Elizabeth Holmes, founder of Theranos, was convicted of three counts of wire fraud and one count of conspiracy to commit wire fraud. The verdict follows a high-profile, fifteen-week trial in federal court in San Francisco. Holmes was alleged to have defrauded investors, medical professionals, patients, and the public by exaggerating and making false statements about the accuracy of Theranos’s blood-testing technology. The government’s prosecution demonstrates the Department of Justice’s commitment to prosecuting white collar crime, particularly in the tech and healthcare industries.

Holmes took Silicon Valley by storm by raising hundreds of millions of dollars from investors on the promise of a groundbreaking new technology that could scan for hundreds of diseases with just a few drops of blood from a finger prick. But prosecutors presented evidence showing that Theranos’s technology produced incorrect results and that Theranos relied on altered blood analyzer machines that other companies had developed. Prosecutors introduced audio clips of Holmes falsely telling investors that the blood-testing device could perform any blood test. Holmes took the stand in her own defense and testified that she genuinely believed in the prospective success of Theranos’s technology.

Ultimately the jury found Holmes guilty of defrauding investors of almost $145 million but acquitted her on the charges relating to defrauding patients. Holmes will be sentenced by the judge who oversaw the trial. Each of the four counts she was convicted of imposes a possible term of up to twenty years in prison, but the judge is likely to impose those sentences concurrently, rather than consecutively.

Holmes was indicted in 2018, under the previous Administration. However, her conviction may be the first of many in the white collar space this year. As described in a previous post, DOJ’s new leadership recently emphasized the Department’s renewed focus on white collar enforcement, to include prosecuting individuals involved in corporate crime. The Department is also reviewing the propriety of allowing recidivist companies to resolve new criminal conduct through pre-trial diversion tools like non-prosecution and deferred prosecution agreements. In 2022, we will be looking to see if these new policies begin to impact the number and intensity of corporate criminal enforcement actions and, in particular, whether more executives like Holmes face charges for their involvement in corporate wrongdoing. In one sign that DOJ may be training its sights particularly on Silicon Valley, the Department in August 2021 filed charges against Manish Lachwani, the co-founder and former CEO of Headpsin, claiming that Lachwani reported false revenue and exaggerated the company’s financial data to potential investors.

Holmes’s prosecution and conviction also demonstrates DOJ’s focus on the healthcare sector. Healthcare spending in the United States represents nearly 20% of the national Gross Domestic Product and federal spending accounts for 36% of this amount. DOJ has made prosecuting fraud in this area a priority – in 2021 alone, DOJ’s Health Care Fraud Unit, partnering with other federal agencies, recovered more than $1.4 billion in alleged losses to government programs (and this amount does not include the billions of dollars of settlements and judgements recovered under the False Claims Act).

Holmes’ case was unique because she committed fraud against investors and medical professionals, not insurers or government programs like Medicaid or Medicare, which are often at issue in criminal cases. Even so, given the rapid increase in the health-tech sector—including significant growth in bio-technology start-ups in recent years, which only accelerated during the COVID-19 pandemic—DOJ seems poised to continue to investigate claims of fraud relating to these business’ valuations and capabilities.