Elizabeth Holmes’s Fraud Sentence Will Send a Message One Way or Another

Senator Cory Booker, Democrat of New Jersey, recently praised Elizabeth Holmes’s thoughtful focus and “determination to make a difference.”

The actress Ricki Noel Lander said Ms. Holmes was “a trustworthy friend and a genuinely lovely person.”

And Channing Robertson, who was a professor of chemical engineering at Stanford University, commended Ms. Holmes for her “compassion for others.”

Their comments were part of a cache of more than 100 letters that were filed over the last week to a federal judge in San Jose, Calif., in an effort to reduce the punishment for Ms. Holmes, the founder of the failed blood testing start-up Theranos. In January, she was convicted of four counts of defrauding investors about Theranos’s technology and business dealings. She is scheduled to be sentenced for those crimes on Friday.

Ms. Holmes, 38, faces a maximum of 20 years in prison, according to federal sentencing guidelines for wire fraud. Her lawyers have requested 18 months of house arrest, while prosecutors have asked for 15 years of imprisonment. The probation officer in Ms. Holmes’s case has recommended a sentence of nine years.

The decision lies with Judge Edward J. Davila of U.S. District Court for the Northern District of California, who oversaw Ms. Holmes’s trial last year. In addition to the letters from her supporters asking for leniency, he is set to take into account lengthy memos filed by her lawyers and prosecutors, and will consider whether Ms. Holmes has accepted responsibility for her actions.

Holmes family photos submitted to the federal court in San Jose, Calif.Credit…via California’s Northern District court

Most notably, Judge Davila must weigh the message that Ms. Holmes’s sentence sends to the world. Her high-profile case came to symbolize the excesses and hubris of Silicon Valley companies that often play fast and loose with the law. Theranos raised $945 million from investors, valuing the company at $9 billion, on the claim that its technology could accurately run many tests on a single drop of blood. But the technology never worked as promised.

Few tech executives are ever found guilty of fraud. So a lighter sentence for Ms. Holmes could send the wrong signal to the industry, legal experts said.

“This is a case with more deterrence potential than most,” said Andrew George, a white-collar defense lawyer at Baker Botts. “Judge Davila will be sensitive to any impression that this person of privilege got a slap on the wrist.”

Elizabeth Holmes’s Epic Rise and Fall

The Theranos founder’s story, from a $9 billion valuation to a fraud conviction, has come to symbolize the pitfalls of Silicon Valley’s culture.

  • Con Artist: With Theranos, her blood-testing company, Elizabeth Holmes fooled investors, employees and media outlets. Then she got her comeuppance.
  • The Start-up Playbook: Ms. Holmes wasn’t a creature of Silicon Valley, or so the refrain went. Her trial showed otherwise.
  • Her Conviction: In January, the Theranos founder was found guilty of four of 11 charges of fraud. After a judge denied her requests for a new trial, Ms. Holmes is scheduled to be sentenced on Nov. 18.
  • Her Co-conspirator: In July, Ramesh Balwani, a former Theranos executive who helped Holmes cultivate her Steve Jobs-like image, was found guilty of 12 counts of fraud.

Since Ms. Holmes was convicted, other high profile start-up founders have also come under scrutiny, prompting further debates over start-up ethics. Trevor Milton, the founder of the electric vehicle start-up Nikola, was convicted last month on charges of lying about his company’s technology. Sam Bankman-Fried, the founder of the cryptocurrency exchange FTX, is under numerous investigations after his company suddenly collapsed into bankruptcy last week.

Lawyers for Ms. Holmes did not respond to a request for comment.

Prosecutors said in court filings that significant prison time for her would send a message to other entrepreneurs who stretched the truth. A long sentence would not only “deter future start-up fraud schemes” but also “rebuild the trust investors must have when funding innovators,” they wrote.

Senator Cory Booker, who sent a letter of support, said he and Ms. Holmes had met at a party hosted by Senator John McCain.

