Balwani, the former president and COO at the failed blood-testing startup, was indicted four years ago along with Holmes, the founder and former CEO, for allegedly defrauding investors and patients. Their trials were halted after Holmes’ legal team described in legal filings that it planned to charge about their relationship as part of its defense.
Balwani’s verdict comes about six months after Holmes was found guilty of four of 11 federal fraud and conspiracy charges. His verdict marks the end of a rare criminal fraud case against two Silicon Valley startup executives and the latest chapter of a company and a founder once considered the poster child for the entrepreneurial dream of building a disruptive product with the potential to change the world. .
“Balwani is a reminder that, like everyone else, she didn’t do it alone,” Margaret O’Mara, a technology industry historian and professor at the University of Washington, told CNN Business. “He still had an important role in running the company.”
Holmes founded Theranos when she was 19 in an effort to create a cheaper, more effective alternative to traditional blood tests, a goal she said was inspired by her fear of needles. The fledgling company later claimed to have developed technology capable of controlling a range of ailments, including cancer and diabetes, using just a few drops of blood. Theranos eventually raised $945 million from investors, including such notables as media mogul Rupert Murdoch and Walmart’s Walton family. It also entered into partnerships with prominent retailers.
Then it all fell apart, starting with a 2015 Wall Street Journal investigation into the startup that revealed holes in its testing methods and technology capabilities.
Balwani’s trial was held in the same courtroom in San Jose, California where Holmes was convicted. His case, presided over by Judge Edward Davila, was postponed several times due to delays in the Holmes trial and later due to the increase in Covid-19.
To make its case against Balwani, the government called two dozen witnesses as it tried to convince jurors that he knowingly and intentionally lied and deceived investors and patients to get money for Theranos. As in the Holmes case, the government tried to unravel the layers of the alleged fraud for jurors, including concealing the use of third-party machines, overstating financials, misrepresenting work with pharmaceutical companies and the military, and leveraging media to perpetuate the project.
The defense on the other hand called two witnesses to testify. During opening and closing discussions, he portrayed Balwani as acting in good faith and believing in the company’s technology. He also argued that prosecutors co-opted information to prove their case and cast doubt on whether the government had enough evidence for jurors to find Balwani guilty.
Balwani, 57, faces up to 20 years in prison as well as a $250,000 fine plus restitution on each count of fraud and each count of conspiracy.
Holmes, 38, is expected to be sentenced in late September.
Baluani’s road to Holmes and Thiranos
While Holmes’ dramatic rise and fall is likely what most people will remember about Theranos’ story in the years to come, O’Mara said Balwani is actually “more representative of the Valley in terms of his career.”
Balwani and Holmes first crossed paths in the summer of 2002. The two met while attending a summer program in Beijing to learn Mandarin. Balwani, nearly 20 years older than Holmes, already had a successful career in the software industry and as an entrepreneur.
Originally from South Asia, Balwani moved to the United States on a student visa in 1986 to attend college in Texas. After graduation, he came to Silicon Valley and worked for technology companies such as Lotus and Microsoft. He then started an e-commerce company, which he eventually sold. By 2002, he was back in school getting his MBA.
As Holmes testified in her own defense at her trial, the two forged a friendship. They kept in touch and their relationship eventually turned romantic. By 2005, the year after Holmes dropped out of Stanford to work full-time at Theranos, the couple lived together.
Balwani took an official role at Theranos in 2009, shortly after guaranteeing a $10 million loan to the company. At the recommendation of Theranos’ board of directors, according to Balwani’s defense, he would eventually assume the role of COO and president. Their romantic relationship, however, was largely kept private by investors, employees and business partners.
Under Holmes and Balwani’s leadership, Theranos struck a major retail partnership with Walgreens, hit a $9 billion valuation and received glowing press coverage. Holmes appeared on several magazine covers and was hailed as the rare female founder of a billion-dollar business, not to mention a paper billionaire.
