Theranos executives can't shake fraud charges on appeal, says Ninth Circuit

SAN FRANCISCO (CN) — The Ninth Circuit on Monday upheld the high-profile convictions of former Theranos executives Elizabeth Holmes and Ramesh “Sunny” Balwani for defrauding investors as to their previous company’s achievements in blood-testing technology. A panel of judges affirmed the fraud charges, their decade-long sentences and the lower court’s $452 million restitution order, concluding that any errors in the lower court’s decision were minor and ultimately “harmless.”

“The grandiose achievements touted by Holmes and Balwani were half-truths and outright lies,” U.S. Circuit Judge Jacqueline H. Nguyen, a Barack Obama appointee, said in the ruling.

The disgraced executives argued on appeal that their trials and sentencing contained several key procedural issues worth re-examining. Among other things, Holmes and Balwani insisted that the lower court erred by allowing former Theranos employees, who testified as lay witnesses, to improperly offer expert testimony.

Holmes further argued that the lower court violated her Sixth Amendment rights when it stopped her from cross-examining a former Theranos laboratory director on the details of his post-Theranos employment.

The panel of judges largely disagreed, only finding minor errors related to expert testimony and how the lower court determined the value of the $452 million restitution order, which the former executives claimed went against precedent.

Theranos was a biotechnology company founded by Holmes in the early 2000s that sought to revolutionize the medical lab testing field. By the early 2010s, the company claimed it could run fast, affordable and accurate blood tests using just a drop of blood in stark contrast to traditional methods.

The company’s mission and lofty vision captivated Silicon Valley and attracted investors from the highest echelons of business and the U.S. military. Investors included media magnate Rupert Murdoch, former Defense Secretary James Mattis and a lucrative partnership with Walgreens to set up Theranos blood testing centers in Arizona and California.

“But the vision sold by Holmes and Balwani was nothing more than a mirage,” Nguyen said.

In late 2015, The Wall Street Journal broke a story exposing the limitations of Theranos’ technology, as well as internal power struggles at the company. It also revealed that pharmaceutical companies never validated their technology, as Holmes and Balwani told investors, and suggested that Theranos cheated on proficiency tests to receive laboratory certification.

The company’s futuristic blood-testing tech, it seemed, failed to deliver on its promise.

Theranos was first sued by Walgreens for breach of contract in 2016, just over a year after the article was published. A subsequent class action accused Theranos of using technology other than its own to conduct the majority of its blood tests.

After more than two and a half years of investigation, a grand jury returned an indictment against Holmes and Balwani. Both were tried separately in lengthy trials.

In 2022, a federal jury convicted Holmes and Balwani of defrauding investors and publicly misrepresenting the benefits of their now-defunct company’s blood-testing device following a monthslong trial. The court held Holmes and Balwani jointly and severally liable for $452 million in restitution, including $397 million for the 12 victims identified at sentencing and $54.5 million for two other victims, Safeway and Walgreens.

U.S. District Judge Edward J. Davila sentenced Holmes to just over 11 years in federal prison in November 2022. Just a month later, Balwani was sentenced to almost 13 years in federal prison for fraud that risked patient health by misrepresenting the accuracy of Theranos blood analysis technology.

Holmes and Balwani appealed soon after in 2023, challenging their convictions, sentences, and the restitution order.

In reviewing the case, the panel conceded that the lower court committed a minor error by allowing Dr. Kingshuk Das to testify as an expert witness during Holmes’ trial, which Holmes argued violated federal evidentiary rules. In court, Das testified that Theranos’ proprietary blood testing device was “unsuitable for clinical use.”

However, the panel concluded that Das was qualified to testify anyway, and any error committed was insignificant and thus not reversible by the Ninth Circuit.

“To the extent that Holmes is now challenging Das’s qualifications as an expert, we conclude he was qualified,” Nguyen wrote.

Similar challenges concerning other key experts were also dismissed by the panel.

Balwani began his sentence in April 2023, and Holmes began hers in May 2023.

Attorneys for Holmes and Balwani did not immediately respond to a request for comment. A spokesperson for the United States Department of Justice declined to comment.

The panel of judges was rounded out by U.S. Circuit Judges Mary M. Schroeder, a Jimmy Carter appointee, and Ryan D. Nelson, a Donald Trump appointee.