Ms. Holmes’s lawyers tried downplaying the money that investors lost on Theranos, painting the venture capital industry as a group of sophisticated rich people who don’t thoroughly research their investments. And in their letters of support, her allies said that what had happened at Theranos was no different from the outcomes at many other start-ups.

“Failures are a part of the game in Silicon Valley,” said Alex Moore, an investor at the investment firm 8VC. “We can’t punish our innovators in society or there will be no innovation.”

In another letter, Yinne Yu, a venture capital investor, said Ms. Holmes “showed more introspection and remorse than what I’d personally witnessed in any other failed founder” in a decade of investing.

Tim Draper, a venture capital investor who backed Theranos, wrote that Ms. Holmes was being condemned by society for “taking that enormous risk, sacrificing everything and failing.” He conceded that he did not know all the facts of the case.

The letters — which came from family members, childhood and college friends, former employees, roommates, consultants and board members — tried reframing Ms. Holmes as a warm and selfless person. They also painted the first detailed picture of what her life has been like in recent years. Outside of her testimony at her trial, Ms. Holmes has not spoken publicly since Theranos collapsed in 2018.

The court filings showed that she became pregnant with her second child since her conviction. She also logged 500 hours as a rape crisis counselor and swam across the San Francisco Bay. Her dog, Balto, was killed by mountain lions.

Ms. Holmes with her parents and Mr. Evans. He wrote that her life was under constant surveillance and threat.Credit…Jim Wilson/The New York Times

Prosecutors argued that the letters of support for Ms. Holmes showed that she could not blame her crimes on a difficult upbringing. “Holmes, with strong family support, exceptional educational opportunities and financial stability, chose to commit fraud, repeatedly,” they wrote.

In an eight-page, single-spaced letter, Billy Evans, Ms. Holmes’s partner, wrote that much of what has been written about her was untrue, including the fact that she was a good salesperson.

“Liz has no ability to ‘sell something’; she simply believes in things with such depth that it is alluring,” Mr. Evans wrote. “She is more of a zealot than a showman.” He said Ms. Holmes’s notoriety had ruined any privacy and described a life under constant surveillance and threat.

Mr. Evans’s father, William, who posed as a spectator named “Hanson” at Ms. Holmes’s trial, said in his own letter that Google search results for Ms. Holmes exceeded those for Babe Ruth or Ronald Reagan — and all of hers were negative. “Osama bin Laden has 21 million results, many of which are positive,” he added.

In his letter, Mr. Booker described meeting Ms. Holmes at an event hosteda decade ago by Senator John McCain of Arizona, where they shared a bag of almonds for dinner. They were both vegan.

“I believe that Ms. Holmes has within her a sincere desire to help others, to be of meaningful service, and possesses the capacity to redeem herself,” Mr. Booker wrote.

Ms. Holmes with her brother, Christian, at a White House state dinner in 2015.Credit…Andrew Harnik/Associated Press

Prosecutors countered those portraits with evidence presented at Ms. Holmes’s trial. She manipulated regulators, lied to the media, falsified documents and intimidated whistle-blowers, leading one employee, Tyler Shultz, to contemplate suicide, they wrote. She enjoyed the fruits of her fraud, they wrote, flying on a private jet, living in a $15 million mansion, appearing on magazine covers and dining at the White House.

“She repeatedly chose lies, hype and the prospect of billions of dollars over patient safety and fair dealing with investors,” they said.

In addition to 15 years in prison, prosecutors asked the court to order Ms. Holmes to pay $804 million in restitution for harm done to Safeway and Walgreens, two companies that Theranos had partnerships with, and George P. Shultz, the former secretary of state. Mr. Shultz, who did last year, was Tyler Shultz’s grandfather and sat on Theranos’s board.

Ms. Holmes did not make much money on Theranos, the court filings showed. On top of a $450,000 loan to pay a settlement with the Securities and Exchange Commission, she has legal fees of more than $30 million, according to the filings. Prosecutors questioned whether Ms. Holmes and her family’s money was being managed to avoid paying back investors and whether she felt remorse.

“She accepts no responsibility,” prosecutors wrote. “Quite the opposite, she insists she is the victim. She is not.”

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