Holmes Says She Edited Misleading Walgreens Report: Trial Update
Holmes Asked About Effort to Control News Reporter: Trial Update
(Bloomberg) -- Theranos Inc. founder Elizabeth Holmes is being cross-examined by a federal prosecutor for the first time Tuesday at her criminal fraud trial in San Jose, California.
Holmes, 37, spent four days answering questions from her defense lawyer, culminating Monday in a tearful description of a decade of alleged abuse by her former boyfriend, Ramesh “Sunny” Balwani, who was her second-in-command at Theranos. Holmes also said she’d been raped while a student at Stanford.
Prosecutors spent 10 weeks laying out the case against her, claiming the startup she founded was built on lie after lie. Theranos, which peaked at a valuation of $9 billion, collapsed in 2018. Holmes is accused of deceiving investors, board members and companies about the capabilities of Theranos blood-testing devices. She faces as long as 20 years in prison if convicted.
Key Developments:
- Holmes tells jury ex-Theranos President Balwani abused her
- Holmes says she was raped at Stanford, focused on Theranos
- Holmes admits pharma forgeries, voicing regrets to jury
- The Spectacular Rise and Fall of Elizabeth Holmes and Theranos
Doctoring Report for Walgreens (6:30 p.m. NY)
Holmes acknowledged a role in editing a report that the government claims was doctored to trick the Walgreens drug-store chain into using Theranos blood-testing machines.
“I wish I’d handled this differently, yes,” Holmes said, repeating her testimony on Monday, when she acknowledged it was a mistake to use the logos of pharmaceutical companies on the report without their permission.
When asked by prosecutor Bob Leach if she’d cut out the words “prepared for Dr. Adin Power,” she said, “yes.” Leach asked if deletion of those words made it easier for the reader to think the document was an independent report, she said, “yes.”
Holmes said she “can’t remember” if she told Pfizer Inc. she used the company’s logo on the report. “I don’t remember this process.”
When Leach asked if she would agree that the document was not independent due diligence report, she said, “I thought it was.”
Bye to Balwani (3:30 p.m. NY)
Holmes was asked by prosecutor Bob Leach how her relationship with Balwani ended.
“I think when I started to realize that this person I had believed in more than anything wasn’t who he was to me then nothing was real anymore,” she said, adding that her foundation for life and the company “was based on believing this person that he had conveyed himself to be.”
Holmes also said: “There was no way I could save the company if he was there, so that was it.”
Leach also got Holmes to acknowledge she wasn’t consulting mental-health experts at the time of the breakup.
Tracking ‘Love’ in Texts With Balwani (3:23 p.m. NY)
Holmes teared up as she discussed a decade-long relationship with Balwani, who she has accused of abusing her. She was shown some of the hundreds of text messages between the two, including some that the government says show the two had an often loving relationship. Holmes said she wasn’t surprised to learn the word “love” appeared hundreds of times.
From an excerpt in October 2015, Balwani texted: “Love you. I prayed from the bottom of my heart for you.” Holmes responded: “My nirvana.” Another text from Balwani said, “U r Gods’ tigress and warrior. You are extraordinary.” Her text back: “Coming from my tiger means the whole universe to me.”
Holmes Takes Responsibility (2 p.m. NY)
Prosecutor Bob Leach got Holmes to acknowledge she had final say over company operations, a critical piece of the government’s case that she should be held to account for missteps at Theranos.
“You take responsibility for the company?” Leach asked.
“I do,” she said.
Holmes confirmed that while she and Balwani managed the company together, she had the power to fire him or anyone else -- and as a 51% shareholder, she could outvote any board member.
Leach pressed Holmes on whether all roads at Theranos led to her.
“I felt that,” she said.
‘Totally Messed It Up’: (1:55 p.m. NY)
Holmes acknowledged that she tried to quash a story being written by the Wall Street Journal in 2015 that was critical of Theranos, including dispatching company attorney David Boies to reach out to the newspaper’s editor and sending a message to its publisher, Rupert Murdoch, who had invested more than $100 million in Theranos.
