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Elizabeth Holmes cross-examination: 'The devil will be in the details'

·Reporter
·4 min read
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  • PFE

Elizabeth Holmes’ high-stakes decision to testify in her own defense could reach its most risk intense phase Monday as prosecutors’ inevitable cross-examination draws nearer. The failed blood-testing entrepreneur is scheduled to return to the stand for her fourth day of testimony.

Holmes, founder and CEO of the now defunct Silicon Valley biotech startup, Theranos, faces 11 counts of fraud for allegedly lying to investors and patients about her company’s capabilities. Each count carries a penalty of up to 20 years in prison.

WATCH: Yahoo Finance documentary — Valley of Hype: The Culture that Built Elizabeth Holmes

So far, Holmes has fielded questions solely from her own lawyer. That questioning is scheduled to resume Monday, after which prosecutors will get their chance to hold her feet to the fire.

“The devil will be in the details as to exactly what she knew when she knew it, and what she was telling investors at that particular moment,” Waymaker LLP partner Keri Curtis Axel said on Yahoo Finance Live (video above). “And I expect we'll see a lot of that on cross-examination with the government ... They're going to impeach her with a lot of specific details.”

Theranos founder Elizabeth Holmes appears at Robert F. Peckham U.S. Courthouse for opening arguments in her trial, in San Jose, California, September 8, 2021. REUTERS/Vicki Behringer
Theranos founder Elizabeth Holmes appears at Robert F. Peckham U.S. Courthouse for opening arguments in her trial, in San Jose, California, September 8, 2021. REUTERS/Vicki Behringer

'A state of mind defense'

One of the most challenging details Holmes will need to overcome is an admission, drawn by her lawyer on direct examination, that Holmes added logos for pharmaceutical giants Pfizer (PFE) and Schering-Plough to a 55-page document that Theranos shared with investors. The documents purportedly validated the company's blood-testing technology.

According to The New York Times, investors who testified during the prosecution’s case said they thought the documents had come from the pharmaceutical companies themselves.

Holmes will also be confronted with testimony from investors who reportedly told jurors that Holmes represented Theranos’ blood-testing device as a product used in partnership with the U.S. Department of Defense.

The investors, according to The Wall Street Journal, testified that Holmes told them the device was used in military helicopters and overseas battlefields, and prosecutors showed the claims to be false. The New York Times reported that Holmes provided investors with a letter stating that Theranos had entered contracts with the military. On direct examination, Holmes instead testified that a military doctor and colonel had respectively engaged with Theranos to test its device for burn victim treatment and in locations prone to high heat conditions.

Theranos founder Elizabeth Holmes leaves after attending her fraud trial at federal court in San Jose, California, U.S. November 22, 2021.  REUTERS/Brittany Hosea-Small
Theranos founder Elizabeth Holmes leaves after attending her fraud trial at federal court in San Jose, California, U.S. November 22, 2021. REUTERS/Brittany Hosea-Small

Curtis Axel explained that as risky as it is for Holmes to respond to those false statements, the former biotech superstar can count the prosecution's central challenge among the circumstances in her favor. That is, the government's case can be made only if jurors conclude Holmes intended to use the false statements to defraud investors and patients.

“Because it’s a state of mind defense here, Elizabeth really has the opportunity to contradict it,” Curtis Axel said. “Whether you have the intent to defraud is really a state of mind."

A particular method to negate that intent has already been taken advantage of by Holmes’ defense team and is one that’s common in white-collar fraud cases, according to Curtis Axel. 

"It’s 'I'm the CEO.' It's 'I'm at 50,000 feet. I rely on people,'" she said. “She might be able to support that here, showing that she had more detailed knowledge at the beginning, but as time went on, she began to rely more on people.”

The Balwani defense

Still, a much more novel and unusual defense hasn’t been introduced to the jury: a bombshell claim first made public in unsealed court documents, alleging that Holmes' one-time boyfriend and former Theranos COO Ramesh “Sunny” Balwani abused her.

"The Balwani defense is very unusual," Curtis Axel said. "I’ve never seen anything like that in a criminal fraud case." 

Former Theranos COO Ramesh Balwani leaves the Robert F. Peckham U.S. Federal Court with his attorney on January 14, 2019 in San Jose, Calif. (Photo by Justin Sullivan/Getty Images)
Former Theranos COO Ramesh Balwani leaves the Robert F. Peckham U.S. Federal Court with his attorney on January 14, 2019 in San Jose, Calif. (Photo by Justin Sullivan/Getty Images)

She emphasized that the defense could be yet another avenue for Holmes to negate prosecutors' claims that she intended to lie to investors. 

“I could see her putting on a defense that he was controlling her mind, and maybe even what information he relayed to her was material to what she told investors," Curtis Axel said.

Balwani has vigorously denied the claims and is scheduled to face the same fraud charges in a separate trial in January.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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