Business and Stock Market News: Live Updates

🩸 “Our Holmes Matter” 🩸 The prosecution is expected to rest their fraud case against Elizabeth Holmes today. The crowds are back. And the lawyers are fighting about upcoming testimony.

 

Erin Griffith

That’s it for today.

 

Erin Griffith

After the WSJ article came out, Parloff says he went back through his notes to try to figure out what happened. Then we skip right to the government subpoena over the Theranos investigation. (No mention of Parloff’s correction to his story.)

 

Erin Griffith

Cline asks whether Parloff’s questions to Ms. Holmes about the use of third party machines were “leading.” Parloff says he asked it that way because “I thought it was already obvious but I didn’t want to let something like that slip by.”

 

Erin Griffith

Extremely detailed discussion of Parloff’s note taking practices. He threw out his handwritten notes after 12 months per Fortune’s policy. There is a digital document of notes Parloff had on his conversations with Holmes.

 

Erin Griffith

Not satisfied, Cline needs to know that the questions came from the competitors. As I wrote today, Cline has said defense intends to show that Parloff “was colored by bias” and “a desire to blame any errors he made in his initial article on Ms. Holmes.”

 

Erin Griffith

Cline: Now this is a question you may not want to answer. Some of the questions you asked Ms. Holmes about their technology came from Theranos’s competitors? Parloff: I did research and I heard various criticisms and I asked her to address those questions and criticisms.

 

Erin Griffith

OK, we go down the list and Parloff confirms he spoke with numerous Theranos board members, the C.E.O. of Walgreens and the top people at Dignity Health, UCSF, Blue Cross Blue Shield, a medical doctor, and Holmes’s parents.

 

Erin Griffith

Cline is running down a list of names that Parloff provided to the government that he spoke with for the article. Parloff is not eager to confirm those names and invokes reporter privilege. We go on a break so he can consult with his lawyer.

 

Erin Griffith

Parloff testifies that he read the entire transcript of Theranos’s patent trial (again… more than most of Theranos’s investors!) Cline asks whether there were researchers at Fortune who helped Parloff and he invokes reporter privilege.

 

Erin Griffith

Cline plays three clips from interviews. One where Holmes talks about the hub and spoke model and says the blood is transported to nearby central labs. Another where she describes their “Phase 2” model but that’s off the record.

 

Erin Griffith

Cline has Parloff describe what “off the record” means. He says there are different contexts — sometimes you can never use it. Other times it’s embargoed and maybe you can use it down the line.

 

Erin Griffith

Oooh a kerfuffle! Cline is asking about a Parloff meeting with Boies and Parloff says he wants to invoke reporter privilege. Parloff’s lawyer pops up from the audience to say something and Judge Davila tells him to have a seat.

 

Erin Griffith

That’s the end of direct. John Cline, Holmes’s lawyer, is doing the cross. He starts by asking about Parloff’s background again, lingering on his Ivy education and multiple decades of experience as a reporter. Then moves on to how he came to the Theranos story.

 

Erin Griffith

At the end of Parloff’s testimony, Bostic asks about the WSJ story about Theranos. Parloff says he called Holmes immediately to ask her about how many tests Theranos could do on its own machines. Bostic: Did she tell you Theranos could never do more than a dozen tests? “No.”

 

Erin Griffith

In a recording of an interview with Parloff, he says, “I thought all of your tests were sort of… lab-developed tests” Holmes responds by saying they’re offering traditional lab tests in order to make sure their offerings are comprehensive and cheap for customers.

 

Erin Griffith

The next year, Holmes told him that in 2015 they had just started using third-party devices for esoteric and seldom ordered tests.

 

Erin Griffith

Holmes praised the article “effusively” after it was published and she linked to it from the Theranos website, Parloff testifies.

 

Erin Griffith

Parloff asked Holmes multiple times if Theranos was using third party devices for anything. She said no, and he wrote that in his article. “Those were direct questions and direct answers,” he said.

 

Erin Griffith

Back from break, another recording where Holmes says “The fact that we have a single device that can perform any test” is a sensitive trade secret.

 

Erin Griffith

The short lunch breaks means the two-block radius around the courthouse is crawling with journalists stuffing whatever food they can grab into their maw while speed-walking. 😰

 

Erin Griffith

At this point Parloff has done more diligence than half the Theranos investors.

 

Erin Griffith

We look at the conclusions of the falsified Pfizer report and Bostic asks Parloff, “Did Ms. Holmes ever tell you that these conclusions were not the conclusions of Pfizer?” “No.”

 

Erin Griffith

Oh man. Holmes sent Parloff the falsified Pfizer and Schering Plough validation reports too.

 

Erin Griffith

He testifies that he wanted to interview Gen. Mattis and Holmes told him Mattis could not discuss actual deployments in Afghanistan and he should not ask about it.

 

Erin Griffith

Parloff: “At some point she did say — and I was not supposed to be used in the piece, it was very sensitive — that it had been used by the military in Afghanistan.”

 

Erin Griffith

Parloff asks about military work. Holmes gives a long familiar speech about the device’s potential to save lives. “That’s something I’m personally very passionate about. I see it as our way to serve in whatever small way we can.”

