CourtsFeds seek 15-year prison term for Theranos founder

Theranos founder Elizabeth Holmes, set to be sentenced Friday, should go to prison for 15 years and be on the hook to pay hundreds of millions of dollars back to the investors she defrauded, federal prosecutors argue in a blistering sentencing memo.

Holmes, newly confirmed to be pregnant and already the mother of a young son, last week asked in her own sentencing memo for a maximum of 18 months — or no prison time at all. She was convicted in January on four felony counts of bilking investors in her now-defunct Palo Alto blood-testing startup out of more than $144 million. Legal experts expect she will receive a multi-year prison sentence.

Prosecutors say in their memo that Holmes “repeatedly chose lies, hype, and the prospect of billions of dollars over patient safety and fair dealing with investors,” and call her crimes “extraordinarily serious, among the most substantial white collar offenses Silicon Valley or any other district has seen.”

Judge Edward Davila should impose a sentence that sends a message to Silicon Valley, the prosecution argues. “Holmes’ criminal scheme was committed in Silicon Valley. This region is known for innovation, where companies rely upon investments to fund ideas before they become profitable,” the memo says. “Holmes’ crimes damaged the trust and integrity that are necessary for this community to thrive.”

Holmes founded Theranos in 2003 at age 19, propelling the company and herself into nationwide prominence through false claims that her machines could conduct a full range of tests using just a few drops of blood. A series of Wall Street Journal exposés led to the firm’s downfall and federal charges in 2018 against Holmes and her former romantic partner Sunny Balwani, who was Theranos’ chief operating officer.

Dramatic revelations from Holmes’ four-month trial in U.S. District Court are highlighted in the prosecution memo, filed late Friday. Jurors heard that Holmes stole logos from pharmaceutical companies and affixed them to internal Theranos reports to falsely signify the companies had validated her technology, a deception prosecutors mention prominently.

Holmes’ insinuations to investors that her testing machines were in battlefield use by the U.S. military also receive significant attention in the memo. Texas real estate magnate Craig Hall, who invested nearly $5 million in Theranos, submitted a victim-impact statement saying her sentence should take into account her “intentional decision” to prey on investors’ “reverence” for military service members. “Holmes’s actions were loathsome and un-American,” Hall wrote.

The prosecution argued that Holmes, who took the witness stand in her trial, blamed the company’s failings on Balwani, her board of directors, company scientists, business partners, investors and the media.

“She stands before the Court remorseless,” the sentencing memo says. “She accepts no responsibility. Quite the opposite, she insists she is the victim.”

Holmes, in her own sentencing memo, emphasized that she had never “cashed out” by selling any of her Theranos stock, valued at one point at $4.5 billion. Prosecutors argue that she was nevertheless motivated to commit fraud by a desire for fame, fortune and a high-flying lifestyle.

“She took home hundreds of thousands of dollars in annual salary,” the prosecutors’ memo states. “She traveled in a Theranos-paid private jet. She and Balwani ruled Theranos from a $15 million mansion in Atherton. She dined at the White House … and at the peak of the fraud was named by Time (Magazine) as one of the 100 Most Influential People in the World.”

Holmes was found not guilty of defrauding patients, but prosecutors want her sentence to account for her purported recklessness with patient safety. “As money was drying up, she went to market with an unproven and unreliable medical device,” prosecutors say in the memo. “Women received wrong tests about their pregnancies, Theranos generated wrong results for cancer tests, and one victim was led to believe she had the virus that causes AIDS.”

Davila will probably sentence Holmes based mostly on the charges that led to her conviction, rather than on the patient harms and total investor losses, said criminal defense lawyer Carrie Cohen, who has followed Holmes’ case from New York. The judge is likely to consider Holmes’ child and pregnancy when determining a sentence, but may still put her away for five to 10 years, Cohen said. “She committed a very serious crime and did so for a very long period of time and through multiple acts of deception on multiple people and entities,” Cohen said. “That has to be deterred.”

Prosecutors demand in the memo that Holmes pay the eye-popping amount of $804 million to cover the entirety of investors’ losses, but acknowledge that “the amount of restitution may dwarf Holmes’ ability to pay.”

Holmes, in her sentencing memo, said she had gone bankrupt and did not have money for restitution. Investigators have determined, prosecutors say, that Holmes has “modest assets” that are outweighed by $450,000 in loans taken out to pay her $500,000 settlement with the U.S. Securities and Exchange Commission, and her “liability for legal fees in excess of $30 million.” The investigators could not find out whether any third parties are liable or expected to pay Holmes’ legal fees.