Elizabeth Holmes has a major trial on her hands. In 2016, Holmes and her former business partner, Ramesh “Sunny” Balwani, were sued by the U.S. government for fraud, and the federal government is seeking to impose fines and liquidate a company as a result.
The government alleges that Holmes and Balwani perpetuated a “massive scheme to sell thousands of unapproved and defective diagnostic devices to the public and obtain government grants for each test to cover this fraud,” according to court documents. “These unapproved and defective devices violated the laws governing the sale of medical devices and the laws requiring that the devices that the devices are supposed to perform be subject to government approval.”
Theranos, whose origins date back to 2004, is accused of misleading investors, doctors, and regulators regarding the accuracy of its blood-testing devices, all of which were based on dubious technology. The company’s blood-testing devices were later compared to a game of Russian roulette, when it was later discovered that machines could be deactivated using only a pinprick of blood from a finger.
After a swift decline, the company sold many of its devices to third-party manufacturers for negligible amounts, so the government says Theranos skimped to keep the company afloat. This was accomplished by making “provisionally agreed” payments that actually only covered the manufacturing and design costs, but not the actual cost of the products. According to the DOJ, these concessions were necessary to “cover hundreds of millions of dollars in malpractice damages which had been claimed by third-party plaintiffs for injuries caused by these devices.”
While Theranos has faced these accusations for some time, the recent government indictment serves as the primary legal justification for her upcoming trial, which will take place in San Jose, California. As a condition of the asset sale, the government was promised that Theranos patients, along with physicians who treated them, would be permitted to testify as witnesses in the trial, according to the indictment filed in July. That would mark the first time in American history that a patient test-in person testifying as a witness against a medical company.
Since the government brought suit, the company was forced to shutter its clinics and lay off thousands of workers. While it was and remains the target of lawsuits and regulators, it is unlikely that Holmes will go to jail, given that she is under 28 years old and currently doing time for white-collar crimes related to the company.
In announcing the indictment of the two tech leaders in 2016, the Justice Department said that, “this conduct was aided by the substantial risk to patients’ health and safety” and they expressed hope that these legal proceedings would act as “a catalyst to increase transparency and ensure a greater focus on patient safety.”