 

Erin Griffith

Holmes’s description of what Theranos was doing: “The key advance was that they could do a tremendous number of blood tests with a finger stick instead of venipuncture.” They had miniaturized the whole lab process. The specifics of how this was done was all a trade secret.

 

Erin Griffith

Another Holmes word salad, “We talked about some of the potential for revolutionary impact in terms of the access points, and actionable information equally has the potential, we believe, to have a revolutionary impact.”

 

Erin Griffith

Parloff describes at length everything a Quest lab can do. “All of this is stuff you can do?” Holmes: “Yes.” Parloff: “OK. It’s so incredible.” Holmes: “Its one of those special things when you apply technology and software toward solving problems that humans otherwise did.”

 

Erin Griffith

There were already reports at that time that people were going to Walgreens and getting venous draws. Parloff pushes her on why they would use a nanotainer for tests it doesn’t do on the Theranos machines. She goes off the record to basically say, “that gets into a whole thing about how the devices work, which we don’t really want to get into.”

 

Erin Griffith

We hear another conversation where Parloff asks how many tests they can do. She says, “I think can we say more than 1,000.”

 

Erin Griffith

Parloff says he provided his recordings of his conversations with Ms. Holmes with the government in response to a subpoena. We hear a two-minute clip where he asks her whether Theranos can perform all the tests that Quest could. She says, “We can do all of those tests.”

 

Erin Griffith

Parloff had never visited a lab before so when he returned from Palo Alto, he arranged to visit a conventional lab for contrast. He agreed not to identify that lab.

 

Erin Griffith

Christian Holmes sent Parloff a presentation with “detailed clinical background” on Theranos’s science, which was encrypted and he no longer has access to it. We also see a PowerPoint that Holmes walked him through.

 

Erin Griffith

He toured Theranos’s office and the Newark lab. He also went to a Walgreens in downtown Palo Alto, arranged by Theranos.

 

Erin Griffith

We see an email from Parloff to Holmes with a long list of things he wants to do when he visits for the profile. He asks for a blood test and Theranos offers to get him a prescription for the test.

 

Erin Griffith

Parloff has been coughing a little and explains that he has a seasonal allergy that happens every November, “I’ve got three vaccines,” and the room laughs in relief.

 

Erin Griffith

Boies Schiller’s head of comms approached Parloff about writing an article about a patent lawsuit Theranos had won, but then told him “the real story was this remarkable company and its remarkable founder and C.E.O., Elizabeth Holmes.”

 

Erin Griffith

Parloff was at Fortune from 2004 to 2016. He wrote an article in 2014 that Holmes then sent to many investors while soliciting funding.

 

Erin Griffith

The U.S. has called Roger Parloff. Here we go.

 

Erin Griffith

Schenk blew through that testimony in less than 10 minutes! Mr. Ellsworth is dismissed.

 

Erin Griffith

Dr. Ellsworth, a dentist, had to get a PSA test before going on a long mission trip through his church to Asia. He testifies his first test, which was given on a fingerstick, returned a PSA level of 26.1, which was very high. “I’ve never exceeded a 2.”

 

Erin Griffith

Mehrl K. Ellsworth, the patient who was given the irregular PSA tests, is now on the stand.

 

Erin Griffith

Dr. Burnes is excused. Another “short” witness is coming after the break, likely another doctor or patient.

 

Erin Griffith

Jeff Schenk does redirect and asks Dr. Burnes whether one of the “specific harms” of getting a PSA test is that the test is inaccurate and the patient takes steps they shouldn’t have.

 

Erin Griffith

Dr. Burnes says PSA levels rise over time so, if you’re not paying close attention to the patient you could misinterpret a result.

 

Erin Griffith

It is a bizarre line of questioning considering Theranos’s entire mission was that people should get their blood tested all the time. Dr. Burnes says he disagrees with that guidance not to test for prostate cancer. Trefz is done.

 

Erin Griffith

Burnes testifies that he recommends male patients over 50 screen for prostate cancer every few years. Trefz says the American College of Physicians recommends men over 50 “discuss the specific harms” of the test with their doctor before screening.

 

Erin Griffith

Burnes says “slight variation” can happen on the same test but “they should be pretty close to each other — within 5% to 10% of the value.”

 

Erin Griffith

Trefz keeps using the word “harmonization” to describe results of tests between different methods and it is tripping up Dr. Burnes. “Do you understand that harmonization of results is challenging in that its using different methods.”

 

Erin Griffith

Burnes makes her repeat a question 3-4 times and doesn’t understand the point. Trefz notes his answer as, yes, there may be “slightly different” ranges on different tests, and Burnes emphasizes that its slight.

 

Erin Griffith

Trefz is using a similar line of questioning she used on Audra Zachman, the nurse practitioner who testified in the beginning of the trial. Essentially trying to say that different assays (tests) should be evaluated on different reference ranges.

 

Erin Griffith

Katie Trefz asks a series of questions about all the various ways lab errors can occur. Burnes says yes, he is aware, but notes that in his career they’ve been very rare.

