Elizabeth Holmes, founder of Theranos, sentenced to 11.25 years in prison

Elizabeth Holmes, founder and CEO of collapsing Silicon Valley blood-testing company Theranos, has been sentenced to 11.25 years in prison plus three years’ parole for financial crimes she committed while running the once high-flying aviation venture.

Holmes was also fined $400 million for a private appraisal. Holmes must surrender to custody on April 27, 2023. Holmes is expected to appeal.

The judge presiding over Holmes’ trial and sentencing said the landmark case, one of the most closely watched in Silicon Valley history, should be a cautionary tale for startup founders willing to exaggerate the capabilities of their products.

“I suppose we step back and ask what are the pathologies of fraud? Is it a refusal to take responsibility or express regret in any way? Perhaps this is the cautionary tale that will emerge from this case.

In letters filed with the court in support of Holmes, Davila notes that venture capitalists cite the fact that startup failure is “normal” and investors expect to lose 90% of the money they invest.

Davila added “One thing was missing from those letters…the letters said nothing and did not endorse ‘failing by fraud’.”

Former Theranos CEO Elizabeth Holmes on November 18, 2022 in San Jose, California. Holmes appeared in federal court for sentencing after being found guilty of four counts of fraud for allegedly participating in a multimillion-dollar scheme to defraud investors in her company Theranos, which offered the services of a blood testing laboratory. (Photo by Justin Sullivan/Getty Images)

Prior to sentencing, Davila said that under US Sentencing Guidance considerations, the court had found that Holmes should serve between 11.25 and 14 years in prison. The court’s estimate of the “reasonable total loss” suffered by the identified fraud victims was $121.1 million.

On Friday, Holmes, 38, appeared for sentencing in San Jose County Court where in January a jury found her guilty of three counts of wire fraud and one count of conspiracy. In convicting Holmes, the jury found that she had lied to investors who had funneled nearly $900 million into the biotech venture about Theranos’ technology and profitability.

When Davila reads Holmes’ verdict aloud in a packed courtroom, the former CEO and one-time Silicon Valley darling is visibly pregnant with her second child in a long black skirt and jacket. Holmes was accompanied in court by her partner, Billy Evans, and her mother, Noelle Holmes.

Before Holmes’ verdict was read, she addressed the courtroom to express her remorse.

She said, “I stand before you to take responsibility for Theranos. I loved Theranos. It was the work of my life. My team meant the world to me. They wanted to make a difference in the world. I was devastated by my failures.” “Every day over the past years, I’ve felt deep pain for people…those who believe in us and those patients. I’ve worked so hard to serve. I’ve done everything I had to try to build…Theranos. Looking back, there’s a lot of things that I’ve been through.” I will do it differently. I tried to make my dream come true very quickly.”

SAN JOSE, CA - NOVEMBER 18: Former Theranos CEO Elizabeth Holmes arrives in federal court with her partner Billy Evans (R) and her mother, Noelle Holmes, on November 18, 2022 in San Jose, California.  Holmes appeared in federal court for sentencing after being found guilty of four counts of fraud for allegedly participating in a multimillion-dollar scheme to defraud investors in her company Theranos, which offered the services of a blood testing laboratory.  (Photo by Justin Sullivan/Getty Images)

Elizabeth Holmes (C), former CEO of Theranos, arrives in federal court with her partner Billy Evans (R) and her mother, Noelle Holmes, on November 18, 2022 in San Jose, California. Holmes appeared in federal court for sentencing after being found guilty of four counts of fraud for allegedly participating in a multimillion-dollar scheme to defraud investors in her company Theranos, which offered the services of a blood testing laboratory. (Photo by Justin Sullivan/Getty Images)

Holmes’ prison sentence represents approximately 14% of the maximum time of 80 years that sentencing guidelines technically allow for her four fraud convictions. Each of these charges allowed for a sentence of up to 20 years, along with a $250,000 fine, as well as restitution.

While Holmes is expected to appeal the ruling against her, Friday’s hearing ends the former billion-dollar Silicon Valley star’s descent that began in 2003, when, at 19, she left Stanford University with a dream of democratizing health care.

Holmes’ co-defendant, Ramesh “Sunny” Balwani, who was her boyfriend at the time she ran Theranos and served as the company’s president and COO, was convicted on July 12 of similar fraud charges. The verdict against him will be issued at a later date.

For nearly 15 years, Holmes worked tirelessly to grow the blood-testing company, wowing investors and pressing for innovative technology that she hoped would reduce the amount of blood and volume of equipment needed to perform standard diagnostic blood tests.

However, she and Balwani had falsely told investors that Theranos’ blood analyzer could run traditional lab tests from a fingertip blood sample consisting of a few drops of blood, rather than the larger amounts taken with a traditional vein draw.

The duo also lied to investors by saying that the company was profitable and that its technology had been thoroughly validated by several major pharmaceutical companies.

Holmes and Balwani’s representations also helped Theranos secure a $140 million partnership with drugstore giant Walgreens, which planned to offer Theranos tests inside retail stores. But the agreement fell apart when Holmes and Balwani failed to show that their test device could perform about 200 normal blood tests.

Theranos eventually collapsed in the wake of a 2015 Wall Street Journal report that revealed that the company wasn’t actually running a batch of blood tests from a finger prick of blood as Holmes had promoted.

Among the jury’s four convictions were three based on investments in 2014: $38.3 million from experienced healthcare investor Brian Grossman; an investment of nearly $100 million by former US Secretary of Education Betsy DeVos; and a $6 million investment by prominent real estate attorney Daniel Mosley, who has directed wealthy clients to Theranos.

At its peak, Theranos was valued at $9 billion, making Holmes at the time the world’s first self-made female billionaire.

Alexis Keenan is Legal Correspondent for Yahoo Finance. Follow Alexis on Twitter @employee.

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