The trial of Elizabeth Holmes kicked off in earnest this week with opening arguments, testimony from whistleblowers, and even a father-in-law planted in the audience. (Yep, Holmes’s FIL apparently attended the jury selection under a pseudonym and in disguise. No one is quite sure why, but when it comes to Theranos, weirdness is guaranteed.)
For those out of the loop, Holmes is being charged with 12 counts of wire fraud and conspiracy to commit wire fraud during her time as founder and CEO of Theranos, the blood-testing startup that was the darling of investors and the press—until it wasn’t. After raising billions in VC funds and operating for years, journalist John Carreyrou published a ground-breaking Wall Street Journal report that raised serious questions about the company.
In the months and years that followed, it was revealed that most of the company’s claims, about its technology, its testing capabilities, and possibly even Holmes’s voice, were fabricated.
As Silicon Valley’s “trial of the century,” the Holmes prosecution promises to be filled with fireworks, outrageous accusations, and even more outrageous facts.
But, as you know, all the heavy lifting has been done long in advance.
The One Email That Makes the Case
Indeed, even the discovery process in the Holmes prosecution has been filled with intrigue.
There was, as we wrote about last week, the encrypted Theranos database that was destroyed before the DOJ could get access—a loss of evidence that Holmes argued should bar the government from introducing any evidence of customer complaints or inaccurate testing results. (She lost that argument, in part because Theranos, not the government, had been responsible for the destroyed evidence.)
And there was the potential “smoking gun” email uncovered during discovery, one in which Holmes might have compared herself to Bernie Madoff and tipped her hat that, indeed, she was fully aware of the level of deceit her company was engaged in.
The email will likely play a central role in the government’s prosecution, which will require them to show not just fraud, but Holmes’s awareness of the fraud (mens rea for the law school types.)
Yet, the discovery of the Madoff email came to light in the most banal way possible. As John Carreyrou details in his new podcast, “Bad Blood: The Final Chapter,” the email simply popped up during late-night doc review.
(Side note: “Bad Blood: The Final Chapter,” which is a sequel to Carreyrou’s wildly successful book of the same name, is full of eDiscovery insights. If your non-legal friends and family ever want a highly entertaining look into the world of discovery and legal technology, tell them to listen to this podcast. It’s the only podcast about eDiscovery they’ll ever enjoy.)
The email was first revealed during discovery in a related suit, a civil suit by “indirect investors” in the company, alleging fraudulent claims by the company and its directors. Reed Kathrein, a securities litigator representing Theranos investor Robert Coleman, soon faced “well over a million documents” to cull through.
What we do is we load them onto a database which allows us to search the documents by all sorts of different categories. One night I was just on the database looking for things that Elizabeth Holmes might have written and I ran across this document that—it was strange—looked to be notes to herself.
Filter from:email@example.com to:firstname.lastname@example.org.
That self-addressed email wasn’t the smoking gun we referenced above, but it did get Kathrein thinking: Where there’s one note to self, there’s likely to be others.
By diving into the file path metadata, Kathrein quickly found over 40 similar documents, a mix of Holmes’s notes from meetings, reminders to herself, and ideas for her attorney—including how to target Carreyrou, the journalist who first broke the story of Theranos’s failing technology.
Among those notes, one stood out. At four in the morning, Holmes emailed herself:
Really smart people picked off Mado. Not you.
Was Elizabeth Holmes comparing herself directly to Bernie Madoff, the man behind the largest Ponzi scheme in U.S. history? And, if so, does that reveal that she knew exactly the level of deception and fraud her company was involved in?
One email out of a million may end up making the government’s case.
Maddoff or Mad Dog—Or Just Sunny?
It’s likely that federal prosecutors will rely on the “Mado” email to help prove Holmes’s guilt. But, Carreyrou and Kathrein both acknowledge, there are other possible interpretations of “Mado”—Turkish ice cream, for one, as well as former U.S. Secretary of Defense James Mattis.
Mattis, then a retired four-star general, sat on Theranos’s board. He had earned the nickname “Mad Dog Mattis” during his campaigns in the Middle East, so there’s a chance that Holmes may have been referring to him.
The problem, though, is that in 2014, when Holmes was emailing herself about “Mado,” no one had taken down Mattis.
Maddoff, however, was five years into his 150-year sentence.
It remains to be seen how the prosecution will leverage this particular piece of evidence or how Holmes will respond to it. When Kathrein deposed Holmes on the meaning of the email, she declined to respond. Kathrein's civil suit settled shortly thereafter, as Theranos careened towards bankruptcy.
Filings from Holmes’s lawyers indicate that part of her strategy will be to place the blame on Theranos president and Chief Operating Officer, Ramesh “Sunny” Balwani, with whom she had had a long-running relationship.
Essentially a “Svengali defense,” Holmes is expected to argue that Balwani was the mastermind of Theranos’s fraud and that he largely ran the show without her knowledge or input—and possibly that she was so thoroughly abused that she could not have formed any intent to defraud.
That one-in-a-million “Mado” email, stumbled upon during some late night doc review, may indicate otherwise.