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Friday December 2nd, 2022 7:20AM

Elizabeth Holmes gets more than 11 years for Theranos scam

By The Associated Press
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SAN JOSE, Calif. (AP) — Disgraced Theranos CEO Elizabeth Holmes was sentenced Friday to more than 11 years in prison for duping investors in the failed startup that promised to revolutionize blood testing but instead made her a symbol of Silicon Valley ambition that veered into deceit.

The sentence imposed by U.S. District Judge Edward Davila was shorter than the 15-year penalty requested by federal prosecutors but far tougher than the leniency her legal team sought for the mother of a year-old son with another child on the way.

Holmes, 38, faced a maximum of 20 years in prison. Her legal team requested no more than 18 months, preferably served in home confinement.

“This is a very heavy sentence," said Rachel Fiset, a defense lawyer who has also been involved in health care cases.

Holmes, who was CEO throughout the company’s turbulent 15-year history, was convicted in January in the scheme, which revolved around the company’s claims to have developed a medical device that could detect a multitude of diseases and conditions from a few drops of blood. But the technology never worked, and the claims were false.

Theranos was dashed “by misrepresentations, hubris and just plain lies," the judge said.

“This case is so troubling on so many levels,” Davila said. “What was it that caused Ms. Holmes to make the decisions she did? Was there a loss of a moral compass?”

Holmes' meteoric rise once landed her on the covers of business magazines that hailed her as the next Steve Jobs. And her deception was persuasive enough to draw in a list of sophisticated investors, including software magnate Larry Ellison, media mogul Rupert Murdoch and the Walton family behind Walmart.

She sobbed as she told the judge she accepted responsibility for her actions.

"I regret my failings with every cell of my body,” Holmes said. She promised Davila she would devote the remainder of her life to trying to help others.

Holmes' attorney, Kevin Downey, indicated she would appeal the sentence. Holmes and her family left the courthouse by a side entrance and managed to evade reporters and photographers.

Before handing down the sentence, Davila reflected on Silicon Valley's transition from an agricultural hub populated by farmers and ranchers to a “crucible of innovation” brimming with bright-eyed entrepreneurs dreaming of changing the world.

Recalling the humble beginnings of technology pioneer Hewlett-Packard in a small garage in Palo Alto — the same city where Theranos was based — he spoke wistfully of “honest, hard work."

"That, I would hope, will be the legacy and continuation of this valley,” the judge said.

Amanda Kramer, a former federal prosecutor who is now a defense attorney, described the sentence as “the equivalent of neon, flashing billboard" offering "a reminder the long-term consequences of fraud far outweigh any short-term gains."

The sentencing in the same San Jose courtroom where Holmes was convicted on four counts of investor fraud and conspiracy marked another climactic moment in a saga that has been dissected in an HBO documentary and an award-winning Hulu series.

Her lawyers argued that Holmes was a well-meaning entrepreneur who is now a devoted mother. Their viewpoints were supported by more than 130 letters submitted by family, friends and former colleagues praising Holmes.

Davila suggested that the letters might have struck a different tone had the writers seen and heard all the evidence shown to the jury.

Prosecutors also wanted Holmes to pay $804 million in restitution — an amount that covers most of the nearly $1 billion that she raised from investors. But the judge left that question for a future hearing that has not been scheduled.

While wooing investors, Holmes leveraged a high-powered Theranos board that included former Defense Secretary James Mattis, who testified against her during her trial, and two former secretaries of state, Henry Kissinger and the late George Shultz, whose son, Alexander submitted a statement blasting Holmes for concocting a scheme that played Shultz "for the fool.”

Alexander Shultz made a brief appearance Friday to lambaste her for terrorizing his son, Tyler, a former Theranos employee turned whistleblower who helped The Wall Street Journal expose the flaws in the company's blood-testing technology.

Before the first in a series of Journal articles appeared in October 2015, Alexander Shultz said Holmes hired private investigators to follow Tyler. The surveillance made Tyler so fearful that Alexander said his son began sleeping in his bed with a knife.

The judge gave Holmes more than five months of freedom before she must report to prison on April 27 — a window of time that should enable her to give birth to her second child before she is incarcerated. She gave birth to a son shortly before her trial started last year.

If Holmes' pregnancy had a role in determining her sentence, the decision could prove controversial. A 2019 study found that more than 1,000 pregnant women entered federal or state prisons over a 12-month study period; 753 of them gave birth in custody.

According to a 2016 survey by the Bureau of Justice Statistics, more than half of women entering federal prison — 58% — reported being mothers of minor children.

Kramer said it seemed clear that Davila did not allow the pregnancy to sway his judgement. His sentence “was a lesson about justice being blind, whether you are woman, a mother, a powerful figure, you are still going to be treated equally under the law."

Federal prosecutor Robert Leach described the Theranos scam as one of the most egregious white-collar crimes ever committed in Silicon Valley. In a scathing 46-page memo, Leach urged the judge to send a message to curb the hubris and hyperbole unleashed by the tech boom of the last 30 years.

Even though Holmes was acquitted on four counts of fraud and conspiracy tied to patients who took Theranos blood tests, Leach also asked the judge to factor in the health threats posed by Holmes’ conduct.

Evidence submitted during her trial showed the tests produced wildly unreliable results that could have steered patients toward the wrong treatments.

Holmes lawyers painted her as a selfless visionary who spent 14 years trying to revolutionize health care. They asserted that Holmes never stopped trying to perfect the technology until Theranos collapsed in 2018.

They also pointed out that Holmes never sold any of her Theranos shares — a stake valued at $4.5 billion in 2014. “Where did all the money go? To building technology," Downey said.

In court documents, Downey also asked Davila to consider the alleged sexual and emotional abuse Holmes suffered while she was involved romantically with Ramesh “Sunny" Balwani, who became a Theranos investor, top executive and eventually an accomplice in her crimes.

Balwani, 57, is scheduled to be sentenced Dec. 7 after being convicted in a July trial on 12 counts of fraud and conspiracy.

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