Elizabeth Holmes admits whistleblower was right and reporter was ‘mismanaged’

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SAN JOSE, Calif .– The government had the opportunity on Tuesday to cross-examine Theranos founder Elizabeth Holmes over allegations of fraud related to the startup’s blood test failure.

Over the course of several hours of testimony, the prosecution peppered Holmes with questions about lab reports with forged logos, a multi-million dollar house, allegations of retaliation against a whistleblower and his acrimony towards a die-hard reporter.

The first round of questioning focused on Holmes’ reaction to the 2015 reporting attempts by then-Wall Street Journal John Carreyrou, who was pursuing a story about the company.

Deputy U.S. Attorney Robert Leach showed court text messages between Holmes and her former boyfriend, Theranos Director of Operations Ramesh “Sunny” Balwani, demonstrating their preparations for a visit from Carreyrou as he was afraid he would write something negative. Balwani said they would “nail” the reporter, and Holmes said she had had a meeting with opposition research firm Fusion GPS to look for details on him.

“I think I mismanaged the whole Wall Street Journal reporting process,” Holmes said Tuesday.

Leach then asked Holmes about her treatment of Erika Cheung, a former Theranos employee and whistleblower who had repeatedly raised concerns about quality issues with the company’s blood testing machines. Cheung said earlier in the lawsuit that after leaving the company, Theranos sent him threatening legal letters and hired investigators to monitor the exterior of his home.

In a stunning admission, Holmes admitted on the witness stand on Tuesday that all of the issues Cheung raised were correct.

“I really wish we treated her differently and listened to her,” Holmes said.

“You know today that Ms. Cheung was right, don’t you?” Leach asked.

“Yes,” Holmes replied.

Holmes did not admit the company hired investigators to track a whistleblower, despite $ 150,000 in receipts.

Holmes did not admit that the company also hired private investigators to track its former employee, even after Leach tried to jog his memory by showing him receipts for the $ 150,000 payments.

Holmes said she owned 51% of Theranos and was able to dismiss or fire whoever she wanted, including Balwani, lab directors and board members, giving her control of the company .

When asked about her annual salary, Holmes said it was around $ 200,000 from 2010 to 2013. In 2014, it increased to $ 360,000. Prosecutors also asked about a $ 9 million Holmes-owned house with Balwani in the affluent town of Atherton, Calif., From 2013 to 2016.

Holmes, who was once valued at over $ 4 billion because of her holdings in Theranos, said she had never sold a single share of her company. “I didn’t want to. I believed in the business and wanted to put everything I had into it,” she said.

Prosecutors also looked into Holmes and Balwani’s relationship, pointing to the affectionate text messages between the two.

In a message of support from Balwani in October 2015, shortly after the Journal’s first articles were published – and with close scrutiny of the rise of Theranos – he told Holmes: “U r tigress and warrior god. You are amazing.

As Theranos’ exam mounted, Balwani texted Holmes: “The tigress and the warrior of God. You are extraordinary.”

“Coming from my tiger means the whole universe to me,” she replied.

Leach, the prosecutor, asked, “Would it be fair to say that you thought you and Mr. Balwani had a spiritual connection?”

“I did it back then,” Holmes said.

The messages contrasted sharply with her dramatic testimony on Monday, when she said that Balwani, who is 20 years her senior, dictated to her how she should control his body movements and behave like a businesswoman and sometimes forced her to have sex with him.

She said she broke the relationship in 2016 after her belief in Balwani collapsed.

“I began to realize that not only was he not the person he told me he personally was, but there was also no way I could save our business if he was. was there, ”Holmes said.

Leach later asked Holmes how lawyers advised the company to drastically reduce claims on its website ahead of launch and whether it fully disclosed the use of modified third-party equipment to investors and board members. administration.

“There are a lot of things I wish I had done differently,” Holmes said in response to a series of questions about his franchise with his board of directors.

Holmes also said she not only added logos of drug companies to Theranos lab reports without permission before sending them to Walgreens, with whom she was pursuing a retail deal, but also made changes. additional.

In the case of Pfizer, she said, she deleted the words “prepared for Dr. Aidan Power,” one of the Pfizer employees with whom she interacted. To a Schering-Plow report, she added the phrase “the gold standard”.

Holmes, 37, a former Silicon Valley sweetheart who once made the cover of glossy business magazines, saw the $ 9 billion company she founded collapse after reports from investigation and failed government lab inspections have uncovered flaws in its blood diagnostic technology.

The company claimed it could run all commercially available tests from a simple finger prick. However, in reality, blood testing machines could run fewer than a dozen tests, and they secretly used Siemens diagnostic equipment instead of their own – while sending inaccurate results back to patients, including a patient who had diagnosed with HIV and one whose blood test indicated she was at high risk of miscarriage.

If found guilty, Holmes faces decades in jail, fines and a restitution order for her investors.


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