Theranos founder faces up to 20 years in prison

Elizabeth Holmes, one of Silicon Valley’s most famous and reviled startup founders, will appear in court in San Jose on Friday for a hearing to determine whether she will go to prison for defrauding hundreds of millions of investors. dollars.

Holmes, who pleaded guilty in January to three counts of wire fraud and one count of conspiracy related to the now-defunct blood testing company Theranos, faces up to 20 years in prison, up to $1 million in fines and nearly $804 million in restitution. in restitution.

But criminal law experts say Holmes, 38, is unlikely to receive nearly 20 years because, under sentencing guidelines, a district court judge has broad latitude to consider mitigating factors that could reduce his sentence.

“So the judge has a pretty broad discretion to leave almost entirely [the guidelines] if he chooses to do so,” Keri Axel, a criminal defense attorney at Waymaker LLP, told Yahoo Finance, explaining that Judge Edward Davila may consider factors in Holmes’ favor, such as his lack of a prior criminal history and the fact that the investors are primarily wealthy individuals. and corporations, as well as those who work against it, such as patients who receive incorrect blood test results.

REFILE – ADD TO COUNTRY Former Theranos CEO Elizabeth Holmes leaves after a federal court hearing in San Jose, California, July 17, 2019, U.S. REUTERS/Stephen Lam

Theranos, which Holmes ran as CEO and promised to revolutionize healthcare, was valued at $9 billion at its peak, making Holmes the world’s first self-made billionaire at the time.

Holmes falsely told investors that Theranos’ proprietary blood analyzer could perform routine lab tests on a finger-stick blood sample that uses about a few drops of blood instead of the larger volumes obtained with traditional blood draws.

Holmes also lied to potential investors that the diagnostics company’s technology had been thoroughly approved by many major pharmaceutical companies and that its Edison test device had been deployed overseas by the Department of Defense to treat wounded soldiers. Holmes also pointed to Theranos as a profitable company.

In separate court documents filed before Friday’s hearing, Holmes’ attorneys and the prosecutors who secured the conviction against him sought vastly different sentences.

Government lawyers asked the judge presiding over the case and who will determine Holmes’ fate, Davila, to sentence the former CEO to 15 years in federal prison, plus three years of supervised release. Holmes’ attorneys asked Davila to spare him any jail time and instead sentence him to 18 months of house arrest.

Theranos CEO Elizabeth Holmes speaks at the annual meeting of the Clinton Global Initiative in New York, September 29, 2015.  REUTERS/Brendan McDermid

Theranos CEO Elizabeth Holmes speaks at the annual meeting of the Clinton Global Initiative in New York, September 29, 2015. REUTERS/Brendan McDermid

Prosecutors are also asking Davila to require Holmes to repay $803,840,309 to his individual investors, as well as Theranos’ corporate investors Walgreens and Safeway.

“Over many years, Elizabeth Holmes defrauded dozens of investors out of hundreds of millions of dollars,” prosecutors wrote in a sentencing brief. “He preyed on his investors’ hopes that a young, dynamic entrepreneur was transforming health care.”

Prosecutors said Holmes was blinded by his ambition, risking the lives of patients who received faulty Theranos tests and favoring schemes that brought him “tremendous fame, adulation and billions of dollars in wealth.”

“He is dishonest before the court. It bears no responsibility. On the contrary, he insists that he is a victim,” the prosecutors wrote in their application.

Holmes’ attorneys countered those arguments in a counter-filing, saying he should be protected from the kind of harsh punishment given to white-collar criminals like former Enron CEO Jeffrey Skilling, who walked away with huge financial fortunes.

The former Theranos founder said, “Advanced healthcare access through Theranos; he built a real company with real value; despite his ability, he did not cash his shares; he acknowledged and tried to fix the many mistakes he and others in the company had made; and efforts outside of Theranos to help others,” he said.

Holmes will be given the opportunity to testify in court. The judge may also allow victims of Holmes and Theranos to speak about how the fraud has affected them.

“And then the judge will probably make a decision there,” said Michael Weinstein, Cole Schotz’s criminal defense attorney.

If the judge sentences Davila Holmes to prison, he could be jailed immediately. Alternatively, his attorneys could request additional time to report to the jail, though that’s not guaranteed. Holmes, who is pregnant with her second child, could be given time to give birth before being sent to prison if she is required to serve the sentence, lawyers said.

Holmes aide Ramesh “Sunny” Balwani, who served as Theranos’ chief operating officer and was Holmes’ boyfriend while he ran the company, was convicted of similar criminal fraud charges in connection with his role at Theranos. In July, a separate jury returned guilty verdicts against Balwani on 12 counts of wire fraud and conspiracy.

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.

Friday’s hearing is scheduled to begin at 1:00 PM Pacific Time.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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