 

Erin Griffith

We now see reports voiding the first and third PSA tests. And we see a 2017 PSA test from Labcorp, which was in the normal range. Burnes testifies that he believes the initial Theranos test was “invalid.” Prosecution finishes.

 

Erin Griffith

There’s an internal Theranos email summarizing a call smoothing things over with Burnes. Sunny Balwani forwards it to Elizabeth. Dr. Burnes asks Theranos to run a fourth test on his patient the traditional way with a venous draw and pay for it.

 

Erin Griffith

Someone inside Theranos writes in an email that they re-ran the samples and confirmed the inconsistent levels. Then the patient came in for a THIRD Theranos tests and the PSA level was elevated again.

 

Erin Griffith

We see an internal Theranos email discussing Dr. Burnes’s call concerning the inconsistent results. He suggests that one explanation is that the samples got mixed up and asks Theranos to re-run the samples.

 

Erin Griffith

Another subsequent Theranos test shows levels more in line with expectations. Note from the doctor says “clearly some form of lab error occurred.”

 

Erin Griffith

The test results show a “very significant rise” in PSA levels. The doctor wrote a note on it that it should be rechecked and might be a “lab error.”

 

Erin Griffith

Mr. Burnes had a patient who got a PSA test — detects prostate cancer — through Theranos. The doctor is testifying in a clear mask and I have to say it just conveys Bain vibes to me. Also hard to hear.

 

Erin Griffith

That’s it for Tompkins. The U.S. has called Dr. Mark Burnes.

 

Erin Griffith

Theranos test results told this woman she had HIV antibodies. Defense is trying to argue she didn’t understand the test results.

 

Erin Griffith

Trefz pulls up an HIV testing algorithm to show the patient. She asks the patient to break down the arrows pointing to terms like HIV-1/2 antigen/antibody combination immunoassay. … “You don’t know the meaning of these particular steps, correct?”

 

Erin Griffith

Tompkins is back on the stand being cross-examined by Holmes lawyer Katie Trefz. She says she attempted to get information about the testing from Theranos but was not provided any.

 

Erin Griffith

🩸 U.S. v. Holmes continues. 🩸 Today we’ll hear from Erin Tompkins, a patient, as well as Roger Parloff, a journalist. But first, for every one hour of testimony there are roughly three hours of lawyer bickering over the scope of the testimony and today is no different!

 

Erin Griffith

Trefz argues for expert testimony on the accuracy of the tests since they’ve been run on different methods. “If a patient is going to testify about their allegedly inaccurate tests, we should get to explore the depths of that patient’s knowledge as to what the test results mean.”

 

Erin Griffith

Bostic notes that he’s not certain whether the doctor will testify because they’re trying to “streamline” their case and the witness list because of time concerns.

 

Erin Griffith

Trefz is arguing that the confusion comes from the way the results were presented, not the actual results themselves. Bostic says her doctor’s concern about the accuracy of the results was “inadmissible hearsay.”

 

Erin Griffith

Sounds like Tompkins’s doctor is also going to testify. The judge has also made a not very pleased reference to the case’s “untoward delays.”

 

Erin Griffith

Bostic argues that he believes the doctor was in disbelief and had skepticism over the accuracy of the results. It wasn’t him saying that the results were accurate yet she wasn’t positive.

 

Erin Griffith

The jury and Tompkins have left. Trefz is arguing that the patient was told at the time by her doctor that this was not an indication of a positive test result.

 

Erin Griffith

We also see test results from August of this year that says she is negative. In cross-exam, Holmes lawyer Katie Trefz asks how much her Theranos test cost. Tompkins doesn’t remember but says she got a refund about two years later.

 

Erin Griffith

We see a copy of her Theranos blood test results stating that Ms. Tompkins had HIV antibodies. She testifies that she has never had HIV or AIDS, and a different test a few months later said negative. She tried to call Theranos to get more information but spoke to no one.

 

Erin Griffith

She chose Theranos for a blood test her doctor ordered because it was cheap and she didn’t have insurance. “Is there any benefit to you with blood test results that were not accurate or reliable?” Tompkins: “I can’t imagine, no.”

 

Erin Griffith

She testifies first saw an article about Theranos in Forbes, she said she also heard about it on Facebook — a rec from a friend who was trying to find affordable health care options for people without insurance.

 

Erin Griffith

The U.S. has called Erin Tompkins, a Theranos patient.

 

Erin Griffith

Leach: “Did you think one of the risks here was that the founder and C.E.O. was not being truthful to you?” Grossman: “We did not think that was one of the risks.” And that’s it for Grossman. Wowsy!

 

Erin Griffith

A major theme seems to be EXECUTION RISK. Was Theranos past the point of “proof of concept”? Should investors have anticipated the risk of the technology not working?

 

Erin Griffith

Talking about Moore’s law. The jury is getting such an education in business terminology. A PGM email discusses how Theranos plans to drive down costs of making its devices. That wouldn’t apply to third-party devices, Grossman said.

 

Erin Griffith

Leach pulls up the “bear case” projections (Wade had used the bull case projections) and asks: Have you ever seen a company miss its revenue projections by over $1 billion? BG: “It’s unusual.” Was that a risk you thought you were taking with this investment? BG: “Not in 2014, no.”

