In the Case of Elizabeth Holmes, Silicon Valley is on Trial

On Tuesday, lawyers are expected to begin picking a jury for the trial of former Theranos CEO Elizabeth Holmes, one of Silicon Valley’s most reviled entrepreneurs. But it’s not only Holmes who’s on trial; the case could bring additional scrutiny to the region’s fledgling business culture.

Holmes, 37, is accused of wire fraud and conspiracy to commit wire fraud in connection with more than $700 million in investments she attracted for her now-defunct blood-testing company, Theranos. She is featured in Yahoo Finance’s new original documentary “Valley of Hype,” which will be available to stream at 5 p.m. on Monday.

Plaintiffs’ lawyer Reed Kathrein, who was interviewed for “Valley of Hype” and represented two of the company’s late-stage investors, said Theranos’ large capital raise could be used in her defense to send a message to the jury that big investments from wealthy, seasoned backers were “business as usual.”

“They will get witnesses to admit this is a known way of doing business in Silicon Valley, and therefore claim that it could not possibly be fraud,” Kathrein said. “This will be fun to watch as it would put all of Silicon Valley on trial.”

The diagnostics company was valued at $9 billion at its peak and was headquartered on the famous Page Mill Road in Palo Alto, California. The company’s unmet aim for Holmes was to revolutionize health care with a desktop analyzer that could run hundreds of medical diagnostic tests with just a drop of blood.

“For me, it was, this is a change in the world that I want to see,” Holmes said in an interview during her time as Theranos’ CEO.

According to prosecutors, Holmes misrepresented to investors and patients that Theranos’ analyzer known as the TSPU, Edison, or miniLab could accomplish a full range of accurate and reliable diagnostic tests using small blood samples drawn from a finger stick. Prosecutors also say Holmes lied about the analyzer being used in military field operations.

Holmes, who pleaded not guilty and faces up to 20 years in prison if convicted on all counts, has argued that she did not intend to mislead investors.

Margaret O’Mara, a University of Washington technology history professor and author of “The Code: Silicon Valley and the Remaking of America,” said Holmes raised money for Theranos at a time when Silicon Valley could rest on its laurels as a technology and investment hub, yet also had a lot to prove. 

“In the early 2010s, the Valley was riding high and the veneration of brilliant young founders like [Apple co-founder] Steve Jobs and [Facebook co-founder] Mark Zuckerberg was riding even higher. The only two places it seemed to fall short in the public conversation was its lack of gender diversity, and the feeling that it wasn’t producing meaningful things,” O’Mara said. “And then here comes Holmes, seemingly solving both of those problems: a tall, pretty blonde, young Stanford dropout, in a black turtleneck, who was building something that was far more than an app, that promised to revolutionize health care.”

Columbia business school professor Len Sherman — also interviewed in “Valley of Hype,” — said Theranos’ ability to attract venture capital and other private funds is reminiscent of the fundraising prowess of New York-based WeWork, and San Francisco-based Uber. 

“The first turned out to be an epic fail and the second has lost more money than any startup in history — and still refuses to predict when if ever they’ll be profitable,” Sherman said. 

While Silicon Valley’s “fake it ‘til you make it” motto may be a defense tactic to soften Holmes’ alleged embellishment about her blood-testing product, Kathrein said, in his opinion, it makes for a weak defense. Instead, he suspects Holmes’ attorneys to focus on the idea that prosecutors have taken her statements to investors and customers too literally.

“More likely they will point to hedges in Holmes’ statements,” and chalk grandiose claims up to “mere puffery,” Kathrein said.

For his part, Former Theranos board member and Silicon Valley technology executive, Dan Warmenhoven, told Yahoo Finance in an interview for the film that to a certain degree Holmes is a victim of Silicon Valley’s startup culture.

“I think with a different board, maybe with a different COO, with somebody to coach her and help develop her as a CEO and a spokesperson, I think a lot of this could have been avoided,” Warmenhoven said.

Holmes is charged along with her co-defendant Ramesh “Sunny” Balwani, Theranos’ former president and COO. Balwani is scheduled to face trial in January 2022.

Lawyers handling jury selection for Holmes’ case are tasked with agreeing upon 12 jurors and 5 alternates. Opening statements are scheduled to begin Sept. 8.

Source: Yahoo News

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