SAN FRANCISCO (CN) — The founders of a California blood testing startup, the failure of which fueled a yearslong Silicon Valley scandal, came to the Ninth Circuit Court of Appeals on Tuesday to appeal their 2022 convictions.
Disgraced Theranos founder Elizabeth Holmes is serving more than 11 years in federal prison for defrauding investors and misrepresenting the benefits of her now-defunct company's blood-testing device publicly. She and former partner Sunny Balwani say the appeals court should overturn their convictions based on what they say were errors on the government’s part in the 2022 trials.
Although they had separate trials, Holmes and Balwani were accused of essentially the same crimes centered on a ruse touting Theranos’ blood-testing system as a revolutionary breakthrough in health care. The claims helped the company become a Silicon Valley sensation that raised nearly $1 billion from investors.
U.S. Circuit Judges Mary Schroeder, Jacqueline Nguyen and Ryan Nelson heard arguments Tuesday in San Francisco, first from Holmes’ attorney, Amy Saharia. She presented Holmes' appeal of the government’s prevailing on four counts in her 2022 trial, following a jury acquitting her on four other counts and remaining hung on others.
The defense maintains that the trial's key issues included the government's use of a doctor as a witness who, Holmes says, misrepresented the Theranos technology’s efficacy. The defense could not properly cross-examine him before the jury, Saharia said.
Nguyen, a Barack Obama appointee, said that Holmes is raising numerous evidentiary challenges despite the fact that her relationship and communications with the witness in question were clear. Nelson, a Donald Trump appointee, said that whether or not the doctor was competent, it didn’t change the facts of what he told Holmes about the technology as presented in trial.
However, Nelson told the government’s attorney Kelly Volkar that he thought there were issues with how the prosecution used the doctor’s testimony, saying, “I have some problems with how this happened.”
Volkar said that the case was so litigated in district court, before it ever reached trial, that any errors in trial were harmless.
“This was a case where sometimes every motion was litigated to death,” Volkar said, adding: “Holmes admitted a lot of facts that are known now during her testimony, and during cross-examination.”
On rebuttal, Saharia said the core of the appeal goes back to the government’s resting on assumptions about the extent of Holmes’ knowledge about many pieces of the fraud.
“There were in fact many good people working at Theranos, and believing they had good technology. Holmes believed that, and that is what she was telling investors,” Saharia said.
Balwani’s attorney Jeff Coopersmith, arguing for his client's separate appeal, told the panel it should reverse the federal conviction on three factors, including amendment of the initial indictment. He said the government at trial focused on promises to investors about Theranos technology, rather than the indictment’s claims about the technology being unreliable.
Nelson said that the indictment’s details seem to still apply to the government's theory at trial, that the defendant was indicted on allegations about the efficacy of the company’s blood testing services.
“The evidence at trial was that Theranos, at some point, became aware that its proprietary technology was not working correctly," he said.
Volkar, for the government, said that Balwani was on fair notice of the government's theory long before his trial began and at that time the government presented evidence that it knew Theranos was testing blood on third-party devices.
On rebuttal, Coopersmith said that the government misrepresented which witnesses actually inspected the Theranos lab and said records show that prosecutors thought the Theranos Edison device handled testing for HIV and other conditions, not third-party devices.
The defendants also contested the federal judge’s restitution orders based on losses private investors suffered. Patrick Looby, representing Holmes, said the judge’s order went against precedent for calculating investors’ losses, in part based on the company's intrinsic value.
“The district court found that Theranos had considerable value. It continued to exist long after the fraud was found,” Looby said, adding that the district court therefore erred in calculating the company’s intrinsic value.
The judges appeared to disagree, pointing out that investors were unable to liquidate their shares. The government's attorney reminded the panel that the district court found it was misrepresentations of Theranos which caused investors to lose their money.
Holmes was convicted in November 2022 and went to prison more than one year ago after a delay following the birth of her second child and asking for a maximum sentence of 18 months. A Ninth Circuit panel denied her motion for bail pending appeal.
Balwani is serving a nearly 13-year sentence in a federal prison located in San Pedro, California after being convicted of 12 counts of fraud and conspiracy.
Federal prosecutors in 2022 asked U.S. District Judge Edward Davila to make an example of Holmes given the need for trust between Silicon Valley innovators and investors, to “send a clear message to the community that white collar crime is serious and deserving of significant punishment.” Davila in November called the case "troubling on so many levels" and noted that the jury in Holmes' trial spent considerable time deliberating and testing evidence.
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