An ex-CEO of Theranos has admitted to federal charges of fraud

Former Theranos COO and ex-boyfriend Ramesh "Sunny" Balwani has been convicted of defrauding investors and patients of the blood testing startup

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Following a lengthy trial that began in March with opening statements, the jury's deliberations lasted for four full days. Balwani was found guilty on all 12 counts, including ten counts of federal wire fraud and two counts of conspiracy to commit wire fraud, by a jury made up of five men and seven women.

When it came to charges of defrauding patients and investors, a separate jury acquitted Holmes, but they were unable to come to an agreement over the other three. On four counts relating to investors, she was convicted.

Four years ago, along with Holmes, the founder and former CEO of the failed blood testing startup, Balwani was indicted on charges of defrauding investors and patients. Due to Holmes' legal team revealing that she planned to accuse them of having a relationship, their trials were halted.

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Balwani's fate was read aloud with little expression on his face. A small group of people who were in the courtroom to support him gathered around him afterward. Approximately six months after the conclusion of Holmes' trial, a decision has been reached.

Two Silicon Valley startup executives who were accused of defrauding investors out of millions of dollars in a rare criminal fraud case have been found guilty and sentenced to up to 30 years in prison.

As a historian of the tech industry, Margaret O'Mara told CNN Business, "Balwani is a reminder that she, like everyone else, didn't do it alone." "However, he still had a significant influence on the company's operations."

As a result of her own aversion to needles, Holmes founded Theranos at the age of 19 in an effort to develop a less expensive and more efficient blood testing alternative. To test for a wide range of conditions, including cancer and diabetes, the startup claimed to have developed technology that required only a few drops of blood. Investors such as media mogul Rupert Murdoch and the Walton family of Walmart helped Theranos raise $945 million in the end. It has also forged alliances with some of the most well-known retailers.

When the Wall Street Journal published an investigation into the startup in 2015, it revealed flaws in its testing procedures and technological capabilities, everything came crashing down.

San Jose, California courtroom where Holmes was convicted was used for Balwani's trial. Judge Edward Davila presided over his case, which was repeatedly postponed because of the ongoing Holmes trial and then a surge in Covid-19.

The government called two dozen witnesses in an effort to persuade jurors that Balwani knowingly and intentionally lied and deceived investors and patients in order to raise money for Theranos. A similar strategy to the one employed by the government in the case of Sherlock Holmes involved trying to make sense of the alleged fraud to jurors by disguising the use of third-party manufactured machines, exaggerating financial data, and fabricating work with pharmaceutical and military organisations.

There were two witnesses called by the defence to testify. It depicted Balwani as a person who acted in good faith and had faith in the company's technology in its opening and closing arguments. It also argued that prosecutors cherry-picked evidence to prove their case and questioned whether the government had enough evidence to convict Balwani by a jury of his crimes.

For each count of wire fraud and conspiracy, Balwani, 57, faces up to 20 years in prison and a fine of $250,000 plus restitution.Holmes, 38, is expected to be sentenced by the end of September, according to court records

Balwani's path to Holmes, and Theranos' path to success

O'Mara said Balwani is "more representative of the Valley in terms of his career" than Holmes will be in the long-term memory of the story of Theranos.

In the summer of 2002, Balwani and Holmes first met. They met during a summer language-learning programme in Beijing. After a successful career as a software developer and entrepreneur, Balwani is nearly 20 years older than Holmes, who is still in his early 30s.

A student visa brought Balwani to the United States in 1986, where he studied at the University of Texas at Austin. After graduating from college, he moved to Silicon Valley and worked for tech companies like Lotus and Microsoft, among others. Later, he founded and sold an e-commerce company. He returned to school in 2002 to earn his MBA.

During Holmes' trial, she and the prosecution witness formed a bond. They kept in touch and eventually developed a romantic relationship. Their relationship was established in 2005, the year after Holmes dropped out of Stanford to work full-time on Theranos.

In 2009, shortly after guaranteeing a $10 million loan to Theranos, Balwani took on a formal role at the company. According to Balwani's defence, the board of Theranos recommended that he eventually take on the roles of COO and president. However, investors, employees, and business partners were mostly kept in the dark about their relationship.

