A federal jury found Theranos founder Elizabeth Holmes guilty of defrauding investors out of hundreds of millions of dollars. Her sentencing is scheduled for September 2022.
The jury handed down guilty verdicts on three counts of wire fraud and one count of conspiracy to commit wire fraud. Holmes was found not guilty on four charges involving fraud against Theranos patients. The jury was deadlocked on three other counts of wire fraud involving investors. The judge declared a mistrial on those charges. Those charges have since been dropped. She faces a maximum sentence of 20 years in prison.
What Is Fraud?
Fraud occurs when someone or entity lies to another person or entity to obtain a benefit or advantage. There are many different types of fraud. In a business context, fraud can include falsifying financial information, self-dealing by corporate insiders, falsifying net asset values, lying about the risk of investments, and more.
Fraud is considered a white-collar crime:
- Insurance Fraud
- Mail Fraud
- Wire Fraud
- Securities Fraud
- Bankruptcy Fraud
- Tax Evasion
- Mortgage Fraud
- Embezzlement
- Ponzi Schemes
Fraud and financial crimes can take many forms in today’s complex economy.
What Is Theranos?
The 37-year-old Holmes started the company when she was only 19. Holmes claimed the biotech startup was developing technology that could more quickly and accurately diagnose diseases through a small blood sample. She continued to make that promise even as the technology was failing.
Holmes raised almost $1 billion based on lies. Big names who lost money to the scam include:
- Rupert Murdoch, Media Mogul
- Betsy Devos, Former Secretary of Education
- Walton Family, Wal-Mart Founding Family
Theranos machines, installed in Walgreens stores in California and Arizona, gave users flawed results. One woman received results that her cancer had returned while another was wrongly told she had miscarried. The company folded in 2018.
Holmes Settlement with the SEC
Before the federal trial, Holmes reached a settlement with the Securities and Exchange Commission (SEC) on fraud charges in 2018.
The SEC settlement included the following provisions:
- Holmes was required to pay a $500,000 penalty
- Holmes was to return the 18.9 million remaining shares she obtained
- Holmes had to give up majority voting control over the company
- Holmes was prohibited from serving as an officer or director of a public company for 10 years
The agreement with the SEC also stipulated that she could not profit from the sale or liquidation of Theranos until $750 million is returned to defrauded investors and preferred shareholders.
Fraud Cases Are Complicated
Fraud charges, like those against the Theranos founder, are increasing. The SEC announced that it filed 434 enforcement actions in fiscal year 2021, a 7 percent increase over the previous year. Cases include charging Robinhood Financial with misleading customers about its compensation for routing customer orders, charging AT&T and three investor relations executives with selectively providing information to Wall Street analysts, and charging Pearson PLC for misleading investors about a cyber breach.
Federal and white-collar cases are quite intricated, often requiring years of investigation by authorities. This extended timetable can be useful if you are being investigated for fraud. Contact the lawyers at Collins Gann McCloskey & Barry PLLC as soon as possible. We will also investigate every detail to uncover potential defense approaches.
Strategies may include the absence of intent, insufficient evidence, or illegal search and seizure. Our goal is to get the charges reduced or dropped.
In our decades of experience, we have helped countless clients in metropolitan New York overcome criminal charges. Learn we can help your case by scheduling a no-cost consultation. Contact us online or call (516) 218-5131 to get started.
