes is now facing prison time for fraud. Host of ABC’s The Dropout podcast Rebecca Jarvis on what you need to know about the upcoming trial.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. This is what happens when you work to change things. And first they think you're crazy, then they fight you, and then all of a sudden you change the world. That's Elizabeth Holmes defending Theranos,

the company she founded when she was just 19 years old, after dropping out from Stanford. Theranos promised to revolutionize healthcare with this one machine, a blood testing device the size of a printer, that she claimed could do the work of an entire lab. And instead of requiring tubes coming from your arm, make it possible to do the tests on tiny droplet of blood that could be taken from a finger. At its height, the company was valued at nine billion dollars. And Holmes, she became this darling of Silicon Valley. By the time she was 31, she'd been hailed as the next Steve Jobs. She'd graced the covers of Forbes and Time magazine.

And she'd attracted some seriously big-name investors, like media tycoon Rupert Murdoch and former U.S. Secretary of State Henry Kissinger. But in October 2015, the whole thing began to unravel. Theranos is under the microscope of the U.S. Attorney's Office and the Securities and Exchange Commission about whether it misled investors about its technology. Now we're seeing what happens when you dig beyond the surface. And no one really had, honestly, until the Wall Street Journal did. A series of damning Wall Street Journal reports revealed that the technology wasn't all it was cracked up to be.

It took another three years for the company to fold and for Holmes and her ex-business partner slash ex-boyfriend, Sonny Balwani, to be charged with fraud. Tomorrow, jury selection in her trial gets underway. So today, ABC News Chief Business, Technology and Economics Correspondent and host of the Dropout podcast, which is about this whole saga, Rebecca Jarvis is with me, to talk about the case against Holmes and the reverberations of the scandal.

Hi, Rebecca. Thank you so much for joining me. Hi, Jamie. It's my pleasure. Thanks for having me. So it's been a few years since this case was in the spotlight. Theranos folded in 2018. And what do we know about what Elizabeth Holmes has been up to in the last few years? about what Elizabeth Holmes has been up to in the last few years? Well, that's one of the things I think that is most surprising to people to learn. She's a criminally charged woman, and yet she's living her life very much like anyone else. She spends time going out a lot in San Francisco in the mission. She walks her dog Balto. She goes to workout classes. She goes out for coffee and she's in a new relationship with a gentleman by the name of Billy Evans. He's about a decade younger than she is, which I put out there because, of course, people who have followed

this story closely will recall that while she ran Theranos, she was in a relationship with the COO and President Sonny Belwani, who was about 20 years older than she is. So she's in this new relationship and perhaps most startlingly, she just gave birth to a new child, a son, about a month before this trial was set to begin. Right, right.

And I understand, is this one of the reasons why the trial was postponed? Why it's sort of starting a bit later than it was supposed to? Yes, one of two reasons. The pandemic was the big one. It pushed the trial three different times. The trial kept getting pushed because of the pandemic. But the trial was supposed to begin in July of 2021. And in March of this year, her lawyers informed the judge that she was pregnant and her due date would fall at the exact same time that the trial was set to begin. So they pushed it out

a month and there will even be allowances made in the courtroom for her to take time with her infant and she'll be able to have in the courtroom with her at least a handful of family and friends at her side. Okay. Have we heard much from her in the last couple of years? I know she was really vocal as Theranos was kind of unraveling. She was really, really vocal wanting to get her side of the story out. It's probably the most important question I think anybody who's watching has about this. Does it work? Yes. You're confident in that? I am confident in that. The only things we've really heard from her since then are the SEC depositions where people were able to listen in the dropout to her responses, which were under oath versus the

responses that she had on many stages throughout the country and even the world. Very, two very different Elizabeth's people saw one was self-assured. She had all the and even the world. Very, two very different Elizabeth's people saw. One was self-assured. She had all the answers. And the other, many times around, over 660 to be exact, she didn't know. She answered that she didn't know. She couldn't recall. I don't know specifically. I'm not sure. I don't know exactly. I just don't know. So we've heard very little from her. She went to Burning Man, which people who might not be familiar with that, Burning Man is a party essentially in the desert. It brings together people from Silicon Valley, founders, CEOs, celebrities.

They all get together and they burn a man in effigy. She and the new beau, Billy Evans, went to Burning Man. This is now a few years back. But what was really surprising to people is that they went to this event at the very moment that Theranos was being dissolved. And so to be there, to be celebrating, to be partying in costumes was, for a lot of people, very distasteful. And especially to people like Sherry Eckert, who's one of many of the patients who got inaccurate test results. And she's on the witness list to testify. People who knew Elizabeth along the way, there's so many people who even three or four years ago when I

was interviewing them originally, they suspected she might try and show up at trial pregnant or that she might have a baby. And now they're like, yes, there's the surprise, but there's also the non-surprise of it, because this just fits entirely into the persona that we got to know over the years. You mentioned these patients, and I know there are some who are expected to be testifying at this trial. And can you tell me a little bit more about who you may be hearing from and what they may be saying? Well, some of them received just, I mean, impossible to fathom results. People who got false positives for HIV, women who were told either a false negative or a false positive on pregnancy, a woman who was dealing with fertility issues for years who got a false Theranos test suggesting she was

