Elizabeth Holmes is sentenced to more than 11 years for Theranos fraud

SAN JOSE, Calif. — Elizabeth Holmes, the founder of failed blood test start-up Theranos, was sentenced Friday to more than 11 years in prison for defrauding investors about her company’s technology and business dealings.

The phrase capped a year-long saga that has captivated the public and fueled debates about Silicon Valley’s culture of hype and exaggeration. Ms. Holmes, who raised $945 million for Theranos and promised the start-up would revolutionize healthcare with tests that required just a few drops of blood, was convicted in January of four counts of wire fraud for defrauding investors those claims turned out to be false.

Judge Edward J. Davila of the U.S. District Court for the Northern District of California sentenced Ms. Holmes to 135 months in prison, which is just over 11 years, followed by three years of supervised release. Ms Holmes, 38, who plans to appeal the verdict, is due to surrender to custody on April 27, 2023.

In court on Friday, Ms Holmes – who appeared with a large group of friends and family, including her parents and her partner, Billy Evans – wept as she read a statement to the judge.

“I’m devastated at my shortcomings,” she said. “I’ve felt deep pain for what people have been through because I let them down.”

Ms. Holmes, who has a 1-year-old son and is pregnant with her second child, apologized to Theranos investors, patients and employees. She said she had tried to realize her dream too quickly and to do too many things at once. She ended with a quote from the poet Rumi and a promise to do good in the world in the future.

Although federal sentencing guidelines for wire fraud of the magnitude for which Ms. Holmes was convicted recommend a maximum of 20 years in prison, a probation officer assigned to the case suggested nine years. Her lawyers had sought just 18 months of house arrest, while prosecutors sought 15 years and $804 million in restitution for 29 investors.

Prosecutors had urged Judge Davila to think about the message her case would send to the world. In lawsuits, they wrote that a lengthy sentence for Ms. Holmes was important to “discourage future startup fraud” and “restore the confidence investors should have when funding innovators.”

Jeffrey Cohen, an associate professor at Boston College Law School and a former federal prosecutor, said it was somewhat surprising that a sentence went beyond the recommendation of a probation report, but the high-profile nature of Ms. Holmes’ case had made it a symbol . The verdict also showed that courts take fraud seriously, he added.

“We rarely see these kinds of prosecutions,” he said.

The case of Mrs. Holmes has taken on an almost mythical status among white-collar crime. Few startup founders reached the level of fame she did, appearing on magazine covers, dining at the White House and achieving a paper net worth of $4.5 billion. Since the Theranos fraud came to light in 2015, Mrs. Holmes’ story has been told in podcasts, TV shows, books, and documentaries.

Exaggeration and hype are common among tech start-ups, but very few executives are charged with fraud, let alone convicted and sent to prison. That trend may change, as the Justice Department has said it plans to take more aggressive action against white-collar criminals.

In October, Trevor Milton, the founder of the electric vehicle company Nikola, was convicted of fraud. And Sam Bankman-Fried, the founder of cryptocurrency exchange FTX, which filed for bankruptcy last week, is under multiple state and federal investigations.

Judge Davila asked in court Friday if any victims of Mrs. Holmes were present. A man in a blue suit stood up and introduced himself as Alex Shultz, the son of George Shultz, the former secretary of state who served on the board of Theranos and died in 2021, and the father of Tyler Shultz, a Theranos employee who helped expose the fraud.

In a trembling voice, Alex Shultz described how Ms. Holmes nearly “desecrated” his family after she suspected Tyler Shultz of speaking to the media about Theranos. She hired private investigators to stalk them, threatened legal ruin and “abused my father,” Alex Shultz said.

Jeffrey Schenk, a US assistant attorney and chief prosecutor, criticized Ms. Holmes’ argument that the failure of Theranos was typical of a high-risk, ambitious Silicon Valley start-up. “It’s a logical fallacy to suggest that startups fail, that Theranos was a startup, and that’s why Theranos failed because it was a startup,” he said. “That is not true.”

Kevin Downey, a lawyer for Ms. Holmes, said in court that because she never cashed in her Theranos shares, there was no evidence of greed, such as yachts, planes, grand mansions and parties.

“We have a conviction for a crime where the defendant’s motive was to build technology,” he said.

Ms. Holmes asked for clemency and filed more than 100 letters of support from Stanford professors, venture capital investors, and New Jersey Democrat Senator Cory Booker, among others, who painted her as a virtuous person who was a victim of circumstance.

“Much has been written in the media and raised at trial about the company and its failure,” her father Christian Holmes wrote in a letter. “Little has been said about the innovation Elizabeth strived for, sacrificed and accomplished to help the company continue.”

Ms. Holmes will be assigned to a prison by the Federal Bureau of Prisons based on factors such as location, space, her lack of criminal history, and the nonviolent nature of her crime. The closest minimum security prison to Mrs. Holmes’ residence in Woodside, California is probably the Federal Correctional Institution in Dublin.

Ms. Holmes’ dramatic rise and fall began more than a decade after she dropped out of Stanford University in 2003 to found Theranos, a start-up that aimed to revolutionize healthcare with better disease diagnoses. The company created a machine it claimed could perform more than 1,000 tests on a drop of blood and partnered with major supermarket chains to build testing centers in their stores. Ms. Holmes also claimed that the company’s technology was endorsed by pharmaceutical companies and used on battlefields in Afghanistan.

None of those claims turned out to be true.

Theranos’ deceptions were exposed by The Wall Street Journal in 2015, and a government inspection closed down the company’s lab shortly afterward. Theranos was disbanded in 2018, the year Ms. Holmes and her business partner, Ramesh Balwani, were charged with fraud.

In July, Mr Balwani was found guilty of 12 counts of fraud in a separate trial. He will be sentenced on December 7. Ms. Holmes, who pleaded to separate the cases, did not cooperate with prosecutors in his case.

At her trial last year, Ms. Holmes testified for seven days, the only time she had spoken publicly about what had happened at Theranos since the company’s collapse. She expressed regret for her harsh treatment of whistleblowers and journalists investigating the company, as well as for falsifying scientific research documents.

She blamed others at Theranos for many of the company’s shortcomings, saying her exaggerations simply painted a picture of the future that investors wanted to hear. “They weren’t interested in today or tomorrow or next month. They were interested in what kind of change we could make,” she said.

She also accused Mr. Balwani, who she dated for more than a decade and who is more than 20 years her senior, of emotional and sexual abuse. Mr Balwani has denied the allegations.

Ultimately, a jury concluded that Ms. Holmes was guilty of defrauding three of her largest investors and conspiring to do so. After the verdict, Mrs. Holmes made numerous attempts to get a new trial. She was refused.

Before handing down his sentence, Judge Davila reflected on Silicon Valley’s ethos and what had prompted Ms. Holmes to commit fraud.

“Was there a loss of moral compass here? Was it overconfidence? Was it a rush of fame that comes with being a young entrepreneur?” he asked. He distinguished between investors who take big risks by supporting ambitious founders and investors who don’t know they are being lied to.

“The tragedy in this case,” he concluded, “is that Mrs. Holmes is brilliant.”

Kalley Huang reporting contributed.