Updated November 18, 2022 at 8:04 PM ET
SAN JOSE, Calif. – Elizabeth Holmes, the former chief executive of blood testing startup Theranos, was sentenced to more than 11 years in prison on Friday for defrauding investors out of hundreds of millions of dollars.
Holmes, once considered a Silicon Valley prodigy, was sentenced to her prison sentence on April 27, 2023, in a case US District Judge Edward Davila called “troubling on so many levels.”
Before Davila pronounced his verdict, a sobbing Holmes stood up and addressed the judge directly.
“Looking back, there are so many things I would do differently if I had the opportunity. I regret my failure with every cell in my body,” she said as her voice cracked.
Holmes’ defense attorneys had hoped for a short prison sentence or even house arrest. Now Holmes, 38 and pregnant with her second child, is due to appear in prison in five months. After her release, she will remain under supervision for three years.
“The tragedy of this case is that Ms. Holmes is brilliant,” Davila said before his statement. But he concluded that she was motivated by avarice and greed to lead investors to believe her company could do far more than she thought possible. He also saw their actions as symptomatic of the worst in Silicon Valley.
The technology industry “finds vectors of financial and personal gain that cloud individuals’ good judgment,” Davila said. “Was there a loss of moral compass here? Was it hubris? Was it the rush of fame,” said Davila of Holmes.
When Theranos was at its peak, Holmes and Ramesh “Sunny” Balwani, her then-boyfriend and number 2 in Theranos, lived in a $15 million mansion. They were traveling in a private jet. They had dinner at the White House.
If Holmes wasn’t striving for a lavish lifestyle, the judge asked, “Then what was it?”
In one of the more surprising moments of the hearing, Davila asked if any victims were in the audience and wanted to speak. A man shot up his hand. His name was Alex Shultz, the son of former Secretary of State George Shultz, who served on Theranos’ board of directors.
He stood before the judge in what appeared to be an impromptu speech and said, somewhat hesitantly, that Holmes had “taken advantage of my father” and that she had “discovered his weakness”.
Alex Shultz said his son Tyler Shultz, a former Theranos employee turned major whistleblower, dealt with private investigators hired by Holmes to follow Tyler Shultz.
His son was so terrified by the ordeal that he began sleeping with a knife under his pillow.
“It was a grueling experience,” he said. “My family’s home was desecrated by Elizabeth,” he said.
A promise of simple blood tests, too good to be true
In January, a jury convicted Holmes of four-wire fraud for her role in deceiving investors about a supposedly groundbreaking technology that could scan for hundreds of conditions with just a few drops of blood. It’s a feat lab scientists around the world have been trying to accomplish for years, but Holmes, a Stanford dropout, claimed she’s perfected it.
She drummed up nearly $1 billion in investment based on the premise that her proprietary blood-testing devices would revolutionize healthcare, but prosecutors argued during the trial that Holmes falsified test results, openly lied about the capabilities of her tests, and attempted to do so to cover up as whistleblowers and journalists began investigating what was really going on at the company.
“They knew they were investing in Theranos based on a false premise,” prosecutor John Bostic told the judge Friday. “She was aware of the discrepancy between what she presented to investors and reality.”
It’s almost unheard of in Silicon Valley for an executive to be prosecuted after a business collapse. But legal experts said the monstrosity of Holmes’ lies, the sheer loss in dollars, and the fact that she operated in the highly regulated world of healthcare made the Theranos case extraordinary.
Still, Holmes’ indictment sparked a debate in tech circles about possible sexism, with some wondering why men who ran tech startups that failed after promises remained unfulfilled were never prosecuted.
However, it appears that high-flying tech startups are now coming under closer scrutiny.
The Justice Department is reportedly investigating the now bankrupt FTX, a crypto trading exchange. Its latest implosion wiped out former CEO Sam Bankman-Fried’s $16 billion fortune in what Bloomberg called “one of the greatest wealth wipes of all time.”
Federal investigators are investigating the company’s dissolution, with legal experts discussing the specter of possible criminal charges.
In the Theranos case, Balwani, who was convicted in a separate trial in the same fraud scheme as Holmes, is scheduled to be sentenced December 7.
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