having a miscarriage. So these are people who, if you were to put yourself in their shoes, got really significant test results that were inaccurate. And one of the questions that I think is really interesting that a handful of legal experts I talked to raise here is to what degree will the pandemic shape people's thinking about testing? I mean, a few years ago, the idea of getting a blood test, yes, maybe if you had a disease and were accustomed to going into the doctor on a regular basis, maybe if you were older, you were accustomed to it. But for a lot of people coming into contact with and on any regular level with blood tests, very unlikely. Then along came COVID. And almost everyone over the course of the last 18 months has received some sort of test. occurs a lot easier to understand this idea of what the stakes are when you walk in to get a

test and looking for the accuracy in that information. Right, right. And how difficult it can be when you get the wrong information and have to deal with the consequences of that. You're dealing with test results that doctors prescribe medicine based on that. So one would think that you would have had that in place from the get-go. Absolutely. And probably the most devastating part of this is that I thought we did. You mentioned before her persona. Tell me a little bit more about that. You've looked at this case and this

woman for such a long time. And what is this persona? Well, I mean, I think that's a really important question and one that's actually harder to answer. One thing we know that will be part of this trial is her persona, the lifestyle that she led, being a celebrity, living this incredibly prosperous lifestyle while running Theranos. Yes, she was working around the clock by all measures, but she also was living so much on the company dime. It was luxury everything, private jets, the handbags, the jewelry, all of it went with the role. And it all helped to feed into the celebrity persona that she adopted. And she was on the cover of all of these magazines. There were U.S. presidents and former presidents and vice

presidents, including at the time, Vice President Biden, who really gave their seal of approval to her. They met with her. She got a lot of publicity for it. And so going back to this story, the origin story of her fear of blood testing, growing up with this fear, growing up as a very precocious young woman who wanted to change the world, who wanted to be Steve Jobs. All of those things played into this persona and also fed into why she got as much attention as she did along the way and also the fact that she was an outlier. She's a female who managed to raise almost a billion dollars for her company a lot from the venture community, and that is unheard of for the most part.

You were drawn to medicine, but then I guess you realized as a kid, I'm sorry to tell about your trepidations here, but you were terrified of getting blood drawn. Still am. Still are, yeah. You know, what is the most valuable thing that I could do with my life? To me, there was nothing more valuable than being able to change the reality in our world, which is that all too often, people we love are lost

because you find out too late in the disease progression process to be able to do anything about it. It's reasonable to compare you, I usually don't do this, to Steve Jobs and what he did for computing. You know, Steve Jobs was, I don't think there is another Steve Jobs. He was a phenomenal entrepreneur. We've got an incredible opportunity to try to uphold a legacy in Silicon Valley. And speaking of this money raise, you know, you talked about so much of it from the venture community, some very, very high profile investors here, including very high profile people who I believe sat on her board, right? Former Secretary of State Henry Kissinger, media baron Rupert Murdoch,

former Secretary of Defense in the Trump administration, James Mattis. And can you tell me a bit about their connection to this and whether or not we're going to be hearing from any of them at the trial? Well, a lot of their names are on the witness list, so you very well will likely be hearing from them. Part of the appeal for Elizabeth was that group that surrounded her. surrounded her. For a lot of the investors who I've spoken to, people who lost, in some cases, hundreds of thousands, others who lost millions of dollars putting their faith in her, there was this sense of what's known as affinity fraud. Oh, if Rupert Murdoch, if Henry Kissinger, if George Shultz, if they are betting on you, then you must be good. You must be legit. There's just no way. And one of the individuals I speak to is a gentleman by the name of Reed

Kathrine. He's an attorney. He sued Theranos on behalf of investors who lost their money with Theranos, assuming that the company, everything that they were doing was above board and that there was a bright future for the company. Now, in Reed Cathrine's case, he also was an attorney with some of the Bernie Madoff trials in the recovery of those assets. And he talks a lot about this affinity fraud that trust. We are comfortable trusting people in many cases because our neighbors trust them or because somebody who we trust, trust them. And that's what Elizabeth was really great at cultivating. She cultivated this circle of people who were fully in her orbit and her biggest cheerleaders who, by many accounts, they couldn't imagine having that one, let alone the numbers of people in her orbit. The issue now, all in retrospect, was that a lot of them didn't really have a science background or a medical background. And that was the issue with the employees at the company as

well. Sunny Belwani, her COO, former boyfriend who we talked about, he had a tech background, but he didn't have a medical science background. And that became an issue down the road when suddenly the medical aspects of these tests were what was really being called into question. And he's charged as well, right? But they're not facing trial together? Yes. And that's a really important point. So they were originally charged together, 11 counts of fraud. Now the count is 12, but they were originally charged together. And since then, their trials have been severed. And that, according to the experts I've spoken to, is a huge win for Elizabeth's team. Because when you're co-defendants, the defense of, well, he made me do it, doesn't play. But when you're no longer co-defendants and your trials are severed, it is possible that you can turn and say, I wasn't the only one here. There was another person in this picture and they're not here at this trial today. And that reasonable doubt is very powerful with a jury. What else do you think we might hear from her defense team? Like, have they given any signals for other possible strategies here?