“I couldn’t say more strongly, the way we handled the Wall Street Journal process was a disaster,” Holmes said. “We totally messed it up.”
Her Sept. 8, 2015, message to Murdoch read: “I thought that were I in your shoes I would want to know/be in the loop on this one, and since you had the prior materials from july, wanted to give you the complete set.” She also said she hoped a Journal editor “will meet with our team.”
Making George Shultz Angry (1:45 p.m. NY)
Holmes was asked about her treatment of the grandson of Theranos board member George Shultz, the former U.S. secretary of state, after she and Balwani came to suspect that Tyler Shultz, who worked at the company, was cooperating with a Wall Street Journal reporter.
Prosecutor Bob Leach showed Holmes a long email from Tyler Shultz in April 2014 in which he raised concerns to her and Balwani about the accuracy of Theranos tests. The message was written shortly before Tyler left the company.
Holmes confirmed that company lawyer David Boies was enlisted in an effort to get Tyler to disclose that he was a source for Journal reporter John Carreyrou. Boies at one point confronted Tyler while he was visiting his grandfather’s house.
Holmes acknowledged that George Shultz was upset and angry about the incident and told her so.
‘Wished’ She’d Listened (1:22 p.m. NY)
Holmes was asked by the prosecutor about Erika Cheung, a junior lab worker at Theranos who reported defective blood-testing technology at the company and was an early whistle-blower.
“I sure as hell wished we treated her differently and listened to her,” Holmes said.
Holmes denied that Theranos tried to threaten Cheung, but acknowledged that attorney David Boies was hired to serve her with a subpoena and then in 2015 threatened Cheung with a lawsuit.
“I knew our lawyers were following up with her” to prevent her from disclosing trade secrets, Holmes said.
An audit by the Centers for Medicare and Medicaid Services in 2016 concluded that Theranos blood tests jeopardized patient health.
“You know today that Erika Cheung was right?” the prosecutor asked Holmes.
“Yes,” Holmes said.
‘Write Something Negative’ (12:45 p.m. NY)
A federal prosecutor began his interrogation of Holmes by asking her about efforts to control a visit by a Wall Street Journal reporter to a wellness center in Arizona for a story he was writing about Theranos technology.
“I don’t remember that,” Holmes said.
Holmes was shown excerpts of a text exchange with Balwani about journalist John Carreyrou, whose reporting for the Journal starting in 2015 helped trigger the downfall of Theranos. In one text, Balwani wrote: “Seems like this guy is looking to write something negative.”
Holmes was asked about an opposition research firm, Fusion GPS, that also figured into a controversy over a dossier compiled on Donald Trump while he was running for president in 2016.
“I can’t tell from these text messages,” Holmes said in response to a question about whether she hired Fusion GPS to do research on Carreyrou.
Prosecutor Bob Leach then asked, “You wanted to get ahead of the story, didn’t you?”
“We wanted to make sure our trade secrets weren’t disclosed,” Holmes said.
Holmes also acknowledged she made a mistake.
“I think I mishandled the entire process of the Wall Street Journal reporting,” Holmes said.
Lifestyle Evidence (12:30 p.m. NY)
Before the jury arrived, a lawyer for Holmes and a prosecutor sparred over whether the government can introduce evidence that the Theranos chief executive officer had a high-flying lifestyle while she and Balwani were romantically involved.
Now that Holmes has accused Balwani of abuse and “put the entirety of her relationship at issue,” the prosecutor argued to U.S. District Judge Edward Davila, it’s fair game for jurors to learn about her use of “jets, hotels on the company’s dime,” as well as trips to Mexico and a home she and Balwani owned together through an LLC.
Holmes’s attorney said introducing such evidence would run afoul of the judge’s earlier order to avoid making “appeals to class prejudice” by detailing specific purchases, brands of clothing, hotels and other personal items.
The judge on Tuesday urged the prosecution to stay within a “territorial border,” but said the government should be able to explore “independence issues” of Holmes’s decision making.
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