The San Jose court, presided over by Judge Edward Davila, found Holmes guilty of three counts, including three counts of fraud, and sentenced the Theranos founder to the long-term prison sentence on Friday.
Prosecutor Jeff Schenk had asked for 15 years in prison, arguing that “day by day, week by week, month by month and finally year by year” Holmes decided to deceive her investors.
Media reports revealed fraud
The prosecution had previously demanded that the now 38-year-old be sentenced to 15 years in prison and more than $800 million in compensation. Her defense pleaded that her sentence be spared. Holmes was found guilty of multiple counts of investor fraud by a grand jury in San Jose, California, in January. In theory, Holmes faced 20 years in prison on multiple counts.
The then 19-year-old founded Theranos in 2003. The biotech company advertised a supposedly revolutionary technology for particularly fast, effective and inexpensive blood tests. The charismatic young entrepreneur was celebrated as a tech pioneer, won financially strong investors and prominent supporters and became a billionaire herself. Then media reports revealed that the technology didn’t work at all.
Holmes had always denied the allegations once morest her. For the public prosecutor, on the other hand, the case was clear. “Holmes chose fraud and decided once morest bankruptcy, she chose to be dishonest,” public prosecutor Schenk said in his closing arguments in the January trial. “That decision wasn’t just callous, it was criminal.”
Promised revolution in blood tests
The great promise of Theranos was to revolutionize blood tests: Just a few drops from your finger should be enough to carry out extensive analyses. Theranos promised to be able to quickly discover dozens of diseases, including cancer and HIV, with its technology – much faster and cheaper than in conventional laboratories. According to Holmes, he was terrified of needles to draw blood as a child, which is how he came up with the idea. For her start-up she gave up her studies at the elite Stanford University in California.
Holmes was hailed as a charismatic visionary in Silicon Valley. The media compared her to Apple founder Steve Jobs, and Theranos made her the youngest self-made billionaire in the United States. The overall valuation of Theranos reached up to nine billion dollars in the financing rounds, and Holmes’ fortune was also several billion dollars, at least on paper.
Deficiencies were concealed
Among others, the drugstore chain Walgreens got involved and sold Theranos blood tests in their shops. However, as it turned out, the technology never worked reliably enough. Tests were not carried out with the company’s own machines, but with laboratory technology from other manufacturers, which were modified by Theranos technicians on their own. Investors and the public were kept secret.
A central problem with this method was that the machines were designed for larger amounts of blood from the veins of the patients. Theranos stretched the little finger tests because of this, but this led to problems with the accuracy of some tests.
According to experts, another factor was that the pressure on the fingertips when taking blood changes the nature of the samples – which might also lead to incorrect analysis values. However, the results serve as a point of reference for possible diseases and treatments. Theranos eventually had to cancel test results across the board.
Problems revealed by newspaper reports
The problems became known in 2015 with a series of investigative reports in the Wall Street Journal, which Theranos initially tried to suppress with the help of lawyers. Holmes denied everything, but the articles drew US regulators into action, including scrutinizing the company’s labs. Theranos had to close – and the financiers got nothing.
The prosecution spoke of deliberate deception
The indictment accused Holmes of deliberately duping investors in order to get the investments for Theranos. The jury found three money injections confirmed – and also found Holmes guilty of conspiracy to commit fraud on another count.
Holmes testified at the trial that she genuinely believed in the technology but, as the boss, was not informed of all the problems. “Ms. Holmes believed that she had invented a very compelling technology, and she believed that others outside the company shared that view,” said Holmes’ attorney, Kevin Downey.
For many observers, the Theranos case goes well beyond Holmes as a person. Rather, they see it as a symbol of a widespread Silicon Valley start-up culture of “fake it till you make it” – just pretend an idea will work and pave the way to success.