But in 2015, the magazine reported that Theranos had performed only a dozen of the hundreds of tests it offered using its proprietary hematology device, and with questionable accuracy. The magazine also revealed that Theranos relied on third-party devices from traditional blood-testing companies rather than its own proprietary technology.
Balwani, who oversaw the lab that processed the patient samples, left the company in May 2016. (Their personal relationship also ended at that time.) Theranos voided two years’ worth of blood test results.
In 2018, after nearly two years of turmoil, Holmes and Theranos settled charges of “massive fraud” with the U.S. Securities and Exchange Commission, but neither admitted nor denied any of the allegations as part of the settlement. Balwani, on the other hand, is fighting the charges. Jeffrey Coopersmith, the attorney who also represented him in his criminal trial, said in a statement at the time that he “accurately represented Theranos to investors to the best of his ability.”
Thiranos disbanded soon after.
“Partners in everything”
While their trials were separate, each featured prominently in the other’s court proceedings.
As Assistant U.S. Attorney Robert Leach told jurors during the prosecution’s opening arguments in Balwani’s trial, the government believes he and Holmes “were partners in everything, including their crimes.”
While Balwani was an integral part of Theranos and a Holmes confidant throughout her run of the company, she was more of a behind-the-scenes force. In addition to the critical role of overseeing the patient lab, he also oversaw the key retail partnership with Walgreens and managing Theranos’ financial forecasts. Balwani, from time to time, contacted some investors directly to secure deals.
During her criminal trial, Holmes suggested that Balwani had even more power than she did at her own company in some ways. Taking the stand in her own defense, she testified that she was the victim of a decade-long abusive relationship with Balwani. She claimed that Balwani exerted immense control over her, prescribing a restrictive lifestyle and image to become successful in the business world. At times, she claimed in her deposition, he forced her to have sex with him. Balwani’s lawyers have vehemently denied the allegations.
Holmes did not say that Balwani invited her to mislead anyone. “It affected everything about who I was, and I don’t fully understand it,” she testified.
Mark MacDougall, a white-collar defense attorney and former federal prosecutor, said both the prosecution and defense likely benefited by being able to see how the evidence and witness statements went over with the jury in Holmes’ trial. “Each side in Sunny’s trial would have made adjustments based on the outcome of the Holmes case, which could have resulted in a different verdict,” he said.
While Balwani did not take the stand, his defense team’s strategy included pointing the finger back at Holmes. The defense stressed to jurors that he, too, believed in Holmes and Thiranos, as did many other high-profile investors, business partners and employees.
The list of people who believed in Holmes and Thiranos included Stanford University chemical engineering professor Channing Robertson, who served as the company’s first board member. Former Defense Secretary James Mattis and former Secretary of State George Shultz, who also once served on the board.
“This was the Theranos board that investors were impressed with, as Mr. Balwani undoubtedly was,” Coopersmith said during closing arguments.
The caliber of Theranos supporters was reflected in the witnesses called by the government. Among those testifying in both trials was investor Chris Lucas, whose uncle Don Lucas was a well-known Silicon Valley investor and one-time chairman of Theranos. Lisa Peterson, who helped vet a deal for the billionaire family of former U.S. Secretary of Education Betsy DeVos, and Daniel Mosley, a prominent attorney who was introduced to Theranos through longtime client Henry Kissinger, the former secretary of state who he once served on the company’s board of directors. (Mosley went on to introduce several of his clients to Holmes and Theranos, including the DeVos family.)
“That’s what Elizabeth was able to do…the charisma, the drive, the vision, the goal to change diagnostic testing, and she lived up to that vision,” Coopersmith added.
Balwani’s lawyers also pointed to a missing database as a reason for jurors to be skeptical of the prosecution’s case. The database contained the company’s trial records, but the prosecution was never able to regain access before it was destroyed.
“It is important for your process and discussions to focus on what…
