Elizabeth Holmes sentenced to 11 years in prison for Theranos fraud

Published: 10:14 AM, 19 Nov, 2022
Elizabeth Holmes sentenced to 11 years in prison for Theranos fraud
Caption: Former Theranos CEO Elizabeth Holmes
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Fallen US biotech star Elizabeth Holmes was sentenced Friday to just over 11 years in prison for defrauding investors with her Silicon Valley start-up firm.

The Theranos founder had been convicted on four felony fraud counts in January for persuading investors that she had developed a revolutionary medical device before the company flamed out after an investigation by The Wall Street Journal.

The closely watched case became an indictment of Silicon Valley, and US federal prosecutors had sought a 15-year jail term for Holmes. She was sentenced to 135 months.

US attorney Stephanie Hinds said the sentence "reflects the audacity of her massive fraud and the staggering damage she caused."

"For almost a decade, Elizabeth Holmes fabricated and spread elaborate falsehoods to draw in a legion of capital investors, both big and small, and her deceit caused the loss of hundreds of millions of dollars," the prosecutor said in a statement following the judge's decision.

Holmes, who is pregnant, will not have to surrender herself until April next year, ordered US District Judge Edward Davila in a courtroom in San Jose, California.

Holmes's lawyer indicated she will appeal her conviction.

Moments before her sentencing, a tearful Holmes told the court: "I stand before you taking responsibility for Theranos. I loved Theranos. It was my life's work."

She added: "I am devastated by my failings. Every day for the past years I have felt deep pain for what people went through because I failed them."

"I gave everything I had to building our company and trying to save our company."

- 'Tragedy' -

Holmes became a star of Silicon Valley when she said her now defunct start-up was perfecting an easy-to-use test kit that could carry out a wide range of medical diagnostics with just a few drops of blood.

At the time, Holmes often dressed soberly in black turtlenecks that evoked her hero, the late Apple icon Steve Jobs.

She sold investors on the idea that her invention would disrupt medical practice, replacing expensive lab tests with her cheap kits.

But prosecutors said Holmes knew her device was not producing accurate and reliable results, yet induced dozens of investors to contribute nearly one billion dollars, all without ever achieving meaningful revenue.

Holmes's meteoric rise and fast demise has been the subject of books, movies and a TV series that framed her story as a cautionary tale on the excesses of the tech industry that blindly followed a charismatic founder.

At one point, the Theranos board included former US defense secretary James Mattis and former US secretaries of state Henry Kissinger and the late George Shultz.

Sentencing Holmes on Friday, Davila said the case was a "tragedy" and "troubling on so many levels."

He described Holmes as "a big thinker" who had fought to get into an industry dominated by "male ego."

But he noted "significant evidence about manipulation and untruths that were being used in the negotiation of the business."

"What is it that caused that? Was it hubris? Was it intoxication with the fame that comes from being a young entrepreneur?" he asked.

- 'Amazing things' -

After hearing her prison sentence, Holmes hugged her partner Billy Evans, who is the father of her 15-month-old son, and her mother, Noel Holmes.

Lawyers for Holmes, 38, had asked for leniency, presenting her as a devoted friend who cares for a young child and has a second child on the way.

This was backed up by 140 letters of support filed to the court, including from her family, friends and a US senator.

"I am confident that on the other side of this, Elizabeth will do amazing things for society with her talents and boundless passion for changing the world for the better," said one letter.

That was in sharp contrast to descriptions given at her trial that painted her as an ambitious con artist who harassed her workers.

In a letter, Holmes's aunt, who was an early investor in Theranos, called on the court to give her a tough sentence, The Wall Street Journal reported.

Prosecutors want Holmes to pay $800 million in restitution to investors that included the Walton family of Walmart, the Walgreens chain of pharmacies and media mogul Rupert Murdoch.

A restitution hearing will be scheduled, although Holmes says she has no money to pay.