 

Erin Griffith

This is related to Wade’s argument that PFM’s revenue projections for Theranos were overly rosy. (Grossman has testified that they were based largely on Theranos’s own projections.)

 

Erin Griffith

Prosecutor Leach is back up for redirect. Leach asks: Who was in a better position to judge Theranos’s projected revenue for 2014 and 2015, you or the company? Grossman: The company.

 

Erin Griffith

Wade: Was part of investing in Theranos a part of your desire to get information for your investment in Walgreens? Grossman: No. Wade: Is it true that after you invested in Theranos you started trading Walgreens stock? Prosecution objects and is sustained. And that’s it, finally!

 

Erin Griffith

Wade is showing Grossman a slide deck presented by Theranos and is pointing out that many of the claims were “aspirational.”

 

Erin Griffith

OK, just before the break my laptop died, but Judge Davila expressed the most frustration I’ve ever seen over how long Wade’s cross-exam is lasting (6+ hours).

 

Erin Griffith

Wade points out that the presentation doesn’t include the accuracy risks or highlight the “limited operating experience” Theranos had.

 

Erin Griffith

So Grossman delivered a presentation to some other investors summarizing PFM’s own research about Theranos. It has Theranos’s logo on the front of it and Wade asks “did you get Theranos’s permission to use their logo?”

 

Erin Griffith

Grossman quotes from lower in the email that his firm’s expert continued to believe these risks were acceptable for investing. There’s also a cryptic email from Grossman to his teammates that simply says “real world.”

 

Erin Griffith

There’s another email where someone at the firm says Blue Cross Blue Shield did diligence on Theranos and said it doesn’t work. And another one where someone is saying again that there’s a chance it won’t pass FDA review.

 

Erin Griffith

Another email from Grossman’s internal expert outlining more risks on the tech. Says he doesn’t think Theranos has enough data to get FDA approval. The takeaway from these hours of cross-exam from Grossman seems to (still) be: You knew about all these risks and still invested.

 

Erin Griffith

We get another “if that’s your question, then yes.” Grossman is patiently describing in great, great detail all of the analysis PFM did on its financial models on Theranos. The room is getting restless. Not even sure Wade is enjoying this level of detail.

 

Erin Griffith

Wade tries to make the point that PFM’s revenue projections for Theranos were unrealistically high. Grossman says no and gives the example of Moderna. “They tend to be really important, open-ended technology, very disruptive, that have a big impact on society.”

 

Erin Griffith

A few more comps added to the analysis: Salesforce, Tesla and a few others I didn’t hear. Grossman repeats his line about “open-ended, disruptive technology platform companies”

 

Erin Griffith

(The third comp Grossman suggested is Illumina.)

 

Erin Griffith

Describing comps, Grossman testifies they were trying to find “open-ended, best-in-breed disruptive companies.” Wade then tries to call FB and GOOG “unicorns.” I feel personally trolled.

 

Erin Griffith

To justify the valuation they suggest using Google and Facebook as comps to Theranos!?!? To use a Grossman term… Wowzers

 

Erin Griffith

We see an email between Grossman and his partner James — no mention of bevies — where Grossman says the valuation and terms “are obviously tough to swallow.” But his call with Channing Robertson was “mind-blowing” and gave him a lot of confidence.

 

Erin Griffith

Post break, Wade is asking Grossman about his conversations with Channing Robertson. Grossman’s father-in-law, David Brady, knew Robertson, was a politics professor at Stanford and was involved with Hoover Institution. Brady also invested in Theranos.

 

Erin Griffith

We have spent … a lot of time going through every painstaking detail of Grossman’s diligence. It is a lot, and I’m not 100 percent sure what effect this is meant to have on the jury.

 

Erin Griffith

We see an email that shows PFM confirms that any device outside a CLIA lab needs to FDA clearance. Theranos often said they didn’t need FDA approval for their machines in stores because the “analysis” would be done in the cloud / in its CLIA lab.

 

Erin Griffith

Grossman has not been asked about why PFM ultimately decided to invest despite all of his very diligent diligence and the doubts raised inside the firm.

 

Erin Griffith

The email also notes that Theranos’s projections are “a bit aggressive” but “with excellent execution are doable and can be exceeded.” Point to show that Grossman knew the risks of backing Theranos.

 

Erin Griffith

More internal PFM emails! This one is about a health care conference where PFM’s tech expert planned to vet Theranos’s tech with others in the industry without violating NDA. Also says he thinks Theranos’s technology is “very good” and has IP and competition concerns.

 

Erin Griffith

To get around this Grossman answers a lot of Wade’s questions with “If the question is X [narrator: it is not], then the answer is Y.”

 

Erin Griffith

Lance Wade is questioning Grossman about a certain document that is not in evidence and Grossman is refusing to acknowledge that it “refreshes his recollection” because he believes Wade’s questions are misleading.

 

Erin Griffith

🩸 It’s U.S. v. Holmes again. 🩸 Brian Grossman, managing director at PFM Health Sciences, which backed Theranos, will continue cross-examination today.

 

Erin Griffith

Grossman and jury are dismissed for the day and its time for our usual lawyer chat. Downey wants to talk about an issue in camera and the judge is lightly ribbing Wade for how long his cross-exam is going. Back tomorrow!

