Businesswoman who lobbied for helpful law on trial for fraud


PHOENIX - Elizabeth Holmes, who got state lawmakers and Gov. Doug Ducey to change Arizona law in 2015 to financially benefit her company, goes on trial this week on criminal charges of fraud and conspiracy.

Holmes, the founder and former CEO of Theranos, is accused of knowingly misrepresenting the capability of her finger-prick blood testing technology. The company, which already settled consumer fraud charges in Arizona, went out of business after a Wall Street Journal investigation questioning her claims.

Now she faces a potential 20-year prison term and fines of up to $250,000 on various charges of federal wire fraud.

But it was a different Elizabeth Holmes who showed up in Arizona years earlier and convinced lawmakers and Gov. Doug Ducey to alter state statutes to allow people to order more types of blood tests without needing a doctor's permission. That, in turn, paved the way for Theranos to promote its testing to individuals as well as some pharmacies.

In a ceremony signing the bill at the company's Scottsdale offices, the governor said he was “proud to sign” legislation for “reducing burdensome barriers and red tape.”

But two years later, after the company was forced to refund $4.6 million to Arizonans who got her company's tests and may have been defrauded, an aide to the governor said Ducey had no second thoughts.

“The governor has always said it's up to any new business models and companies to prove themselves,” said Daniel Scarpinato. “He is pleased the attorney general was able to reach a settlement on this issue.”

Holmes founded Theranos in 2003, at age 19, saying she wanted to change the practice which has forced people to have vials of blood taken for testing. She claimed to have developed technology that would allow accurate tests with just a few drops.

At the 2015 signing ceremony with Ducey, Holmes said she thinks the new law actually would lead to better health. She said anywhere from 40% to 60% of people who get lab orders from their doctors do not bother to follow through.

Holmes said this puts people in control to decide what tests to have. And once they have the results, she said they will take the paperwork and go see a doctor if they have questions.

Two years later, Theranos signed a consent degree with Attorney General Mark Brnovich.

Company lawyers denied Theranos violated the state's Consumer Fraud Act in selling blood tests where the results were not always accurate. They conceded, though, that more than one out of every 10 of the tests results given to Arizonans by the company were "ultimately voided or corrected.''

The company agreed to provide full reimbursement to anyone in Arizona who got the tests during a three-year period, a figure calculated at $4.6 million. It also agreed to $200,000 in civil penalties, $25,000 in legal fees and to pick up the cost of someone to find the customers and distribute the refunds.

At the same time, Theranos announced a deal with the Centers for Medicare and Medicaid Services to stay out of the blood-testing business for at least two years. Holmes had previously been banned by federal regulators from owning or operating a testing facility for two years.

A year later, Theranos and Holmes settled with the federal Securities and Exchange Commission over charges that she had raised more than $700 million while making it appear the company had successfully developed a portable blood analyzer that could perform a full range of laboratory tests from a small sample.

Holmes agreed to pay a $500,000 fine, relinquish control of the firm, and be ineligible to serve as a director or officer of a publicly traded company for 10 years. She also agreed to return about 19 million shares of Theranos she obtained during the fraud.

Theranos was separately sued by Walgreens, which had allowed the company to make its tests available to its customers at 40 of its Arizona stores. That case was settled out of court and the terms were not disclosed.

All this directly relates to the criminal case that will unfold in a San Jose, Calif. courtroom over what could take months.

The heart of the case by the U.S. Department of Justice goes to those claims by Holmes that Theranos could run a host of clinical tests with just that finger prick of blood even though the technology was never fully developed.

Among the more than 250 witnesses the government expects to call are high-profile members of the Theranos board, including former Secretary of State Henry Kissinger and James Mattis, who later would become defense secretary. The witness list also includes individuals who are expected to say they were affected by inaccurate test results and doctors whose patients were affected.

Also charged in the case is Ramesh Balwani, a former business partner and ex-boyfriend. Holmes already has tried to put blame on him, saying they had "an abusive intimate-partner relationship'' in which he exercised psychological and emotional control over her.

Balwani, through his attorneys, has denied any abuse.


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