Elizabeth Holmes, the founder and CEO whose startup Theranos parlayed the promise of revolutionary diagnostics into a business valued at $9 billion, was convicted Monday on 4 of 11 federal charges that the company defrauded patients and investors by claiming that its technology could diagnose dozens of health disorders using just drops of blood drawn via finger stick.

A jury in San Jose, CA, found Holmes, 37, guilty of three charges of wire fraud against investors related to wire transfers of $38,336,632 on or about February 6, 2014; and of $99,999,984 and of $5,999,997, both occurring on or about October 31, 2014. Holmes was also found guilty of one count of conspiracy to commit wire fraud against investors between 2010 and 2015.

Holmes was found not guilty of four other charges—two counts of wire fraud connected to a patient’s laboratory blood test results, of which one occurred on or about May 11, 2015, the other on or about five days later; one count of wire fraud related to a wire transfer of $1,126,661 on or about August 3, 2015: and one count of conspiracy to commit wire fraud against patients who paid for Theranos’ services between 2013 and 2016.

Jurors failed to reach a verdict on three of the 11 charges leveled against Holmes by prosecutors from the U.S. Attorney’s Office for the Northern District of California. All three were of wire fraud related to wire transfers—one of $99,990 occurring on or about December 30, 2013; one of $4,875,000 occurring on or about December 31, 2013; and one of $5,349,900 also occurring on December 31, 2013.

“Split verdict in Theranos/Holmes trial is nevertheless a serious loss for her,” Harry Litman, who served as U.S. Attorney for the Western District of Pennsylvania from 1998–2001, and now teaches Constitutional law at University of California (UC), San Diego, and UCLA, said on Twitter of Holmes. “Her exposure is as severe as if convicted of everything.”

Holmes faces a potential 20 years in prison on the charges, though several news reports quoted legal experts as saying she is likely to receive a shorter sentence. However, Litman, who is of counsel with the whistleblower law firm of Constantine Cannon in San Francisco, predicted “probably > 15 years” since the fraud at issue in the case involved more than $65 million.

Holmes—whose investor presentations and attire evoked comparisons to Steve Jobs—and her lawyers denied committing fraud by counter-asserting that she believed in what Theranos attempted to do. Holmes took the stand in her own defense during the trial, alleging that she was a victim of emotional and sexual abuse at the hands of Theranos’ president and COO and her former boyfriend Ramesh “Sunny” Balwani, who was charged along with Holmes—and who has denied any wrongdoing. Balwani will go to trial on his charges later this year.

“I wish I had done it differently.”

However, during her own testimony, she admitted responsibility for including the logos of Pfizer and Schering-Plough (since acquired by Pfizer) to Theranos documents circulated to investors, saying she thought at the time that she acted appropriately because the documents covered work performed with the pharma companies. During the trial, executives for Walgreens and several investors testified that they believed the companies had validated Theranos’ technology.

“I’ve heard that testimony in this case and I wish I had done it differently,” Holmes acknowledged.

Holmes founded Theranos in 2003 as a 19-year-old, dropping out of Stanford University where she had been majoring in chemical engineering. The company raised more than $700 million in private capital from venture capitalists and other investors, and attracted luminaries to its board of directors that included two former U.S. Secretaries of State, Henry Kissinger and George Shultz; former U.S. Secretary of Defense James N. Mattis, and former U.S. Senators Sam Nunn and Bill Frist.

Theranos ceased operation in September 2018, nearly three years after news reports about its operations made the company one of 2015’s most important biopharma stories.

Theranos’ business model and diagnostic tests came under withering scrutiny from The Wall Street Journal starting in October 2015, when reporter John Carreyrou offered the first of several news stories on the company. One report found the company’s Edison lab testing instrument was used for only 15 of its 240 tests as of December 2014, according to four former employees. The other report said Theranos stopped collecting tiny vials of blood drawn from finger pricks for all but one of its tests, following an unannounced FDA inspection.

The disclosures contrasted with Theranos’ since-withdrawn website claim that its “breakthrough advancements have made it possible to quickly process the full range of laboratory tests from a few drops of blood.”

Holmes responded at the time by promising to increase her company’s transparency, telling Bloomberg Businessweek that Theranos invited independent medical experts to examine its technology and discuss their findings publicly. Theranos also promised to publish testing data submitted to the FDA in a medical journal.

