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Theranos founder Elizabeth Holmes has an unusual defense for her fraud trial. Will it work?



Recently unsealed federal court documents in Elizabeth Holmes’ wire fraud trial revealed a creative legal strategy her defense team may use to try to beat the charges to be weighed by a Northern California jury, whose selection began Tuesday. The documents argue that Ramesh “Sunny” Balwani, at one time her boyfriend and the former president and chief operating officer of Theranos, deceived Holmes about the company’s financial models and subjected her to intimate partner abuse.

It’s a long-shot strategy. But then again, most defense strategies in federal criminal court are, statistically, long-shot strategies.

Prosecutors allege that Holmes and Balwani both defrauded investors and patients by falsely claiming that the startup had developed technology to run a wide range of tests from a single prick of blood. Theranos had a meteoric rise as it wooed celebrity investors, only to implode once the product Holmes had touted failed to deliver.

Balwani is Holmes’ co-defendant, but his trial has been severed from Holmes’ and will be conducted separately. The unsealed court documents largely pertained to her attorney’s request to divorce the cases so she could mount a defense asserting that Holmes acted under Balwani’s influence. According to Holmes’ legal team, Balwani’s abuse caused Holmes to believe whatever he told her about the company’s financial models. Balwani has denied allegations of abuse, and both Holmes and Balwani have pled not guilty to the fraud charges.

It’s a long-shot strategy. But then again, most defense strategies in federal criminal court are, statistically, long-shot strategies. That’s why being creative is part of the job description for federal criminal defense attorneys. Over 90 percent of federal criminal cases end in guilty pleas. Of those criminal defendants who go to trial, about 1 percent are acquitted. The perception that slick defense attorneys regularly pull “not guilty” verdicts out of thin air for guilty-as-sin defendants is a myth, the result of infamous outliers, like the O.J. Simpson verdict.

Not surprisingly, the federal government wins most of its wire fraud cases. In 2019, 597 of 645 wire fraud defendants pleaded guilty. Twenty-eight were convicted at trial. The total number of defendants who went to trial and were acquitted? Two. Ever wonder why former federal prosecutors are so confident when they’re commenting on television? It’s because they’re all winners. They win almost every single case. That has to feel amazing.

As good as federal prosecutors are at their jobs, however, Holmes’ attorneys are widely regarded as about the best in the defense business (I don’t know any of them personally). They know the statistics. They know the odds are against them. They know they have to think outside the box. So they have signaled that Holmes might blame her co-defendant. Holmes’ defense team won a major victory when it severed Balwani’s trial from Holmes’, because it means Holmes’ attorneys can now point to an empty chair in the courtroom and say: That was all his responsibility. He deceived Holmes as much as he deceived everyone else. Holmes was duped, too.

Blaming your co-defendant isn’t, itself, a novel defense theory. It has been around for as long as there have been co-defendants. It’s especially popular in drug possession cases. Four guys in a car plus one baggie of drugs often equals a whole lot of: “That ain’t mine — it’s his.” The strategy of one defendant blaming his or her partner in a romantic relationship isn’t new, either. But Holmes faces particular hurdles.

Former Theranos Chief Operating Officer Ramesh Balwani leaves the federal court in San Jose, Calif., on Jan. 14, 2019.Justin Sullivan / Getty Images file

For starters, it was Holmes whom the world saw Forbes name as the youngest-ever self-made female billionaire in 2014. Holmes — not Balwani — took to the airwaves to fire back at The Wall Street Journal when it began publishing stories raising doubt about her business, exposing Theranos’ flawed technology and how the company covered up its own failures. Soon after, the Justice Department charged her and Balwani with defrauding investors, as well as patients of Theranos.

Is it possible that Holmes was in the thrall of her older, more forceful, romantic partner the entire time? Maybe. But the jury might not buy it. And even if jurors think she was swayed by Balwani, is it enough for them to absolve her of responsibility if she knew what was really going on?

Then again, other data might help Holmes here. For example, looking at the 2020 statistics from the U.S. Sentencing Commission for securities and investment fraud, 93 percent of offenders were men. In other words, it’s exceedingly rare for a woman to be charged with and convicted of fraud. The simplest explanation for that number is that men are more fraudulent than women — a lot more fraudulent — and more likely to be in positions where they can commit fraud. But it might also indicate a deeper societal reluctance to think of women as fraudsters. Add to that a defendant who recently became a mother, and a defense that emphasizes her gender and motherhood might garner sympathy from the jury.

A possible defense theory could be that the overconfident Holmes everyone saw on TV was just a front. In reality, the defense may argue, she was a young, impressionable woman — she was a teenager when she started Theranos, for goodness’ sake. They might portray her as ambitious but naive, caught up in media hoopla and dominated by her romantic partner.

But there are also risks involved with blaming her co-defendant, whether he’s in the courtroom or tried separately. Claiming your co-defendant made you do bad things often requires admitting the bad things actually happened. At minimum, it means admitting that she — the head of the company — was completely clueless about the company. It’s arguing not guilty by reason of “I’m a complete rube.” At some point, naivete crosses over to willful blindness. And that’s not a defense.

Holmes’ attorneys will have other strategies, of course: They can argue that what Holmes did wasn’t fraud but “puffery,” part of the “acting as if” culture endemic to Silicon Valley, where billionaires are made by sheer force of will and good, old-fashioned chutzpah.

Ultimately, it will be up to the Northern California jury. Because it’s Silicon Valley, it’s likely to be a pool full of people in Holmes’ demographic. They are highly educated, upper-income folks in similar fields. They may be sympathetic to her situation — or they might judge her even more harshly than a jury not familiar with the Silicon Valley gold rush culture.

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