Legal experts expressed mixed reactions toward the verdict of the months-long Elizabeth Holmes trial on Monday, which found the Theranos founder guilty of four of 11 charges of wire fraud and conspiracy to commit wire fraud.
To some Stanford law professors, Holmes repeatedly crossed the line between hyperbole and falsehood in pitching her company’s blood testing technology to investors. This, law and business professor Joseph Grundfest said, is what made Holmes’ conviction a rare success among fraud cases involving startup executives, many of which end without a successful prosecution.
“The government had clear evidence of bald-faced, brazen lies,” Grundfest said. “Prosecutors love cases of that sort.”
Other legal analysts, however, characterized Holmes’ actions as falling within the acceptable bounds of startup practices. According to Aron Solomon, chief legal analyst at Esquire Digital, while Holmes was certainly guilty of hyperbolic behavior in pitching her vision for Theranos to investors, this behavior did not rise to the level of wire fraud.
“What Elizabeth Holmes did is what every startup founder does,” Solomon said. “She believed that her technology would one day reach the level that she always said it would.”
Solomon attributed Holmes’ conviction to the average juror’s inability to understand the startup mentality, a problem that he said was exacerbated by Holmes’ exalted status even among other startup founders. That Holmes was a Stanford-educated, successful tech executive made it impossible for her to be tried by a “jury of her peers,” Solomon said, which worked to her disadvantage.
Legal experts were also split on the case’s potential impact on Silicon Valley. Leading up to her conviction, Holmes’ trial was widely seen by media outlets as a referendum on Silicon Valley startup culture, said Solomon. Because Holmes’ hyperbolic approach to her company is so common within Silicon Valley, Solomon said he believes that her conviction is likely to have a chilling effect on other would-be entrepreneurs.
“If I’m a Stanford student right now who’s a founder of a startup or considering founding a startup,” Solomon said. “I’d be pretty nervous.”
Law professor Robert Weisberg said that while aspirational statements and hyperbole, or “puffery,” are common in Silicon Valley, Holmes’ “flat out lies” made her case exceptional compared to other Silicon Valley fraud cases.
“It’s not condemning the culture of Silicon Valley,” Weisberg said. “If anything, it’s saying that most of the time, this sort of ‘puffery’ is acceptable, or at least very hard to prove.”
While legal experts disagreed on Holmes’ four guilty convictions, most agreed that the seven non-guilty charges against Holmes were much harder to prove. Weisberg took care to separate the 11 charges against Holmes into two groups: first, that Holmes was defrauding Theranos investors, and second, that Holmes was defrauding the doctors and patients who used Theranos technology.
All four guilty verdicts involved Holmes’ interactions with investors, Weisberg said, to whom it was evident that Holmes had lied. Not all charges involving investors received a guilty verdict, however. With some of the other charges, either the investor had already known of the defects with Theranos’ technology, or had the opportunity to research Holmes’ claims, according to Weisberg.
Weisberg said that proving that Holmes had deceived doctors and patients was an even harder task. This is because these doctors and patients never interacted directly with the Theranos founder herself.
“A scheme to defraud requires that I deceive you to take your money,” Weisberg said. “With investors, that exchange is quite clear. With doctors and patients, the facts are muddier.”
Experts also agreed on the length of Holmes’ prison sentence, which they estimated to likely be around 10 years or less. While Holmes can face up to a maximum sentence of 20 years for each count, this is a purely theoretical limit, Weisberg said, with most cases similar to that of Holmes falling around the same range. Weisberg also noted that Holmes has an infant child, which the judge may take into account in delivering a more lenient sentence.
A more punitive sentence will likely be faced by Theranos chief operating officer Ramesh “Sunny” Balwani, who faces trial in February. According to Solomon, one key factor in Balwani’s case will be that he is nearly two decades older than Holmes, his former partner. Holmes said in her defense that she was in an abusive relationship with Balwani, who was an older and more experienced entrepreneur. This, in combination with Holmes’ successful conviction, will make Balwani’s defense more difficult, Solomon said.
“Balwani was, in many ways, closer to many misinterpretations than Holmes,” Grundfest said. “My guess is that the Holmes verdict puts the fear of God in Balwani.”