(Bloomberg) -- To defend against criminal fraud charges, Theranos Inc. founder Elizabeth Holmes is trying to put investigative journalism on trial.
Holmes contends Wall Street Journal reporter John Carreyrou had an undue influence on federal regulators who concluded her blood-testing startup’s technology was a threat to patient health and forced the company to shut its labs.
As she prepares for a trial set for July 28, 2020, Holmes is trying to retrace the steps the reporter took to publish his 2015 scoop and subsequent stories that unraveled Theranos, ultimately leading to the collapse of a company once d at $9 billion and to her indictment almost exactly a year ago.
The charges portray a scheme by Holmes and former company president Ramesh “Sunny” Balwani, her boyfriend at the time, to lie about the startup’s technology and dupe investors out of hundreds of millions of dollars -- while also misleading doctors and patients into thinking Theranos provided accurate, fast and cheap blood tests.
Through pretrial information sharing with prosecutors, Holmes has unearthed Carreyrou’s early contacts with New York state regulators and various federal agencies, as well as his interactions and emails with a doctor in Arizona.
Holmes is pushing prosecutors to turn over every such communication they’re aware of because Carreyrou “went beyond reporting the Theranos story,” her lawyers said in a court filing. He prodded sources to lodge complaints about the company with regulators, and then lobbied agencies to pursue the complaints, according to the filing.
“The jury should be aware that an outside actor, eager to break a story, and portray the story as a work of investigative journalism, was exerting influence on the regulatory process in a way that appears to have warped the agencies’ focus on the company and possibly biased the agencies’ findings against it,” her attorneys wrote. “The agencies’ interactions with Carreyrou thus go to the heart of the government’s case.”
The Wall Street Journal said Friday it stands behind Carreyrou’s reporting, which won multiple journalism prizes.
“We are confident Mr. Carreyrou acted responsibly, and his reporting throughout has been fair and accurate,” Steve Severinghaus, a spokesman for the newspaper, said in an email.
Legal experts said the strategy that lawyers for Holmes and Balwani are testing probably reflects the strength of the government’s case and evidence weighing against them. Even so, a criminal conviction requires a unanimous jury and experts said the defense team may be searching for a single juror sympathetic to the idea that government agencies were in cahoots with Carreyrou and overzealous in their pursuit.
“It seems that perhaps the defense wants to float a theory that Carreyrou exerted influence on the regulatory agencies to get a good story, and they, in turn, came down harder than they should have,” said Barbara McQuade, a former federal prosecutor who now teaches at the University of Michigan law school. “Sometimes you see defendants fish for communications that might support this theory.”
“If I were the government, I would argue that none of this is relevant, and it is likely to distract the jury from the real issue in the case,” McQuade added. “The case is about the conduct of Theranos, not Carreyrou.”
At a hearing Friday in federal court in San Jose, California, a lawyer for Holmes pressed U.S. District Judge Edward Davila to order U.S. agencies including the Food and Drug Administration and the Centers for Medicare & Medicaid Services to turn over more information -- without mentioning Carreyrou. The judge told prosecutors to push the agencies harder to give the defendants what they seek, saying ”they’re entitled to it,” but stopped short of issuing an order.
Prosecutors say they haven’t interviewed or requested documents from Carreyrou or anyone at the Wall Street Journal about his reporting. The U.S. has collected testimony and documents about media mogul Rupert Murdoch’s investment in Theranos, and turned that material over to Holmes, prosecutors said in a court filing. Murdoch is the executive chairman of News Corp., which owns the Wall Street Journal.
Prosecutors went on to explain seven typical inquiries Carreyrou and another Wall Street Journal reporter made of them and other agencies, including the Federal Bureau of Investigation.
“Beyond these emails and voicemails, we are not aware of any communications involving Mr. Carreyrou or other WSJ reporters relating to the investigation or prosecution in the possession, custody, or control of the prosecution team,” according to the filing.
The case is U.S. v. Holmes, 18-cr-00258, U.S. District Court, Northern District of California (San Jose).
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