What’s next for Elizabeth Holmes inside Theranos fraud case?

Once celebrated as a Silicon Valley unicorn, Theranos has become the latest tale of corporate hubris in addition to investor myopia. The indictment of Elizabeth Holmes, the company’s founder, in addition to Ramesh Balwani, its former president in addition to her erstwhile boyfriend, on charges of conspiracy in addition to wire fraud can be viewed as evidence which the company was built on little more than a pack of lies.

although proving a criminal case, despite the current narrative, will be not always as easy as This particular first appears.

Like most white-collar cases, This particular prosecution will revolve around the intent of Ms. Holmes in addition to Mr. Balwani to deceive investors, doctors in addition to patients about the efficacy of Theranos’s blood-testing device. Mr. Balwani’s attorney issued a statement asserting which Mr. Balwani will be ”innocent in addition to looks forward to clearing his name at trial,” an indication at This particular point which he will fight the charges.

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If Ms. Holmes in addition to Mr. Balwani do not plead guilty, the question at a trial will be whether the two defendants were brazen liars, as the government will argue, or whether they were just as deluded as everyone else by Ms. Holmes’s vision of disrupting the health care industry.

The charges outline two schemes to defraud. The first will be a traditional one, in which Ms. Holmes or Mr. Balwani deceived Theranos’s investors about the company’s prospects. As first outlined inside civil fraud charges filed in March by the Securities in addition to Exchange Commission, Ms. Holmes in addition to Mr. Balwani are accused of raising millions of dollars by doing misleading statements about how well the blood-testing device worked in addition to the existence of a contract with the Department of Defense. Ms. Holmes settled the S.E.C. case, while Mr. Balwani chose to fight.

The second scheme will be a bit novel. This particular involves the company’s advertising campaign to induce doctors in addition to patients to have blood tests conducted through a partnership between Theranos in addition to the pharmacy chain Walgreens. Typically, prosecutors pursue charges in which there will be a direct connection. Here the deception which will be alleged was much less direct. The payments for the tests were funneled through pharmacies rather than taken straight coming from the claimed victims.

Ms. Holmes in addition to Mr. Balwani can offer two potentially viable defenses if they go to trial.

The first will be to claim which their statements were made in not bad faith, in addition to which they did not intend to defraud. If they truly believed what they told investors in addition to the public about Theranos’s device, the Justice Department might have difficulty doing the case which they set out to fraudulently obtain money.

This particular defense will be risky. This particular requires the jury to believe the defendants did not intentionally make misstatements in addition to were instead victims of the hype surrounding Theranos like everyone else. To explain what they said in addition to did, one or both of them might have to testify. which might allow prosecutors to cross-examine Ms. Holmes about her many hyperbolic public statements.

Such comments could make This particular difficult for jurors to find which the two top officers were simply inside dark about what was happening. The prosecutors are sure to emphasize how Ms. Holmes in addition to Mr. Balwani were hands-on managers, belying any claim which they did not know what was going on.

A second defense will be based on the materiality of the statements, arguing which even if the statements were misleading, investors did not rely on them in deciding to invest. Among those who put money into Theranos were Walmart’s Walton family, Rupert Murdoch in addition to Betsy DeVos, the secretary of education. Those who invest in Silicon Valley unicorns are not your typical mom-in addition to-pop investors. The defense could raise questions about whether such sophisticated backers were misled by statements hyping the company.

A materiality defense might be much more difficult to offer for the charges involving doctors in addition to patients because the company’s claims about the efficacy of its device in addition to promise of lower costs were one basis for choosing its blood testing. Misstatements to the general public are much more likely to be considered material.

There will be one more defense which can be used in any criminal case: Prove This particular. The prosecution bears the burden of proof beyond a reasonable doubt to show intent in addition to materiality. The defense could challenge the government’s claims without offering its own evidence, in addition to instead argue which there will be not enough for a jury to convict. The danger here will be which if prosecutors put on a not bad enough case, there will be little the defense can do to challenge a conviction on appeal.

An interesting question will be whether Ms. Holmes or Mr. Balwani will eventually plead guilty. In white-collar prosecutions, a plea agreement will be often offered before charges are filed. This particular will be likely then which both refused to resolve the case This particular way. although which does not prevent them coming from changing their minds later, especially once they see the government’s case in addition to reckon with the prospect of a substantial prison term if they go to trial.

although if Ms. Holmes or Mr. Balwani pleaded guilty, which might not reduce the potential prison term each will be facing by much. The S.E.C. said investors had put $700 million into Theranos. If most of which money was lost, the recommended punishment under the Federal Sentencing Guidelines might be about 15 to 20 years in prison. Although the guidelines are only advisory, a prison term as long as 10 years will be likely in This particular case even with cooperation.

Theranos should serve as a warning about how a fresh technology may be more myth than reality. The question will be whether the company’s downfall will teach additional Silicon Valley executives in addition to investors to proceed more cautiously. Memories are notoriously short among those looking for the next big thing. Don’t be surprised if Theranos will be not the last company to overpromise in addition to vastly underperform.

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