Holmes and Balwani led Theranos to a $9 billion valuation, a major retail partnership with Walgreens, and glowing press coverage. One of the first women to start her own billion-dollar company, Holmes was featured on multiple magazine covers and hailed as the rare female billionaire.

Nonetheless, in 2015, the Journal reported that Theranos had conducted only a handful of the hundreds of tests it offered using its proprietary blood testing device, and with questionable accuracy. The Journal also revealed that Theranos was not using its own proprietary technology, but rather third-party manufactured devices from traditional blood-testing companies.

Balwani, who was in charge of the lab that processed patient samples, left the company in May of that year and has not returned. As a result, their personal relationship was also over. More than a year's worth of blood test results were cancelled by Theranos.

Holmes and Theranos agreed to settle "massive fraud" charges with the SEC in 2018, but did not admit or deny any of the allegations as part of the agreement. Meanwhile, Balwani is denying the allegations against him. During his criminal trial, Jeffrey Coopersmith, the lawyer representing him, said that he "accurately represented Theranos to investors to the best of his ability."Theranos went out of business not long after that.

"Partners in everything."

Despite the fact that their trials were held separately, each played an important role in the court proceedings of the other.

According to US assistant attorney Robert Leach, the government believes that he and Holmes "were partners in everything, including their crimes," during the prosecution's opening arguments in Balwani's trial.

As an important part of Theranos and a trusted advisor to Holmes, Balwani played a more minor role in the company's operations. Additionally, he was responsible for managing Theranos' retail partnership with Walgreens and overseeing the lab for its patients. As a way to close deals, Balwani would speak directly to some investors.

During Holmes' criminal trial, she argued that Balwani had more power than she did at her own company in some respect. A decade-long relationship with Balwani was the subject of her testimony in her own defence. Restrictive lifestyle and image were prescribed by Balwani in order to succeed in business, she claimed. He allegedly forced her to have sex with him on more than one occasion, according to the woman's testimony. The allegations against Balwani have been categorically denied by his lawyers.

Holmes didn't go so far as to say that Balwani told her to lie to anyone. To this day, she still doesn't understand how much of an impact he had on her.

According to former federal prosecutor and white-collar defence lawyer Mark MacDougall, both sides in Holmes' trial benefited from seeing how evidence and witness testimony fared with jurors. There could have been a different verdict in Sunny's trial because each side would have made adjustments in light of the Holmes case's outcome, he explained.

Even though Balwani did not testify, the defence team's strategy included blaming Holmes for the charges against him. Jurors were reminded by the defence that he was a fan of Holmes and Theranos, just like a number of other prominent investors, business partners, and employees.

Former Defense Secretary James Mattis and former Secretary of State George Shultz were among the board members who had faith in Holmes and Theranos, as was Stanford University chemical engineering professor Channing Robertson.

During closing arguments, Coopersmith stated, "That was the board at Theranos that the investors were understandably impressed with, as was Mr. Balwani no doubt."

The government's witnesses reflected Theranos' wealthy backers. Chris Lucas, whose uncle Don Lucas was a well-known Silicon Valley investor and a former chairman of Theranos' board; Lisa Peterson, who helped vet a deal for the billionaire family of former US Education Secretary Betsy DeVos; and Daniel Mosley, a prominent lawyer who was introduced to Theranos through his longtime client Henry Kissinger, the former Secretary of State, who once served on the board of the company. One of the first people to meet Holmes and Theranos was a client of Mosley's.

According to Coopersmith: "This is what Elizabeth was able to do...the charisma, the drive, the vision, the goal of changing diagnostic testing," she concluded.

In addition, Balwani's defence argued that the prosecution's case was flawed because of a missing database. Database containing company testing records was destroyed before the prosecution could ever get access to it.

Prosecution Assistant US Attorney John Bostic rebutted the defense's closing arguments shortly before the case went to jurors, saying, "It's important to the process and to your deliberations that you focus on what actually is in evidence and not speculate about things that are not before you."

News Source: https://edition.cnn.com/2022/07/07/tech/sunny-balwani-verdict-theranos/index.html

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