Theranos

Theranos’s Former President Has a Jaw-Dropping Explanation for Why He’s Innocent

Sunny Balwani, Elizabeth Holmes’s alleged partner in crime, says he couldn’t have defrauded investors because he never made any money.
Image may contain Tree Plant Fir Abies and Conifer
By Jim Wilson/The New York Times/Redux.

Former Theranos president Ramesh “Sunny” Balwani, who was indicted Friday on two counts of conspiracy to commit wire fraud and nine counts of wire fraud, is fighting back with a curious legal defense: while prosecutors accuse Balwani and former C.E.O. Elizabeth Holmes of a “multi-million-dollar scheme to defraud investors,” Balwani’s lawyer says that his client couldn’t have committed a crime because he never made any money. “In over 28 years of practicing law, as both a federal prosecutor and a defense attorney, I have never seen a case like this one, where the government brings a criminal prosecution against a defendant who obtained no financial benefit and lost millions of dollars of his own money,” attorney Jeffrey Coopersmith told me. “Mr. Balwani committed no crimes. He did not defraud Theranos investors, who were among the most sophisticated in the world. He did not defraud consumers, but instead worked tirelessly to empower them with access to their own health information. Mr. Balwani is innocent, and looks forward to clearing his name at trial.”

Prosecutors see the matter quite differently. According to Wall Street Journal journalist John Carreyrou, whose relentless reporting exposed Holmes and Balwani’s multi-billion-dollar blood-testing start-up as an elaborate fraud, Theranos never managed to build the “revolutionary” technology it promised would deliver better, faster results for patients. In March, after more than two years of federal investigations, layoffs, and class-action lawsuits, the S.E.C. charged Holmes and Balwani with “massive fraud” for raising more than $700 million from investors in a years-long scheme “in which they exaggerated or made false statements about the company’s technology, business, and financial performance.” (Neither Holmes nor Theranos was required to admit wrongdoing as part of a settlement agreement, in which Holmes surrendered voting control and complied with a 10-year ban from serving as an officer or director of a public company.) Holmes and Balwani, her ex-boyfriend, have both pleaded not guilty to the most recent charges, for which they could face as much as 20 years in prison if convicted.

As extraordinary as Balwani’s defense sounds, legal experts say he could have a compelling case. “The fact that he did not benefit financially may help persuade a judge or jury that he had no motive and that he did not do anything wrong,” said Randall Kessler, an Emory University School of Law litigation professor. At the same time, he told me, the argument that Balwani didn’t profit from the alleged scheme could be deemed legally irrelevant. “As a simple example, if a doctor agrees to operate on someone for free, that does not relieve them from acting within the appropriate standard of care,” Kessler explained. “If a lawyer handles a case pro bono (for free), they still must do the same. If a bank robber robs a bank and discovers the money bags he took are filled with shredded paper, it is still bank robbery. But still, the fact in this more complex case, that the defendant may not have profited at all, does seem to help the defense to a degree.”

While Holmes has kept quiet herself, the 34-year-old founder still has a champion in the indefatigable venture capitalist Tim Draper, who told Cheddar on Tuesday that the real fraud in the Theranos mess is the media. “She is an entrepreneur. Her mission was to change health care as we know it, to make it an easier system. She was doing really good work, and then she got the attack—and the attack came so soon that she wasn’t prepared for it,” Draper, an early investor in Theranos, said. “Every really great company does get a major challenge from its competitors, or from the legal system, or from government, or from the press,” he continued, maintaining that Theranos and Holmes are victims of a mob mentality. “Some companies survive those challenges and become great companies in the future, and some companies are so burdened by those challenges that they are forced to sort of fail.”