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    Aron Solomon: How Far Will the Theranos Trial Go?

    Law 5 Mins Read
    BY ETHAN PINES/THE FORBES COLLECTION.

    By Aron Solomon

    This week marks the long-anticipated trial of Elizabeth Holmes, founder of the startup Theranos. In U.S. v. Elizabeth Holmes, et. al., what was once a Silicon Valley startup drama, then a TV and film drama, now becomes a courtroom drama. But what unique questions of law are there and where is the case going to actually end up?

    The stakes have always been high with Theranos. The company once had a market cap of $9 billion. On Tuesday, jury selection begins in the trial of Stanford-educated Elizabeth Holmes, the Theranos founder, who could face 20 years in prison. The Holmes trial is one of two trials here – the other, for co-defendant, Ramesh “Sunny” Balwani, will begin in January. 

    We have been hearing about the Theranos trial since Holmes was originally charged three years ago. The trial had been delayed several times because of the pandemic and the birth of Holmes’ child in mid-July of this year. While this is arguably the most intriguing legal case for the media since the O.J. Simpson trial that essentially built Court TV almost 30 years ago, the legal questions are reasonably clear. 

    Holmes founded Theranos, which was billed as a startup that would transform the huge industry of medical laboratory testing through its revolutionary blood testing invention. Theranos claimed to have new, game-changing methods for drawing and testing blood, and interpreting the patient data that came as a result. Remember that this is a Silicon Valley startup with some of the biggest investors in the game – the idea that Theranos could extract unique patient data was a huge motivating factor for investors. Both Holmes and her co-defendant are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. In simpler terms, the indictment claims that the duo were defrauding their investors, patients, and even doctors.

    Theranos had a proprietary machine named Edison that was going to be the driving force behind this change, but as the company untraveled and the foundation of the legal case was set, the world learned that Edison was actually doing very few of the tests. They were being done on other companies’ machines and the testing itself was inaccurate. The prosecutors in this case allege that Holmes and her co-defendant knew that Theranos could not produce the results they claimed and that the results of these tests would be unreliable and inaccurate, which could also harm patients. 

    The entire case is based upon multiple deceptions. While doctors and patients are being deceived about what the Theranos “technology” actually did, investors were being deceived about how the company functioned and how much revenue and profit was going to be generated – well as being duped by that brilliant diamond of the false data claim. 

    The trial will take place at the United States District Court for the Northern District of California, which is in San Jose. Procedurally, any eventual appeal of the court’s decision in this case would be to the United States Court of Appeals for the Ninth Circuit. From there, the losing party could attempt an appeal to the Supreme Court of the United States, but the Court has very specific rules about what cases and controversies they choose to hear. In a normal year, the acceptance rate of cases by the Court is under 2%. Under the well-established “Rule of Four,” if four of the nine Supreme Court justices feel that a case is a valuable one for the Court to hear, they will accept the case. The path to the Supreme Court for U.S. v. Elizabeth Holmes, et. al., would be a rocky one at best.

    It’s important to remember that the Supreme Court chooses cases to hear on appeal based on interesting or novel issues of law. At its core, when we cut through all of the drama, including the bizarre Steve Jobs-esque character Elizabeth Holmes seems to have attempted to cultivate, the legal issues here aren’t terribly complex and may not be sufficiently novel to eventually capture the imagination of the Supreme Court. 

    It’s impossible to overemphasize what high drama the District Court trial is going to be. A recently unsealed filing in the case indicates that part of Ms. Holmes’ defense is that, for a decade, she was sexually, emotionally, and psychologically abused and forced into submission by Mr. Balwani, her co-defendant. As a result of this abuse, Holmes believed that the allegedly fraudulent statements she was making about Theranos were true. This is a perfect example of the challenges both the trial court and eventually the Ninth Circuit could have. 

    Michael Epstein, a New Jersey lawyer, shares his perspective on the role of the court here:

    “At its core, the Theranos case is a trial about massive fraud. The trial court needs to ensure that there are as few legal bases for appeal as possible here. Certain unique challenges are always presented in this regard where the case is as high-profile as the Theranos case will be.”

    Absent legal mistakes the District Court and the Ninth Circuit are unlikely to make, the Theranos case may stay longer in our collective imagination than it will in the legal system. Yet this case is sure to be a dream for those who love made-for-TV dramas, with much to be written about it over the coming months. From the world-renowned venture capitalist who should have known, better (even is Holmes used to be his kids’ babysitter) to the well-deserved notion that Theranos risked not only serious injury, harm or death to patients, but to the notion of American meritocracy itself, ultimately, the legacy of the Theranos trial may be something as simple and powerful as a reminder that if something sounds too good to be true it probably is.

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