Theranos Judge Won't Let Prosecutors Force Halt to SEC Case
Theranos Judge Won't Let Prosecutors Force Halt to SEC Case
(Bloomberg) -- Former Theranos Inc. President Ramesh “Sunny” Balwani persuaded a judge to let him fight criminal fraud charges at the same time as he defends against civil claims by securities regulators over the spectacular downfall of the blood-testing startup.
U.S. District Judge Edward Davila in San Jose, California on Friday rejected the Justice Department’s request to hit the pause button on a civil suit filed by the U.S. Securities and Exchange Commission to allow the criminal case to go first.
Prosecutors routinely make such requests to block defendants from collecting information in civil suits, which permit a broad array of inquiries, to aid their defense in more constrained criminal cases. In Balwani’s case, prosecutors argued his continued culling of information could jeopardize its criminal case against him and and his co-defendant and ex-girlfriend, former Theranos Chief Executive Officer Elizabeth Holmes. Holmes previously settled the SEC’s claims against her.
“The court is not unsympathetic to DOJ’s concerns that Balwani may attempt to overreach in civil discovery, but the court is capable of addressing such concerns with a scalpel instead of a saw,” the judge wrote.
The now-defunct blood-testing startup was once valued at as much as $9 billion. It unraveled amid what prosecutors describe as a massive scheme masterminded by Holmes and Balwani to mislead investors, doctors and patients.
Prosecutors argued that a recent ruling blocking Balwani from collecting information from a health-care clinic was evidence that he overstepped the boundaries of the civil case. The clinic accused Balwani of harassing a doctor there, an allegation Balwani denied.
“Balwani was using civil discovery to defend against the criminal case,” the government argued in a court filing. “It became apparent that the defendant was targeting patients and doctors that had nothing to do with the civil action.”
Balwani argued prosecutors waited too long to intervene in the case, and that granting their request would hurt his defense against criminal charges.
Prosecutors didn’t ask to stop the civil case when the U.S. attorney in San Francisco charged Balwani in June 2018, when the office revised its indictment in September, when the court ruled months ago that the cases would advance in parallel, or at any recent hearings, lawyers for the ex-Theranos president argued in a court filing.
The SEC started investigating in the fall of 2015 and the Justice Department a few months later, according to Balwani. Investigating jointly, the two agencies have worked “hand-in-glove,” sharing documents and together conducting at least 65 witness interviews, Balwani argued in a court filing. Prosecutors and SEC lawyers even worked together to prepare a witness for questioning by Balwani’s lawyers, he said.
Balwani also argues prosecutors haven’t bothered to ask to pause other civil shareholder cases that named him as a defendant. Balwani said he’s still defending himself in one such case in Arizona, which prosecutors may benefit from.
Almost a year of pretrial information-sharing in Balwani’s case “hasn’t been a one-way street,” his lawyers wrote
Prosecutors have been “an active participant and beneficiary of the SEC discovery process, not a passive observer,” the defense attorneys said in a filing. Balwani has “provided substantial information to the government as a result of the SEC matter which he would not have been obligated to give in the criminal context.”
The SEC case is Securities and Exchange Commission v. Balwani, 18-cv-01603, U.S. District Court, Northern District of California (San Jose). The criminal case is U.S. v. Holmes, 18-cr-00258, U.S. District Court, Northern District of California (San Jose).
To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net
To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Blumberg
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