Fallen star

Elizabeth Holmes's startup Theranos made her a multi-billionaire hailed as the next US tech visionary by age 30, but it all evaporated in a flash of lawsuits, ignominy and, finally, an 11-year prison sentence on Friday.

The rise and fall of Holmes, who in January was convicted of defrauding investors of her biotech startup, is a heavily chronicled saga that prompted a hard look at her methods but also the unseemly aspects of startup life.

In many ways Holmes fit the image of a Silicon Valley entrepreneur, from her dark-colored turtleneck sweaters that evoked tech legend and Apple founder Steve Jobs to her dropping out of California's elite Stanford University.

But it has all come crashing down with the tech star, who is now pregnant, set to surrender herself in April of next year to begin serving time.

The fundamental question surrounding her case was always whether Holmes was a true visionary who simply failed, as she claimed on the stand, or a skilled self-promoter who took advantage of a credulous context to commit fraud.

Her story begins in the US capital Washington, with her birth to a Congressional staffer mother and a father whose online biography says he was once an executive at Enron -- an energy company that collapsed in a massive fraud scandal.

She won admission to Stanford, and there began work on cutting-edge biomedical initiatives, founding in 2003 what would become Theranos when she was just 19.

Part of Holmes's ability to convince her backers was her apparent deep personal commitment -- she applied for her first patent while still at university and after dropping out, convinced her parents to let her use her tuition savings to build the company.

- 'Youngest woman self-made billionaire' -

By the end of 2010 she had raised a whopping $92 million in venture capital for Theranos, which she pledged was developing machines that could run a gamut of diagnostic tests on a few drops of blood.

Over the next couple years she assembled what one news report called the "most illustrious board in US corporate history," including former secretaries of state Henry Kissinger and George Shultz as well ex-Pentagon chief Jim Mattis.

"Sharp, articulate, committed. I was impressed by her. That didn't take the place of having the device prove itself," said Mattis in a surprise appearance on the stand.

Theranos hype kicked up another gear in 2014 and in the span of just over a year, a turtleneck-wearing Holmes appeared on the covers of Fortune, Forbes, Inc. and T: The New York Times Style Magazine.

Forbes gave her a $4.5 billion net worth in 2014, which was based on her half ownership of Theranos, and noted: "Youngest woman on Forbes 400; Youngest woman self-made billionaire."

This glowing coverage had an impact on Theranos investors like venture capitalist Chris Lucas who told Holmes' trial the Fortune article made him "proud we were involved, very proud of Elizabeth."

But there were some things that didn't end up in those glowing reports that gushed with statements like "Steve Jobs had massive ambition, but Holmes's is arguably larger."

- Silicon Valley sexism? -

For one, she personally put the logos of pharma giants Pfizer and Schering-Plough onto Theranos reports hailing its own blood-testing technology, which were then shared with investors.

That was done without the companies' permission and was a key piece of the prosecution's argument that she deliberately tried to inflate Theranos's credibility in order to win over backers.

She also kept secret the machines' failings and the fact that once Theranos began to do diagnostics on real patients, some of the tests were done using the same equipment sold to standard labs.

Ultimately though, it was a series of Wall Street Journal reports starting in 2015 -- which Holmes tried to kill by appealing to the paper's owner and Theranos investor Rupert Murdoch -- that set the company's collapse in motion.

Holmes's case also raised questions about why she was prosecuted, but not other tech CEOs who engaged in the "fake it until you make it" Silicon Valley method or other bad behavior.

Ellen Pao, the former CEO of Reddit and critic of tech industry discrimination, argued in a New York Times opinion piece that sexism bears some blame.

She noted that WeWork's Adam Neumann and Uber co-founder Travis Kalanick raised billions with hype, while there have been allegations of racism and sexism at Tesla and misleading claims about vaping from Juul's leaders.

Holmes "should be held accountable for her actions as chief executive of Theranos," Pao wrote.

But "it can be sexist to hold her accountable for alleged serious wrongdoing and not hold an array of men accountable for reports of wrongdoing or bad judgement," she added.

Categories : World

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