 

Erin Griffith

Wade continues to press this point which is a question I have too — Grossman did all the right stuff regarding diligence, and yet he still invested.

 

Erin Griffith

Wade hits Grossman over the fact that he invested in Theranos even after the refused to let him talk to Walgreens or United in diligence. Grossman says that forced his firm to rely on information from Theranos.

 

Erin Griffith

We now see a PFM email summarizing the Theranos discussion during a Walgreens earnings call. Point being that PFM took other information into account beyond what Holmes said to decide on the investment.

 

Erin Griffith

We got a brief glimpse of an email from Grossman re WAG and Theranos: “Wowzer. That’s quite an endorsement.”

 

Erin Griffith

We see some emails between Grossman and some of his analysts about Walgreens and Theranos. They are discussing Cowen’s take on the Theranos / WAG partnership. Wade suggests Cowen analyst reports are a respected source of information. Grossman says that’s “debatable.”

 

Erin Griffith

Elsewhere on this email thread Grossman asks his partner, “What time u picking us up? U want us to brink bevies for the drive?”

 

Erin Griffith

Wade is now taking Grossman through the team of people at PFM who worked on the deal, explaining their expertise. He mentions Philippe Laffont of Coatue, who introduced PFM to Theranos. We see an email from Laffont to Chris James, an investor at PFM, saying Theranos is “one of the most impressive boards I’ve ever seen.” James forwards the email to Grossman with one word: “Wowsy”

 

Erin Griffith

Wade appears to be doing his bore-em-to-death thing going into tedious detail about the mechanics of private market investments.

 

Erin Griffith

Wade asks Grossman to define a hedge fund and he runs down all the various attributes ending with “and obviously, a hedge fund can hedge.” Somewhere Carol Loomis is smiling.

 

Erin Griffith

Lance Wade is up for cross-exam. Unlike with past investors, who Wade attempted to discredit by criticizing their lack of diligence, the strategy here seems to be building up how much diligence Grossman’s firm did.

 

Erin Griffith

At the very end we saw that Grossman’s firm invested $96 million across several funds.

 

Erin Griffith

We see internal Theranos emails discussing Grossman’s results. He is a “VIP” and they push to get his results out quickly. The results appear to be run on a third party machine, which Balwani never told him about.

 

Erin Griffith

Balwani blamed a rare test and a lab failure. Thanked him for “highlighting this issue.”

 

Erin Griffith

I believe Grossman is the only investor we’ve heard from who went to a Walgreens to get his blood tested on his own. Afterward he asked Balwani why he had to have a venous draw (no fingerstick) and why it took more than 4 hours.

 

Erin Griffith

Grossman spoke to Channing Robertson (Theranos board member, former Stanford professor) twice. Robertson said Theranos had no technical risk and that its technology inside the MiniLab was sound.

 

Erin Griffith

Grossman also wanted to talk to United Healthcare, which (apparently) had a contract with Theranos. Similar to Walgreens, Balwani said no. “It will look badly on us, if investors are asking to speak to someone at the company.”

 

Erin Griffith

Grossman asked to talk to Walgreens and Sunny Balwani told him he was “very uncomfortable” with that. He told Grossman it “would be a strange conversation, they have a great relationship, it wouldn’t look good.” “He had a series of responses along those lines.”

 

Erin Griffith

So we have walked through the same slideshow that Theranos presented to most of its investors including being “comprehensively validated by pharma companies.

 

Erin Griffith

Grossman: “They were emphatic that this was not another point of care testing company. This was the entire laboratory shrunk down into a box.”

 

Erin Griffith

Grossman said he saw various different versions of the Theranos blood testing machines at their manufacturing facility in Newark, at their CLIA lab in Palo Alto and in the lobby of their California St. office.

 

Erin Griffith

Or at least attempted diligence. Holmes and Balwani answered the questions in meetings. It appears we are going to go through their spoken answers on every one of these questions (there are many…).

 

Erin Griffith

Grossman had three analysts working on the deal and says “there’s a lot of analytic labor” that goes into his firm’s modeling. This appears to be the most diligence that any Theranos investor has done so far…

 

Erin Griffith

We see an email from Grossman to Holmes and Balwani containing due diligence questions. There are seven areas of question (technology, IP + barriers to entry, Regulatory, Financial Model/Projections, etc.) with lonnnnnng lists of detailed questions for each.

 

Erin Griffith

Grossman testifies: “Ms. Holmes was actually very clear that they could match every test on the Labcorp and Quest menu of tests.”

 

Erin Griffith

Grossman goes into a very long and detailed tale of the claims Holmes made to him about Theranos’s technology and business. She told him the usual: Theranos was more reliable than Labcorp/Quest and they worked with pharma companies and on medevacs on the battlefield.

 

Erin Griffith

Grossman met with Balwani and Theranos at its lab in December 2013. He testifies that the security to enter the building, including its NDAs, was unusually strict.

 

Erin Griffith

Grossman offers up a little lesson on limited partners. PFM’s include pension funds. Hey jury, it’s not just rich people who were burned by Theranos!