However, the news reports touched off investigations by the U.S. Attorney’s Office in San Francisco, the U.S. Securities and Exchange Commission, and other federal as well as state agencies.

“Holmes’ grave error”

“The culture of Silicon Valley created the conditions for someone like Holmes to come along, to thrive,” Carreyrou said in a 2018 visit to Stanford Graduate School of Business, during a program organized by the school’s Corporations and Society Initiative and co-sponsored by the Rock Center for Corporate Governance. “Holmes’ grave error was to channel this culture, especially the fake-it-until-you-make-it part.”

Carreyrou cited another factor in Holmes’ emergence and earlier success: “There was a yearning to see a female entrepreneur break out and succeed on the scale that all these men have: Mark Zuckerberg, Larry Page and Sergey Brin, Steve Jobs, and Bill Gates before them.”

Indeed Holmes’ legal trouble sparked concerns raised in an editorial by GEN founder, publisher & CEO Mary Ann Liebert that Theranos’ debacle may make it harder for women to attract financing for their companies.

“Holmes is a pariah among the highly qualified women whose accomplishments and integrity are absolute, and we need to ensure that what she has done does not destroy the possibility of more women-owned initiatives,” declared Liebert, who is also president and CEO of Mary Ann Liebert, Inc., publishers.

Theranos’ primary source of revenue came from Walgreens Boots Alliance. The holding company for Walgreens joined Theranos in September 2013 to launch a partnership that brought the diagnostics company’s services to Theranos Wellness Centers created within some Walgreens stores in Arizona and California.

In May 2016, The Wall Street Journal reported that Theranos had voided all results for tests run on its Edison device in 2014 and 2015, while correcting some blood coagulation tests performed at the Scottsdale lab.

A month later, Walgreens ended its relationship with Theranos in June 2016, shutting down all 40 Theranos Wellness Centers in its Arizona stores and saying it will no longer offer the company’s services. Walgreens at the time cited the voiding of test results and an earlier rejection of a correction plan for the lab submitted by Theranos to the Centers for Medicare & Medicaid Services (CMS).

In July 2016, CMS revoked the CLIA certification of the company’s Newark lab and barred Holmes from owning, operating, or directing a laboratory for a minimum of two years. That action followed a CMS investigation of the lab’s operations that found a number of deficiencies within the operation, including one that posed “immediate jeopardy to patient health and safety.”

Theranos initially pursued an appeal, saying that it made “substantial progress” toward correcting deficiencies identified by CMS—which the company summarized as appointing new lab leadership, strengthening its clinical policies and procedures, and revamping training programs. The company ultimately agreed in April 2017 to pay a $30,000 fine and not operate a clinical lab for two years.

Change of strategy

With the company in the proverbial crosshairs of CMS and other authorities during the summer of 2016, Theranos appeared to pursue a strategy of moving away from delivering services via its own labs, to one that focused instead on selling products.

On August 1, Holmes spoke before 1,000 clinical laboratory scientists at the American Association of Clinical Chemistry (AACC) conference in Philadelphia, where she detailed the launch of the miniLab, a customizable tabletop device that can perform a variety of clinical chemistry, hematology, immunohistochemistry, and molecular biology assays using a small sample of blood. Used in conjunction with the Theranos Virtual Analyzer software that can operate miniLab remotely, Holmes once again said the company would revolutionize the market by moving away from a centralized model of clinical lab testing.

In March 2018, Theranos, Holmes, and Balwani settled charges raised by the U.S. Securities and Exchange Commission that they raised more than $700 million from investors through an “elaborate, years-long fraud” that entailed exaggerating or making false statements about the company’s technology, business, and financial performance.

Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the activities scrutinized by the SEC, and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares—without her or the company either admitting or denying the allegations in the SEC’s complaint.

Balwani worked at Theranos from September of 2009 through 2016, serving as the company’s president, COO, and board member at different times during that period.

Three months after the SEC settlement, the U.S. Attorneys Office filed criminal charges against Holmes and Balwani, accusing them of using ads and solicitations to encourage doctors and patients to use Theranos’ blood testing laboratory services despite knowing the company could not consistently produce accurate and reliable results for certain blood tests. Investors were defrauded, according to prosecutors, through direct communications, marketing materials, statements to news media, financial statements, models, and other information.