Lots of signals. They could really go any direction and that they could, once they get into this trial, pivot multiple times. They very likely will try to think about pursuing the idea of puffery, Silicon Valley, filled with people faking it till they make it. She was doing what is par for the course. Now, as far as it goes with investors, that works out well. So if you take one step back, the charges against Elizabeth are really twofold. On the one hand, there's the charge that she defrauded investors. But on the other hand, there's the charge that she defrauded patients and doctors. So puffery works when you talk about Silicon Valley investors. It's a lot harder to make the puffery case when you're putting a test

in the hands of a patient or a doctor. Right. And I understand that the defense fought to have the patients not testify in this trial, but they lost that fight, right? They lost that fight. And that is the thing that comes down to this missing database. If anyone's heard about a Theranos missing database, it was a big headline when it came out over the summer. So it all relates. There was this database filled with millions of patient test results. The government requested the database from Theranos. Theranos provided it to them, but they provided it to them in an encrypted file that required two passwords. The government says, we never got the second

password and we were never able to access the database. Theranos says, you sat on the database for a long time, not sure what you were doing. It sat on a shelf and you just didn't access it. The problem is that ultimately the database got destroyed. When Theranos, the company, is that ultimately the database got destroyed. When Theranos, the company, was dissolved, the files that were in that database were also erased. So it doesn't exist anymore. And the reason this relates to the testimony of patients is that the defense wanted to argue

that the government shouldn't be able to present any evidence of people getting bad test results because it would be anecdotal without a database to back up in a percentage way how many people got bad results. The jury shouldn't be able to hear that anyone got bad test results. That is very juicy. I hadn't sort of read beyond the database headline. So thank you so much for that. can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here.

You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast,

and your partner create a financial vision together. To listen to this podcast, just search for Money for Cops. I just want to be really clear here, for the prosecution to be successful, what do they have to prove here? What do they have to prove happened? The biggest thing they have to prove is intent. That not only were Theranos tests inaccurate, not only did Elizabeth misguide investors, patients, doctors about the technology, about what her devices could do, but that she intended to do them. And that's the high bar here. That's going to be the hardest aspect of the case because a lot of the other aspects, they've been well-reported, litigated to some degree out in the public opinion, but proving intent will be the harder thing. And I also understand that it's possible that

her mental health also comes into play here. Yes, and that fully relates to this idea of her severed trial with Sunny Balwani. Her attorneys have filed motions and court documents that relate to this mental disease or defect defense. They have notified the court that they intend to bring as a witness a doctor who specializes in psychological trauma, in emotional trauma against women. A number of attorneys have told me, when you look at it, that kind of defense, you really need to have a history. So it would have to go back years and years and years before Theranos, before she's running the company, and also the insanity

like defenses generally. Juries just generally don't buy it. They don't go for that. So much to watch out for. Rebecca, earlier you were talking about Elizabeth's life since her charges and how she's gone to Burning Man and sort of she's been out and about in Silicon Valley in California. And I wonder what her legacy is in Silicon Valley. What is the legacy of Theranos and Elizabeth Holmes? So I love that question. And you're the first one to ask it. So thank you. Look, I think, first of all, what her legacy will ultimately be, will be dictated by the outcome of this trial. I'll come back to that in a second. Right now, part of the legacy is that in some cases, venture capital is more apprehensive.

I've heard from female founders who have companies, similar ideas that they say, I get to my final meeting, there's a lot of excitement. And then someone turns to me and almost jokingly, but you can sort of read between the lines says, just making sure you're not Elizabeth Holmes. So it's coming up that there's some who are more apprehensive about investing in certain areas. The longer term legacy and the outcome of this trial, if Elizabeth Holmes walks away scot-free, what does that mean to Silicon Valley? What message does that send to a founder who is towing the line, faking it till they make it, creating a product that might have negative consequences

for people that might not be 100% there. The people who I've talked to in Silicon Valley, who in various walks of life, venture, startups, some who are at companies that have been around for a long time, that's a concern. Because if she walks off scot-free, it does send a message that you can live above the law on some level, that you can fake it till you make it, and it doesn't have to be 100%. And I think for the average consumer, we don't want to hear things like that. We don't want to believe that the technology, especially when it's life-changing, could be 70% there and still in our hands. So that I think is a really important piece of the legacy to consider. Rebecca, this was very, very interesting. Thank

you so much. And I'm definitely gonna be listening to your latest episodes of the podcast. I've already listened to all the previous episodes. It's fantastic. Thank you so much, Jamie. I really appreciate it. All right, so before we go today, Manitoba Premier Brian Pallister has announced he will step down as Premier this week after saying earlier this month that he would retire. The Progressive Conservative Party has scheduled a leadership vote for the end of October. Pallister said he decided to leave sooner to avoid any perception that he is influencing the leadership race. An interim leader will be picked this week.

That's all for today. Thanks so much for listening to FrontBurner. We'll talk to you tomorrow.