Prosecutors: Elizabeth Holmes, Sunny Balwani 'Were Partners' In Theranos Fraud Scheme
SAN JOSE (CBS SF/KPIX) -- A federal prosecutor drove his message home repeatedly to jurors Tuesday that convicted fraudster Elizabeth Holmes and her accused co-conspirator Sunny Balwani were partners in spreading "rosy falsehoods" about the capabilities of the blood testing software developed by their failed Theranos startup.
Having won a fraud conviction of Holmes in January, Prosecutor Robert Leach turned his attentions to Balwani, her ex-boyfriend and former Theranos' chief operating officer and president, as his trial got underway in San Jose courtroom with opening statements.
U.S. District Judge Edward Davila chose not to try the pair together after Holmes attorneys revealed they planned to bring up Balwani's alleged emotional and sexual abuse in her defense. Balwani's attorney has vehemently denied those claims.
Leach, however, brought up the fractured love affair in his opening statements.
"This is a case about fraud; lying and cheating to get money," he told jurors. "Mr. Balwani had no medical degree, no experience building medical devices. What he did have was a connection to Elizabeth Holmes. Mr. Balwani was her romantic partner."
He continued on telling the jury that the pair acted in concert in the alleged fraud that cost investors millions of dollars with the knowledge that the company's much heralded software didn't live up to this hype.
"Ms. Holmes and Mr. Balwani were partners in virtually everything," Leach said. "The defendant and Holmes knew the rosy falsehoods that they were telling investors were contrary to the reality within Theranos."
He said they lied to investors and patients to get their money and their business when their mini blood testing device didn't actually work.
"You're going to see a very similar case. The government got it right for the most part the first time, and they don't need to change too much," said former prosecutor and Legal Analyst Steven Clark.
Balwani is facing all the same charges as Elizabeth Holmes who was convicted in January on four counts and is facing up to 20 years in prison.
"For the government, it's really a reiteration of the first trial," Clark said.
In his opening statement, Balwani's counsel Stephen Cazares told jurors his client didn't join Theranos in 2009 because Holmes was his girlfriend, but because he believed in the company's technology.
He said that everything the veteran Silicon Valley executive knew about Theranos' technology came directly from the company's scientists. Balwani even allegedly loaned Theranos up to $18 million in 2009 when it was struggling to pay bills.
Cazares told the jury Balwani invested millions of his own money in Theranos because he believed in the company's mission to improve health care.
He said Balwani never lied to investors, and never profited from his Theranos stock, and that much of what he's accused of happened before he joined the company.
"Their whole theory of the case is don't convict Mr. Balwani for the sins of Elizabeth Holmes," Clark said.
The defense is also trying to distance Balwani from the day to day operations of the lab, which was being run by medical doctors.
But prosecution witnesses are expected to testify that as COO, he was very much a hands-on boss.
The trial is happening in the same courtroom where a jury found Holmes guilty of investor fraud and conspiracy in January, but with much less attention. There were no lines for seats in the courtroom and there wasn't quite the media attention paid to the Holmes trial.
Holmes, currently free on $500,000 bail, is facing up to 20 years in prison when she is sentenced in the case in September. The impending jail term has stirred speculation that she might agree to testify against Balwani if prosecutors agree to recommend leniency in exchange for her cooperation.
Complete Coverage Of Theranos Trial
"It leaves the door open" for Holmes to strike a deal, said Ann Kim, a Los Angeles lawyer who formerly handled fraud cases for the U.S. Attorney's Office and Securities and Exchange Commission.
There has been no indication so far that Holmes will testify in Balwani's case. Even if Holmes doesn't take the stand, her specter is already looming large over Balwani's trial, which is expected to run through mid-June.
Balwani, a tech executive who reaped a $40 million windfall during the dot-com boom of the late 1990s, became involved with Holmes around the same time she dropped out of Stanford University in 2003 to start Theranos at the age of 19.
Balwani didn't initially play a direct role in Theranos, although Holmes testified that he tried to sculpt Holmes into a more savvy entrepreneur while dictating her diet, daily schedule and friendships. Balwani joined Theranos in 2009 as the company's chief operating officer, a position he held until Holmes ousted him in 2016 amid revelations of rampant inaccuracies with Theranos' blood tests.
Before Holmes dumped him, Balwani played an integral role in the company that included overseeing Theranos' labs. Meanwhile, Holmes focused on raising nearly $1 billion from investors and appearing in flattering media stories celebrating her whirlwind success in male-dominated Silicon Valley.
Holmes' fortune was estimated at $4.5 billion in 2014 while Theranos was working on "wellness centers" in Walgreens stores that were supposed to scan for hundreds of potential health issues with a few drops of blood taken with a finger prick.
While Holmes got the glory, Balwani seemed to envision himself as a mastermind based on evidence presented at the trial.
"I have molded you," Balwani told Holmes in a May 2015 text that became part of the evidence in her trial.
The texting exchanges between Balwani and Holmes — many of which included expressions of their love for each other — are expected to come up again during Balwani's trial, along with much of the other evidence submitted during Holmes' proceedings.
The trial is scheduled to take place on Tuesdays, Wednesdays and Fridays and may stretch well into April.
Len Ramirez contributed to this report.