Holmes Met Ultra-Rich Backers Through Kissinger’s Lawyer

(Bloomberg) -- An estate lawyer for Henry Kissinger revealed that he helped Theranos Inc. line up investments totaling $370 million from from some of the wealthiest families in the U.S. -- the Waltons, the Coxes, the Oppenheimers and the DeVoses -- four years before the blood-testing company collapsed in scandal. 

The funding from those four families accounts for more than half of the $700 million in investor money Elizabeth Holmes is accused of raising through an elaborate fraud at Theranos.

Daniel Mosley, a longtime estate lawyer at white-shoe firm Cravath Swaine & Moore LLP, testified at Holmes’s trial that he was asked to vet the Silicon Valley startup by the former secretary of state who served on its board. He said he introduced members of the Walton, Cox and DeVos families -- all clients of his -- to Holmes in September 2014 when she spoke at a conference in Chicago.

The testimony showed that Theranos, which peaked at a valuation of $9 billion, managed to win over a veteran estate attorney at a venerable firm who was a voracious researcher of investment opportunities. In turn, Walton family members tied to the Walmart Inc. dynasty invested $150 million, while the Cox family that controls an Atlanta-based media empire kicked in $100 million and the DeVos family whose patriarch was a billionaire industrialist put up another $100 million, according to testimony and media reports.

An additional $50 million came from Andreas Dracopoulos, a philanthropist, and two friends of Kissinger -- John Elkann, chairman of Ferrari NV, and Hank Slack, a member of the Oppenheimer family and former chairman of Alico Inc., an agribusiness and land holding company, according to a chart shown to the jury Wednesday by a lawyer for Holmes. Kissinger invested $3 million in Theranos and Mosley bought himself a stake of almost $6 million, according to testimony.

Mosley, who said Kissinger had described the company to him as “revolutionary,” wrote to Holmes in a September 2014 email that he wanted to share with others a memo he wrote for the former diplomat extolling the high-flying company’s prospects.

“Dr. Kissinger has mentioned a couple of other families with whom he has had a very long relationship as possible candidates for investors,” Mosley wrote in the email, which was shown to the jury.

Dracopoulos, co-president of an Athens-based foundation named for his father, the late Greek shipping magnate Stavros Niarchos, made a visit with Mosley to Theranos before making a $25 million investment. 

The purpose “was to introduce individuals at the Stavros Niarchos Foundation that wanted to meet with Elizabeth so that they could do their own analysis as to whether it was something of interest to them,” Mosley said. 

Prosecutors called Mosley to counter arguments by lawyers for Holmes that Theranos investors were sophisticated enough to understand what they were getting into. Holmes is accused of duping investors and misleading patients by lying about the capabilities of Theranos machines and the company’s financial well-being.

Mosley made it sound like he thoroughly digested everything he could get his hands on: shareholder agreements, reports purporting to be from pharmaceutical companies that verified Theranos blood-testing technology and every shred of material Holmes sent him about her company, along with news stories. 

Read More: The Spectacular Rise and Fall of Elizabeth Holmes and Theranos

Those materials, shown to the jury, included drug company endorsements that evidence has shown were fabricated by Theranos; statements about blood analyzers being adopted by the U.S. military that have been challenged at trial as false; and projections of revenue and income that other witnesses have said were massively overstated. 

Mosley’s testimony also shed light on the financial structure of Theranos, particularly how the closely held company’s shares were allocated in a way that allowed Holmes to be dubbed the youngest self-made female billionaire in 2014.

He walked the jury through the research memo he wrote for Kissinger and explained that Holmes owned all of the company’s class B shares, which had 100 times the voting power of other classes. The upshot: Her ownership represented almost 50% of the value of the company.

“It meant Elizabeth would be absolutely in control of the company,” Mosley told the jury, adding that this was a good quality. She was “obviously the visionary” who created this company, he said. “Having her in control of the company was a good thing.”

The series of Theranos shares Mosley invested in, C-2, contained an “unusual” mandatory redemption provision in which the board could independently determine the fair market value of the stock and approach any individual shareholder to say, “We’re liquidating your shares.”

Mosley objected to the provision, and through Holmes, he took it up with renowned attorney David Boies, who represented Theranos at the time. Mosley said he got the provision lifted for himself and his clients.

A prosecutor asked Mosley about a part of his investment agreement explaining the risk that he could lose his money. “I didn’t think I had inaccurate information,” Mosley said. “It was a risk I was a willing to take based on what I knew.”

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