 

Erin Griffith

Yam is excused. The U.S. has called Brian Grossman, a managing partner at PFM Health Sciences, a San Francisco firm that runs a hedge fund and growth equity fund.

 

Erin Griffith

Lance Wade is questioning Yam on whether the wire transfers discussed in the email actually happened. Can’t we just … verify that somewhere?

 

Erin Griffith

$1.1 million to be precise, wired to Horizon Media, the marketing firm. This is one of the wire fraud counts outlined in the indictment.

 

Erin Griffith

We see a late 2015 email regarding expenses for an ad campaign (TV, print, etc.) in the millions of dollars in Arizona.

 

Erin Griffith

The prosecution has called Danise Yam, a.k.a. So Han Spivey, likely to reintroduce a certain email.

 

Erin Griffith

And Alan Eisenman has left town. So we will be getting a new witness this morning.

 

Erin Griffith

Judge Davila says he sees nothing to disturb the court’s previous ruling on this issue. Glad we just spent an hour debating it!!

 

Erin Griffith

Bostic further argues that Holmes had “better sources of information” about Theranos results … from her own lab. And “if positive information is admissible just because Holmes saw it, then negative information that Holmes saw should also be admissible,” i.e., the 2015 WSJ article.

 

Erin Griffith

Judge further notes that there are lots of comments from phlebotomists, who were employees of Theranos. John Bostic argues that the patient reviews aren’t relevant. The reports were only sent to Holmes in 2015, and the majority of the investments in the case happened before that.

 

Erin Griffith

Judge Davila is skeptical. He said the majority of the customer comments talk about pricing because they had no health insurance. Or they were given $100 gift cards by doctors. Not about the accuracy of the tests.

 

Erin Griffith

Now Holmes lawyer Richard Cleary is arguing the defense should be able to include testimony of positive reviews / surveys of Theranos tests.

 

Erin Griffith

🩸U.S. v. Holmes again. 🩸 The lawyers are fighting about whether to discuss the lost database of Theranos tests.

 

Erin Griffith

Ok that’s it for today — short day. Buckling in for four more days of testimony!

 

Erin Griffith

We’re not done with Eisenman as there is still a matter to debate about his notes. The defense wants a color copy so they can examine all the various inks used. 🎨

 

Erin Griffith

In cross-exam Downey had discussed how much Eisenman’s stock in Theranos was worth. In redirect, Bostic asks: What is your understanding that your stock in Theranos is worth today? Eisenman: “It’s not an understanding, it’s a conclusion. It’s worth zero.”

 

Erin Griffith

In redirect Eisenman speaks about the contrast between the Theranos hype — all their progress and demand in the market — and the legal disclaimers that come with investing (this is a high risk growth company, you could lose all your money, etc., etc.). The power of hype is strong!

 

Erin Griffith

Downey says that Eisenman has asked government agents to look into a different investment where he lost money. Judge sustains objection and that is the end of cross-exam of Eisenman.

 

Erin Griffith

Eisenman says, “It’s a little misleading — we are on the same page because I feel that I was lied to and cheated from the company.”

 

Erin Griffith

Downey asked Eisenman about his relationship with the prosecution. He gives squirrely answers and we eventually see an email from 2018 where Eisenman says “You know that I am a faithful part of your team and will do all that I can to help your case.”

 

Erin Griffith

We are back to the legal boilerplate fight. Eisenman refuses to answer yes/no questions about it. And remember: legal disclaimers are there for a reason! They will be used against you in court!

 

Erin Griffith

Defense counsel Downey: “As I suspected there are some indications in the notes that the notes are not what Mr. Eisenman described in his direct examination. … At some point additional info has been inserted in a different color ink.”

 

Erin Griffith

During our break (is it too early for lunch?), the lawyers from both sides are going to review the notes that defense filed a subpoena for in a side room.

 

Erin Griffith

Another scathing email from Balwani. Eisenman emailed about a news article that says Theranos could become obsolete. Balwani: “I think these emails are beyond ridiculous.”

 

Erin Griffith

Downey makes the point that Eisenman chose to invest more into Theranos, despite the fact that Balwani had “ignored or intimidated” him.

 

Erin Griffith

Lots of cross-talk chaos between Eisenman, Downey, the court reporter and Judge Davila, who jumps in: “Let’s reset. It goes by question and answer. The lawyers get to ask the questions and it’s your privilege to answer them.”

 

Erin Griffith

It is not great to have examples of government agents telling Eisenman “do not contact us” juxtaposed with emails from Holmes telling him “do not contact us.”

 

Erin Griffith

Over the weekend defense subpoenaed Eisenman for his notes about the Theranos investment and Downey demands he gives them to the court admin. Eisenman wants more info on the process.

 

Erin Griffith

Eisenman: “I’m a smart guy.” Downey: “Did the government agree with that smart judgment?” (prosecution objects)

 

Erin Griffith

Agent Hernandez called Eisenman and said to not communicate with the government about the substance of the trial. Eisenman then apparently sent another email to the government the next morning and the government called *again* with Mr. Bostic, saying not to communicate with them.

