Former Theranos Inc. Chief Executive Officer Elizabeth Holmes may team up with her ex-boyfriend, the company’s former president, to fight criminal fraud charges. Or they may be foes.
Holmes and Ramesh “Sunny” Balwani confront a proverbial prisoner’s dilemma: stand together to fight prosecutors, or point fingers at each other. The challenge isn’t just whether to trust an ex’s loyalty, lawyers say. If one is offered a deal to help prosecutors, there’s still no guarantee they’ll avoid years in prison.
The romance is “a complicating factor, probably, for everyone involved,” said Barbara McQuade, a former prosecutor and law professor at the University of Michigan.
The case is sure to be closely watched in Silicon Valley, where the blood-testing startup was once valued at as much as $9 billion and a darling of the media and tech community. And there’s the drama of seeing how the former lovers choose to fight claims they masterminded a massive fraud that allegedly duped investors out of $700 million. The pair split on the Securities and Exchange Commission investigation, which may indicate how they’ll handle the criminal case. Balwani is fighting the SEC, but Holmes settled.
“If I were the prosecutor, I would approach her about cooperating in the criminal case,” McQuade said. “I imagine that her settlement of the civil case would make him a little bit nervous that she would continue to cooperate against him in a criminal investigation.”
John D. Cline, a lawyer representing Holmes, didn’t respond to email and phone messages seeking comment. Kelly M. Gorton, a lawyer representing Balwani, declined to immediately comment.
In the SEC case, Holmes didn’t admit wrongdoing but did pay a $500,000 fine and was barred from being an officer or director of a public company for 10 years.
At a hearing Thursday in San Jose, California, experts expect either the government or Balwani to ask U.S. District Judge Edward J. Davila, who is overseeing both the SEC and criminal cases, to put the civil suit on hold while the other moves forward.
Holmes and Balwani are accused of lying for years, claiming Theranos machines could perform myriad tests with a single drop of blood, according to the June indictment. They used adoring publicity to defraud investors and prop up the closely held startup, prosecutors said. The pair are also accused duping doctors and patients who trusted the test results.
To win a guilty verdict on conspiracy and wire fraud claims, prosecutors must convince jurors that Holmes and Balwani knew they were lying and intended to deceive investors, doctors and patients.