The trial of Elizabeth Holmes, founder and former chief executive of medical technology company Theranos, has begun in California.

She is pleading not guilty to perpetrating one of the biggest frauds in Silicon Valley history, “an elaborate, years-long fraud” as the US government alleges, and faces up to 20 years in prison.

Theranos itself, which she founded aged 19, has shut down after the unravelling of its claims to have invented a revolutionary finger-prick blood test.

Holmes is accused of knowing this test was unreliable and inaccurate and of hiding this information.

The Downfall

By 2014 the company had announced a partnership with US pharmacy chain Walgreens, and Forbes was hailing Elizabeth Holmes as the world’s youngest self-made female billionaire.

Theranos reached its peak in September 2015 when the company was valued at $9bn (£7bn) and Holmes shared a stage with former president Bill Clinton and Chinese entrepreneur Jack Ma in a panel discussion about equality and opportunity.

But a month later, the Wall Street Journal published a front-page story that claimed the company’s blood testing technology was so flawed Theranos was actually using equipment made by other businesses to carry out tests in its laboratories.

The Journal reported that the company’s former chief scientist had taken his own life two years earlier after telling his wife the finger-prick technology did not work.

The Charges

Investigations by medical and financial regulators soon followed and in 2018 criminal charges were filed against Elizabeth Holmes and Romesh Balwani, her former boyfriend and the president and chief operating officer of Theranos, accusing them of fraud.

The pair were charged with engaging “in a multi-million-dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients” and each face two counts of conspiracy to commit wire fraud and nine counts of wire fraud.

Theranos made misrepresentations to doctors and patients about the reliability of its tests, the Department of Justice alleged.

The executives were also accused of making misrepresentations to investors about the financial condition of the company, celebrating expected sales of over $1bn when they were actually bringing in just a few hundred thousand.

The Trial

Lawyers for Holmes are expected to argue that she was working with an impaired mental state at the time of the fraud due to alleged sexual abuse and coercive behaviour by Ramesh Balwani.

Balwani’s lawyers have denied these claims.

His trial is set to take place next year after his lawyers sought to have him tried separately to avoid Holmes’ testimony prejudicing the jury. He too has pleaded not guilty.

According to an unsealed court document written by Balwani’s lawyers when seeking to have his case heard separately, she “plans to introduce evidence that Mr Balwani verbally disparaged her and withdrew ‘affection if she displeased him’; controlled what she ate, how she dressed, how much money she could spend, [and] who she could interact with”.

The jury selection process has been a challenge, with dozens already removed after confirming their familiarity with media coverage of the case, and with others now asked whether they have any experience of abusive relationships.

The main defence expected from Holmes’ lawyers is that Balwani’s controlling behaviour “erased her capacity to make decisions”, including in the case of knowingly defrauding investors, doctors and patients.

What does it mean?

Both defendants previously reached a settlement with the Securities and Exchange Commission, relinquishing their shares in the company and paying a $500,000 (£360,000) penalty.

But their case is also emblematic of what is often seen as a culture of ‘fake-it-until-you-make-it’ among Silicon Valley startups, as Sky News business presenter Ian King writes.

There are many lessons to be drawn from the Theranos affair, but perhaps the most worrying thing that has emerged is the culture of secrecy that existed in Theranos, a culture that was – and is – by no means unique in Silicon Valley.

John Carreyrou, the investigative journalist at the Journal whose stories exposed the scandal, has since written a book on the saga, Bad Blood, which highlights the weirdly cultish nature of the company.

Again, in this regard, Theranos was perhaps not so different from a number of other companies in the Valley.

Quite apart from the crushing losses for investors, this secrecy and cult-like nature had other real-world consequences, with many patients likely to have received erroneous blood test results.

There are many outstanding questions surrounding Theranos, not least the outcome of Ms Holmes and Mr Balwani’s forthcoming fraud trial, as well as whether the remaining patents being acquired by Fortress will turn out to have any lasting value.

The biggest of all, though, is whether there are other tech companies presently enjoying outlandish valuations that eventually turn out to be similarly flawed.

The chances must be that there are.

Jury selection has begun in the trial, which the court expects may continue into December.

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