 

Erin Griffith

We were going to see the email he sent to Agent Hernandez on the prosecution’s team offering “some reflections” on his testimony, but prosecution objected to admitting evidence that was 90% redacted.

 

Erin Griffith

Downey: “How long did it take you to violate that directive? Was it less than about 15 hours?” Eisenman: “I don’t recall.” 😬

 

Erin Griffith

Uh ohhh, Downey points out that Eisenman flew back to Houston after his initial testimony Wednesday evening and immediately violated his directive to not discuss the trial with anyone.

 

Erin Griffith

Eisenman also reached out to Bill Frist through his father-in-law, Joel Gordon, a wealthy political donor in Tennessee. Downey asks why he wanted that outreach to be secret. Eisenman says that comment is “misleading.”

 

Erin Griffith

We see an email from Holmes to Eisenman from 2012, after he reached out to Don Lucas: “No, Alan it has been about that long since you decided to start harassing our chairman.” Eisenman says that is a “total mischaracterization.”

 

Erin Griffith

The email about Larry Ellison was meant to show that Theranos was providing general information to all investors. Eisenman pushes back there, too. “There was no communication to investors generally, either” and “I don’t think they communicated that to their investor base.”

 

Erin Griffith

Downey is trying to make the point that Eisenman was demanding special information. He asked whether Eisenman knows that Theranos had no legal obligation to update him with “specific” and “individual” information he was requesting.

 

Erin Griffith

In 2020 Eisenman emailed Holmes asking why Larry Ellison was no longer on the board. Holmes responded: “There is no new information to be shared with our investor base.”

 

Erin Griffith

Eisenman testifies that he believes Holmes was hiding information from him. Downey tries to strike that, too, and the judge says no — “that was his understanding of his opinion.”

 

Erin Griffith

The same dynamic is happening today. Downey asks about general rules around sharing information with investors and he pushes back about NDAs and the specific situation at Theranos. Downey strikes several attempted answers.

 

Erin Griffith

Eisenman’s direct testimony also brought up some pretty wild emails between him and Holmes+Balwani. They basically treated him like a stalker for asking for more info and threatened legal action. And then, incredibly, he still invested more $$ after that!

 

Erin Griffith

Eisenman was a difficult witness for the defense lawyers. He refused to go along with some of Kevin Downey’s yes/no questions and it got testy.

 

Erin Griffith

🩸 “Our Holmes Matter” continues. 🩸 Full week of testimony in U.S. v. Holmes after last week’s announcement that the prosecution is likely to rest soon. Alan Eisenman, a Theranos investor, returns to the stand for cross-exam.

 

Erin Griffith

Wrapping up. That’s all the blood for the week. Next week we’re going all five days! 🩸🩸🩸🩸🩸🩸🩸🩸🩸🩸🩸🩸🩸

 

Erin Griffith

This is why boilerplate exists! It can (and will) be used as a weapon in court.

 

Erin Griffith

Twice in a row, Eisenman goes on a rant that “this is what they call a boilerplate as you know” and Judge Davila cuts him off, telling him to answer the question asked. “I’m trying,” Eisenman says.

 

Erin Griffith

Downey pulls up Eisenman’s investment agreement with Theranos which contains a legal disclaimer saying the company made “no assurances” it would ever go public. Eisenman pushes back that Holmes told him Theranos was talking to Morgan Stanley about an IPO in the next year.

 

Erin Griffith

Eisenman: “Can I ask you what a ‘service frame agreement’ is? I don’t know what that means” Downey: “You cannot.”

 

Erin Griffith

Kevin Downey, Holmes’s lawyer, is cross-examining Eisenman. Raising his voice a bit asking about his investment experience and about his conversations with Holmes. Pointing out that Eisenman only had one short call with Holmes before investing.

 

Erin Griffith

Eisenman emails again asking for more info about potentially selling his shares. Balwani’s response: “Your emails are insulting full of inaccurate statements and wasteful of our time. Our next response to this email and all your future emails will come from our counsel.”

 

Erin Griffith

Guy was told an IPO was coming almost a decade earlier and now can’t get a call back. He is now sending emails with PLEASE RESPOND!!! in the subject lines. And Balwani responds with “I already responded to you”

 

Erin Griffith

Eisenman responds asking for more info and Balwani responds with this: Alan. I have no intention of responding to this email and explaining the tech and processes. Please stop sending me with emails everyday. thanks.

 

Erin Griffith

Eisenman emails Holmes and Balwani a negative UBS report about Theranos. Balwani responds that it “sounds like an uninformed consultant”

 

Erin Griffith

And despite all that, Eisenman STILL invested $99,990 into Theranos in 2013. Why? “This is called a seat at the table.”

 

Erin Griffith

Before it was fundraising, Eisenman testifies that Sunny Balwani was “not only nonresponsive but aggressive with me.” “To say minimally, he was hostile for an extended period of time.”

 

Erin Griffith

Then Theranos was raising money again and it sounds like *despite all of this drama* Eisenman was willing to invest more money!

 

Erin Griffith

He responded: “It has been over 2 years since you have communicated with your investors. … Does this mean that you can’t or won’t communicate with me or the other investors?

