The creation of Elizabeth Holmes and the fall of Theranos

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00:00Theranos CEO Elizabeth Holmes has been found guilty on four out of the 11 charges related

00:06to defrauding investors.

00:07And while the verdict sheds light on the legal accountability of making faulty promises,

00:12it actually further complicates the difference between the fake-it-till-you-make-it mindset

00:15and fraud.

00:16When I heard that she was guilty, I wouldn't say that I was surprised, but I was interested

00:22in the way that it had broken down.

00:28The 11 charges against Elizabeth Holmes fell roughly into two buckets, defrauding patients

00:33and defrauding investors.

00:35She was found innocent of all of the patient stuff, all three of the underlying counts,

00:39plus the conspiracy charge.

00:41And then on the investor side, she was found guilty of conspiracy and three of the charges

00:46against her, and the jury hung on three other charges.

00:50Liz Lopato is deputy editor at The Verge and has been covering Theranos since 2015.

00:55We heard only a very little from the patients.

00:57We heard from three patients, and their testimony was, like, maybe an hour total, unlike the

01:03rest of the counts where, you know, we heard from some of these people for days.

01:08But there also wasn't a direct connection made between Holmes and the patients.

01:13And we didn't get enough about how involved Holmes was with the advertising and how much

01:18she had chosen to include or not include, how much of that was deliberate.

01:21I think it was easier to prove the charges against the investors because Holmes was literally

01:26in the room with them.

01:28We don't have to question where they got their information.

01:30We know.

01:31But that's not to say the patient's testimony didn't aid in the final verdicts.

01:35They heard from people who were having a hard time.

01:37They knew Holmes knew that people were having a hard time.

01:40Stuff was getting forwarded to her about retesting, about taking certain tests off the menu.

01:44You know, the jury knew that she knew everything was not right in the clinical lab, even if

01:48she wasn't intentionally defrauding patients.

01:51It's not a great outcome for her.

01:52The maximum she can be charged for each one of those wire fraud counts is 20 years.

01:57Now, I don't think she's going to get 20 years on each one of those counts.

02:01I could be wrong.

02:02It's possible that she won't see jail time.

02:04I don't think that's likely either.

02:06I think she is probably now looking at jail.

02:10Over the course of the trial, hundreds of people flocked to San Jose to catch a glimpse

02:13of Holmes and follow the courtroom drama.

02:16There were so many people who had read Bad Blood in their book clubs and just wanted to

02:20come see.

02:22People who were just interested.

02:23Like, there was a person who worked in the biotech industry and was retired, and this

02:26had been the subject of huge gossip in her friend group.

02:30And then there was one woman outside who was like,

02:33We love you, Elizabeth, you're a good mom.

02:35And the judge actually mentioned that doing that could potentially cause a mistrial if

02:41the jurors hear you, and scolded her in court, and we watched her get up and leave.

02:46So it was, you know, it was a mix.

02:49We had a little bit of goofiness, we had a little bit of seriousness.

02:52And on the stand, Holmes displayed the same control and image that she had become known

02:56for.

02:57In the courtroom, Elizabeth Holmes seemed immaculately controlled.

03:00Her posture was perfect.

03:02Even though the day was running really long, you could see her lawyers starting to wilt

03:07next to her, and she's sitting just like this, you know, just absolutely straight up.

03:11She was pleasant.

03:13She was focused.

03:14She was keeping an eye on things.

03:16She was certainly engaged.

03:17But she also was a little distant, which, again, I understand this.

03:22If you're in a room full of reporters, maybe you don't want to engage with us.

03:25That might be the wisest move if you're on trial.

03:28That's fine.

03:29But the overall impression I got was that she seemed like she had a tremendous amount of

03:35self-possession and self-control.

03:37And that that was really the thing that I was struck by throughout.

03:42But as the reality of the trial began to set in, there was a shift.

03:46There was a period where she was undergoing her direct questioning by her lawyers, where

03:51I had this impression that she was realizing how serious the situation was in real time

03:57as she was trying to respond to some of the things that she'd heard the other witnesses

04:01saying, and it was sort of horrible to have somebody realize how serious things are for

04:06them when they are literally on the witness stand.

04:08Like, that was sort of awful to watch.

04:12I can't help but think that it was partially because of this impression I got of her of

04:16somebody who really prepares, who was, like, probably an A student who brought the, like,

04:20teacher an apple, who, like, really gave great testimony when she had prepared it and,

04:26like, kind of knew what she was going to say.

04:27But whenever there was a question that was kind of on the fly, she got nervous, and she

04:32was really nervous during her cross-examination.

04:35But there was certainly a kind of waiver in self-control when she was testifying and had

04:41been up there for a couple of hours and was clearly getting tired.

04:45As we await Holmes' sentencing and inevitable appeals, the trial of Sonny Balwani, Theranos'

04:51former president and chief operating officer, is about to begin.

04:55He's facing the same charges.

04:56Sonny and Elizabeth were originally going to be tried together, but because of her allegation

05:00of abuse, which was raised in sealed pre-trial motions, their trials were severed.

05:06Now, this is actually a pretty good thing for both of them because it gave them the freedom

05:09to blame each other in their separate trials.

05:12You know, Elizabeth Holmes definitely did.

05:14She definitely said, oh, Sonny was responsible for this.

05:16Oh, Sonny was responsible for that.

05:17Oh, the financial projections that were weird?

05:19That was Sonny.

05:20It wasn't super credible, but I imagine he's going to do the same thing and say, look,

05:24she was the CEO, like this was Elizabeth, this was Elizabeth, Elizabeth was the one who talked

05:28to these people, this was Elizabeth.

05:29So I imagine that's probably good for him.

05:32But the guilty verdict for Holmes might cue us into the outcome of the case against Balwani.

05:36Finding her guilty on the conspiracy count is bad news for him.

05:40It suggests that there's enough evidence of the conspiracy on at least one end to convict.

05:46And if there's enough evidence on one end, there's probably enough evidence on the other.

05:50I am interested about the patient stuff.

05:52He was more directly involved with the clinical lab.

05:55And so that may work out differently for him.

05:57But in terms of the investor counts, you know, some of these investors testified that they

06:02were dealing directly with Sonny.

06:03And I am curious to see how his trial is different.

06:07Regardless of her sentencing or the outcome of Balwani's case, having a CEO or COO of a company

06:13on trial is a rare spectacle.

06:15And it's unlikely to happen again for a long time, but not necessarily because anyone will

06:20actually learn anything from Theranos' mistakes.

06:23A lot of people want to say, well, she's not Silicon Valley.

06:25And I understand that impulse because I wouldn't say she's representative of Silicon Valley,

06:30but she's certainly a product of it in the same way that like Bernie Madoff is not representative

06:34of Wall Street, but he's certainly a product of it.

06:38But because so many people don't seem to want to acknowledge that she's even a part

06:43of this world, I don't think we're going to see a lot of behavior changes.

06:47And even with the verdict, investors might not change their tune in investing in future

06:52companies with such bold claims.

06:54We're in this like very frothy period where there's a lot of money available and investors

06:58really aren't doing as much due diligence as they should be.

07:01That worries me because that's the kind of situation where fraud can potentially flourish.

07:08You know, with Theranos, it just looked like a successful company until all of a sudden

07:12it wasn't. And I don't know how many of those kinds of things are out there lurking

07:15around right now.

07:16But I do find myself wondering if we're going to see changes in terms of compliance or in

07:21terms of what lawyers recommend to their clients as a result of that, because I don't

07:26see investor behavior changing.

07:27I don't necessarily see founder behavior changing.

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