Elizabeth Holmes, the founder and CEO of defunct Silicon Valley blood testing company Theranos, was sentenced to 11.25 years in prison and three years of supervised release for financial crimes she committed while running the once high-flying enterprise.
Holmes was also fined $400 million in special assessments. Holmes is due to surrender to prison on April 27, 2023. Holmes is expected to appeal.
The judge who presided over Holmes’ trial and sentencing said the landmark case, one of the most closely watched in Silicon Valley history, should serve as a cautionary tale for startup founders willing to overstate the capabilities of their products.
“I suppose we should step back and ask what is the pathology of cheating? Is it a refusal to accept responsibility or any expression of remorse?’ Judge Edward Davila said. “Perhaps this is a warning from this case.”
In court filings in support of Holmes, Davila noted that venture capitalists expect startup failures to be “normal” and that investors expect to lose 90% of their money.
“There was something missing in those letters…they didn’t say anything about ‘fraudulent failure,’ they didn’t confirm,” Davila added.
Before the sentencing, Davila said that based on the considerations of the US Sentencing Guidelines, the court determined that Holmes should serve 11.25 to 14 years in prison. The court’s estimate of the “reasonable total loss” that the identified victims of the fraud suffered as a result of the fraud was $121.1 million.
On Friday, Holmes, 38, appeared for sentencing in San Jose District Court, where a jury in January convicted him of three counts of wire fraud and one count of conspiracy. In convicting Holmes, a jury found that he lied to investors about Theranos’ technology and profitability, giving the biotech venture nearly $900 million.
As Davila read Holmes’ sentence aloud to a packed courtroom, the former CEO and onetime Silicon Valley sweetheart was pregnant with her second child in a long black skirt and blazer. Holmes was accompanied in court by his partner Billy Evans and his mother Noel Holmes.
Before Holmes was sentenced, he addressed the courtroom to express his remorse.
“I’m about to take responsibility for Theranos. I loved Theranos. It was my life’s work. My team meant the world to me. They wanted to make a difference in the world. My failures destroyed me,” he said. “Every day over the past years, I felt deep pain for the people… the people who believed in us and those patients. I worked so hard to serve. I gave everything I had to try to build… Theranos. Looking back, I wish I had done it any other way. there are many things I tried to achieve my dream too soon.”
Holmes’ prison term is about 14% of the 80-year maximum allowable term he was technically allowed for the four fraud charges. Each of those charges carries a penalty of up to 20 years in prison, a $250,000 fine, plus restitution.
Although Holmes is expected to appeal his sentence, Friday’s hearing ends the former Silicon Valley superstar’s multibillion-dollar downfall that began in 2003, when he dropped out of Stanford University at age 19 with a desire to democratize health care.
Holmes’ aide Ramesh “Sunny” Balwani, who was her boyfriend while running Theranos and served as the company’s president and chief operating officer, was convicted in July of 12 similar fraud charges. He is scheduled to be sentenced at a later date.
For nearly 15 years, Holmes worked tirelessly to grow the blood-testing company, pitching investors and pushing innovative technology that he hoped would miniaturize the amount of blood and the size of the equipment needed to perform standard blood diagnostic tests.
However, he and Balwani lied to investors that Theranos’ proprietary blood analyzer could perform routine lab tests from a finger stick of just a few drops of blood, instead of the larger blood sample traditionally drawn using traditional vein draws.
The duo also lied to investors by stating that the company was profitable and that its technology was thoroughly endorsed by many large pharmaceutical companies.
Representations by Holmes and Balwani helped Theranos secure a $140 million partnership with drugstore giant Walgreens, which plans to offer Theranos tests in its retail stores. But the deal fell apart when Holmes and Balwani failed to show that their test device could handle about 200 total blood tests.
Theranos eventually collapsed in 2015 after a Wall Street Journal report revealed that the company did not actually conduct fingerstick blood tests, as Holmes had suggested.
Among the jury’s four guilty verdicts were three based on investments in 2014: $38.3 million from veteran healthcare investor Brian Grossman; An investment of nearly $100 million by former US Secretary of Education Betsy DeVos; and a $6 million investment by Daniel Mosley, a well-known real estate attorney who referred wealthy clients to Theranos.
At its peak, Theranos was valued at $9 billion, making Holmes the world’s first female billionaire at the time.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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