 

Erin Griffith

From there things got spicy. Eisenman reached out Don Lucas asking for information. Lucas forwarded it to Holmes and she responded: “Alan, we have communicated about this multiple times before yet you choose to continue going down this path. Elizabeth”

 

Erin Griffith

In a May 2010 email, Eisenman asks Holmes whether the company hit the $200m revenue it predicted for 2009. In a later email, he testifies, Holmes said that goal was “stretched another year.”

 

Erin Griffith

His push for more information about Theranos’s performance frustrated Holmes. “I was more proactive than most. … Management didn’t like the fact that I was trying to communicate and get information.” To solve that problem, Holmes offered to buy him out at a 5x return.

 

Erin Griffith

Over time Eisenman asked Holmes to keep her quarterly updates coming and was denied. “There was no information coming from the company. To me that’s a sign of trouble.”

 

Erin Griffith

Theranos told investors it would become cash flow positive by the end of ’08. Now we’re going on a break.

 

Erin Griffith

In ’09 Theranos was telling Eisenman about huge demand for its cartridges. “These are numbers that are pretty astounding and create a pretty significant value for this company,” he said.

 

Erin Griffith

Altogether Eisenman’s family invested just under $1.2m into Theranos. ($900k for him and his wife, $90k for each of three kids) His testimony follows a pattern that is very familiar by now: What he understood about what Theranos’s technology could do and how he learned it.

 

Erin Griffith

Eisenman had many one-on-one calls with Holmes and she was the main source of info on the company. In 2006 Holmes was already saying she was talking to bankers about an IPO in the next 12-18 months and claiming $50m-60m in revenue in ’07 and $200m in ’08.

 

Erin Griffith

Eisenman testifies that, around 2006, he was told that Larry Ellison was on Theranos’s board and was taking $20 million of an upcoming $30 million fundraise. “My understanding was these international pharma companies had adopted this tech in some of their clinical trails.”

 

Erin Griffith

Alan Eisenman, a Theranos investor, is now on the stand. He was introduced to the company by the Holmes family’s financial adviser in Houston.

 

Erin Griffith

Das testimony ends with a very awkward exchange where Wade prompted him to recall a quote from the Best Exotic Marigold Hotel. “Everything will be alright in the end and if it’s not alright, it’s not yet the end.” Why was that relevant? I dunno.

 

Erin Griffith

Defense has spent time in testimony painting Holmes as an inexperienced person who could never have understood the details of how a lab works. Prosecution pointed out that she was CEO of the company and touted the patents she claimed to have written.

 

Erin Griffith

We also heard more about the Holmes excuse for the lab problems — she blamed it on quality control issues, not the machines. Apparently that excuse was given to CMS in a letter that Das signed, even though he disagreed with that part.

 

Erin Griffith

Dr. Das was asked in cross-exam about whether his decision to void the tests was “conservative.” In redirect, he was asked about it again and he said, “I was just following the data.”

 

Erin Griffith

Back to cross-exam. We see an email in April 2016 from Dr. Das to Holmes titled “some good news, for once” — data from two valuations looked “excellent” he wrote, even though he was not “a fan of the studies themselves.”

 

Erin Griffith

Now they’re doing a sidebar about scheduling, which I really wish would be a main bar so the press could have any sense whatsoever of what to expect and plan around…

 

Erin Griffith

One issue: Eisenman, who invested in Theranos, apparently said something about punishment of Holmes in the hallway and defense is concerned about that. And secondly, they’re redacting a line from an email that says he had most of his net worth (‼️) tied up in Theranos

 

Erin Griffith

During a break the lawyers are fighting over the upcoming testimony of Alan Eisenman.

 

Erin Griffith

Wade makes it seem like Theranos was heroic for voiding the tests, given media scrutiny and stakes: It was a big decision to make to void all of the assays for their analyzers? It wasn’t necessarily something anyone wanted to do? The preference would be not to have to do that?

 

Erin Griffith

Now Wade attempts to blame former lab director Adam Rosendorff (without mentioning that he resigned in frustration and leaked to WSJ). You recall the laboratory was not well-run when you joined? And that was why you were working to improve it?

 

Erin Griffith

Now Wade blames Das: You’re familiar with Holmes’s background and training? She wouldn’t be qualified to serve as a lab director in a high complexity lab? But you were qualified? Ultimately the judgments were yours? You were responsible for the people working under you?

 

Erin Griffith

We talk about all the people working on addressing the problems. Wade: “All these people were working hard and in good faith as they were undertaking these efforts, is that fair?” Das says yes (obviously).

 

Erin Griffith

Wade is deflecting blame to Sunny Balwani, who was in charge of the lab. Before Dr. Das, lab directors reported to Balwani. When Das joined, he reported directly to Holmes, and Wade elicits testimony that this was a change designed to address the issues.

 

Erin Griffith

Before Dr. Das joined Theranos, CMS inspected Theranos’s labs and issued a damning report about lab deficiencies, which we saw yesterday.

 

Erin Griffith

🩸 “Our Holmes Matter” continues in San Jose. 🩸Holmes lawyer Lance Wade is questioning Dr. Das, Theranos’s final lab director. Yesterday he testified that he decided to void as many as 60k Theranos tests.