Elizabeth Holmes case draws closer to end as government says it will rest next week


Elizabeth Holmes, founder and CEO of Theranos
Mike Blake | Reuters

SAN JOSE, CALIF. — In a surprise announcement, the government said Wednesday that it would likely rest its case next week against former Theranos CEO Elizabeth Holmes in her criminal fraud trial.

“It is likely that the government will rest next week,” Jeffrey Schenk, an assistant U.S. attorney, said adding that the government would not have enough witnesses to fill the week.

The announcement came after a day of testimony from Theranos investor Alan Eisenman, the government’s 24th witness in the case. Eisenman, who the government says is a key witness, testified that he suspected he wasn’t being given accurate information about the company’s technology.

“I had suspicions that things were not as they were communicated,” said Eisenman, a retired financial planner from Texas who invested nearly $1.2 million in Theranos in 2006. Eisenman’s investment underpins one count of wire fraud in the case. Holmes has pleaded not guilty to all twelve counts of wire fraud and conspiracy to commit wire fraud.

He and his wife shared a $900,000 investment and he put in $90,000 for each of his three kids. Eisenman said he was introduced to the company by David Harris, the Holmes family’s financial advisor.

“He told me that Elizabeth was brilliant,” Eisenman said. “That she was dropping out of school to start a company and she was partially on her way.”

Eisenman’s primary source of information was initially Holmes, and he testified that they frequently spoke one-on-one in addition to quarterly calls with other investors. But in mid-2010 those calls “dropped to zero.”

Eisenman said he knew Theranos was an early seed-stage startup but “understood the tech to be significantly far along for an early stage company.” He testified that he was impressed that Oracle founder Larry Ellison was involved with the company and he was told Theranos had contracts with six international pharmaceutical companies including Pfizer and Novartis.

“It was an impressive list of companies,” Eisenman said. “To me that put an additional stamp of approval for an investment.”

Eisenman recalled that Holmes said she expected $50 to $60 million in revenue in 2007 and projected $200 million revenue in 2008. Eisenman testified that at time of his investment Holmes told him “they were talking to Morgan Stanley about an IPO” in the coming 12 to 18 months. “Which was another reason that compelled me to make my investment,” he said.

Eisenman told jurors that he grew increasingly frustrated after a series of conversations about a liquidity event which never happened.

“All investors would like to exit at some point,” Eisenman said. “If a company says something and it changes that’s ok, but if it keeps changing year after year after year it raises suspicion.”

“There was frustration with me trying to get info on the company,” Eisenman said. “And there was not just a limited amount of information, there was no info coming from the company to me. That’s a sign of trouble.”

In November of 2012 Eisenman wrote to Holmes. The email began: “Elizabeth, it has been over 2 years since you have communicated with your investors…”

Despite this, in 2013 Eisenman considered another investment in Theranos after receiving an email about fundraising. The email read: “With our launch to consumer healthcare this year, we are rapidly scaling to establish a national footprint.”

Eisenman said he assumed the latest fundraise was to help grow Theranos’ market. He recounted a conversation with company president and COO Ramesh “Sunny” Balwani.

“The call was unusually friendly after a period of very strong hostility in retrospect,” Eisenman said. “They were raising money and when you’re raising money sometimes you put on a different face.”

Eisenman said he had a contentious relationship with Balwani until he began talks to invest more money into the company.

“[Balwani] was hostile for an extended period of time and not only non-responsive but actually aggressive in his communications with me,” Eisenman said. “This was a 180-degree change.”

Despite his frustrations with Holmes and Balwani Eisenman invested another $99,990 in Theranos.

“This is what we call a seat at the table,” Eisenman told the jury.

His testimony continues on Monday.

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