A court had denied her request to stay out on bail
Theranos founder Elizabeth Holmes must report to prison by May 30, a judge said Wednesday, after a court denied her request to stay out pending appeal.
The U.S. Court of Appeals for the Ninth Circuit on Tuesday denied her request to stay out on bail, saying Holmes’s appeal doesn’t raise a substantial question of law and that even if it did, it is unlikely that it would be enough to overturn her fraud conviction.
Holmes, the disgraced founder of blood-testing startup Theranos, was convicted of wire fraud and conspiracy to commit wire fraud against the company’s investors in January 2022. She was sentenced to more than 11 years in prison.
Later Tuesday, Holmes and her former second-in-command Ramesh “Sunny” Balwani, who was also convicted of fraud at Theranos, were jointly ordered by a lower court to pay $452 million in restitution to investors, including $125 million to Rupert Murdoch, executive chairman of News Corp, which owns The Wall Street Journal. The federal government had previously asked for more than $800 million in restitution, according to court filings.
Holmes was originally scheduled to report to prison on April 27, but her reporting date was delayed while the appeals court considered her request. Holmes’s lawyers asked the court Wednesday to set May 30 as the new date that Holmes will report to the Bureau of Prisons.
A lawyer for Holmes didn’t respond to requests for comment. A spokesperson for the government declined to comment.
The mother of two young children appealed her conviction after the federal judge who oversaw her trial for criminal fraud, U.S. District Judge Edward Davila, denied her bid for a new trial. She filed a 130-page brief to the Ninth Circuit that largely took issue with decisions Judge Davila made during the trial in San Jose, Calif., that kicked off in August 2021 and lasted nearly four months.
Holmes first had asked Judge Davila if she could stay out of prison while her appeal was being heard. Her lawyers argued she wasn’t a flight risk. Judge Davila denied her request, saying in a court filing that he didn’t think her arguments were strong enough to reverse her conviction though he agreed she wasn’t a flight risk.
The district court recommended that Ms. Holmes serve her time at a federal prison camp in Bryan, Texas, that allows for family visitation.
Michael Freedman, a former federal prosecutor who now runs his own firm, said denying the request doesn’t necessarily mean anything either way for the appeal at large.
“If it had been granted, it would have been a sign there is a really strong appellate issue,” he said. “But the flip side is not as telling. It’s more routine.”
The Ninth Circuit also denied Balwani’s request to stay out of prison while he appealed his conviction for defrauding Theranos investors and patients. He is currently serving his nearly 13-year prison sentence at a federal facility in San Pedro, California.
He and Holmes are jointly responsible for the $452 million in restitution, which means the government can try to recover that sum between the two of them.
Theranos, at its peak, was valued at more than $9 billion by investors. Holmes owned half of it, around $4.5 billion on paper, she said during her trial. Since then, the company has been formally dissolved, and Holmes has already paid $500,000 to settle separate securities-fraud charges with the Securities and Exchange Commission.
Judge Davila, in his sentencing memo, concluded that Holmes had caused roughly $120 million in losses to investors. Holmes’s lawyers had argued that she shouldn’t have to pay any restitution, saying that the government failed to calculate the actual loss to investors.
Balwani’s lawyers also had argued that he shouldn’t have to pay any restitution since Theranos was still a functioning company when he left the startup.
In a court filing, the government said it appeared that Holmes had only modest assets outweighed by $450,000 in loans for the SEC settlement and a liability for legal fees in excess of $30 million. But they said her ability to pay didn’t matter.
“Although the amount of restitution may dwarf Holmes’ ability to pay, those factors simply are not relevant to the court’s determination of the restitution amount,” the government wrote.
It is unclear what assets Balwani has.
His lawyer, Jeff Coopersmith, said that they “respectfully disagree with the district court’s restitution order, but even more fundamentally, the guilty verdict.”
To recoup the funds after Holmes and Balwani serve their prison sentences, the government might apply to receive a percentage of their salaries from any future job, according to Freedman, the former prosecutor.
Typically, the amount it takes is about 25%, he said, adding that the government could also try to take any tax refunds they might get or property. Though he acknowledged completely paying off restitution in the millions of dollars can be difficult.
“What you hope for is if you can come up with a lot of that balance, then maybe the government will move on to another file,” Freedman said.
But, he added, it seems likely that Holmes will push back on paying, given she is already appealing the guilty verdict.
Holmes and Balwani together ran Theranos for several years, Holmes as its chief executive and Balwani as its chief operating officer. The company, which promised to revolutionize blood-testing by using drops of blood to do dozens of tests, struggled to make its technology work and ended up secretly running most of its tests on commercial devices, including some that had been altered to use less blood.