Theranos No. 2 CEO found guilty of 12 counts of fraud

SAN JOSE, Calif. – Ramesh Balwania former top executive at Theranos, was found guilty on Thursday of 12 counts of fraud, in a harsher sentence than his co-conspirator, Elizabeth Holmesand that cemented the failed blood-testing startup as Silicon Valley’s last cautionary tale.

Mr. Balwani and Ms. Holmes, who together propelled Theranos to great heights with its promise to revolutionize healthcare, are the most prominent tech executives to be charged and found guilty of fraud in the industry. one generation. A jury of five men and seven women took 32 hours to reach a verdict, convicting Mr. Balwani, known as Sunny, of all 10 counts of telephone fraud and two counts of telephone fraud. fraud conspiracy.

In January, Ms. Holmes Sentenced of four counts of fraud and was acquitted of four counts of fraud. Three other charges were dismissed after the jury was unable to reach a consensus. She appealed the ruling and Mr Balwani is expected to do so.

Both of their cases revolved around whether they exaggerated Theranos’ blood-testing machine’s ability to attract investors and customers, while the product didn’t actually work.

Each charge carries a maximum sentence of 20 years in prison. Mrs Holmes is expected to be sentenced in September, and Mr Balwani in November.

As the guilty verdicts were handed down, Mr. Balwani, 57, appeared in court in a black suit and blue surgical mask, catching a glimpse of the jury before looking straight ahead. One of his attorneys, Jeffrey Coopersmith, said in a statement that his team was “clearly disappointed” by the rulings and that Mr Balwani would consider all of his options, including appealing. fox.

In a prepared statement released outside the courtroom, Stephanie Hinds, a US attorney, said her office appreciates the verdict and she thanked the jury for “navigate a carefully the complex issues this case presents.”

Double criminal convictions are a rare example of Silicon Valley’s hype machine that leads to possible jail time. Since Theranos collapsed in 2018, the company has become a form of shorthand for traders and the world has has developed an appetite for startup stories and messy ups and downsAs WeWork’s first disastrous attempt at going public and tricks of Ozy Media. But Theranos was the only one charged. The consequences faced by its executives will likely send a message to entrepreneurs who exaggerate in the name of innovation.

The ruling found jurors were shaken by prosecutors’ evidence that Mr. Balwani knew about problems in Theranos’ technology and business while deceiving investors and patients. Mr. Balwani tried to defuse the blame by argumentative Holmes – as CEO and founder of Theranos – in charge, and by arguing that he believed in Theranos’ mission and technology.

Mr. Balwani “puts his heart and soul in Theranos,” Mr. Coopersmith said in end of argument. “He worked tirelessly, year after year, to make the company a success.”

Michael Weinstein, a former Justice Department prosecutor who presided over white-collar litigation at Cole Schotz, said Mr. Balwani had two major attacks against him in defense. One is Mr Balwani’s age, which makes it impossible for him to credibly claim youthful innocence as an excuse, as Mrs Holmes did.

“Holmes can be a little naive, and they tried to sell that,” Mr. Weinstein said. But Mr. Balwani “appears as a more experienced tech executive.”

Furthermore, since Mr. Balwani went to court after Mrs. Holmes went to court, prosecutors have essentially had to redo and edit their case. “The streamlined presentation, the streamlined evidence, the streamlined narrative — all benefit the government,” he said.

Evidence from the trial, including text messages, emails and testimony from 24 witnesses, showed that Balwani was deeply involved in almost every aspect of Theranos’ business and was aware of its problems. it. He led its lab, created its financial projections, chaired personnel affairs, and attended numerous pitch meetings with investors.

“Mr. Balwani wants you to think he was the victim,” said Jeffrey Schenk, assistant US attorney and lead prosecutor in the case, in his conclusion. “Mr. Balwani is not the victim – he is the perpetrator of the scam.”

Judgment comes in a harsh awakening for the tech industry, as stock prices fall amid rising interest rates, soaring inflation, and economic uncertainty. Investors, scorched by the sell-off, have stopped pursuing high-risk, loss-making startups, prompting many Silicon Valley companies to cut staff and slow their plans to expand their businesses. their poles. A moment of humility that many people anticipate The end of a boom-and-bust decade for tech startups.

Mr. Balwani and Mrs. Holmes took advantage of the Theranos’ era of optimism. The couple met when Ms. Holmes was 18 and they began dating secretly shortly after she founded the startup. Mr. Balwani joined the company in 2009 and invested in it.

As CEO of Theranos, he played a behind-the-scenes role in the company’s growth. He helped Ms. Holmes build her Steve Jobs-like image, running the lab and assisting with fundraising, propelling the company to a $9 billion valuation.

A 2015 expo in the Wall Street Journal, which revealed Theranos had lied about his blood tests, sent the company reeling. Mr. Balwani soon left, and the startup started operating in 2018. That same day, he and Holmes were charged with fraud.

Each defendant was regularly discussed in the other party’s trial, but there was no testimony against the other. Mrs. Holmes accused Mr. Balwani emotional and sexual abuse, but those accusations were not allowed as evidence in his trial.

“The story of Theranos is a tragedy,” Mr. Schenk, the prosecutor, said in his conclusion.

Kalley Huang contribution report.

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