What we learned this week in the trial of Elizabeth Holmes

Daniel Mosley, an investor who helped facilitate more than $400 million worth of funding into the failed blood-testing startup, was one of four new witnesses to take the stand this week. He said he was introduced to Holmes and Theranos through his longtime client, former Secretary of State Henry Kissinger, and went on introduce Holmes to a who’s who of prominent households.

Holmes, once hailed as the next Steve Jobs, is facing a dozen federal fraud charges over allegations that she knowingly misled investors, doctors, and patients about her company’s blood testing capabilities in order to take their money. Holmes has pleaded not guilty and faces up to 20 years in prison.

Mosley, a former lawyer at the prominent New York firm Cravath, Swaine & Moore, testified Tuesday that he first heard of Theranos around 2013 through Kissinger, who had been his client for the better part of two decades. Kissinger described Theranos to him as a “terrific company,” according to Mosley.

Kissinger simply asked Mosley to look at Theranos and give him an opinion. Mosley not only ended up investing $6 million in the company himself but also helped introduce Holmes to several “high quality families.” Those families included the Waltons, whose patriarch founded the retail chain Walmart (WMT); John Elkann, the heir to an Italian auto empire that includes Ferrari and Fiat; and the billionaire family of former US Education Secretary Betsy DeVos. (Lisa Peterson, a managing director at RDV who helped vet the DeVos family deal with Theranos, testified about the investment last week.)
Silicon Valley is not on trial in the Elizabeth Holmes case. Classic fraud is

In total, Mosley’s clients and acquaintances invested $403 million in Theranos, according to a document shown in court, with the Waltons and DeVoses putting in $150 million and $100 million, respectively. Mosley said he did not encourage them to invest but simply helped connect them to Holmes.

Mosley testified that he had some concerns about provisions in the the company’s share structure and that he understood the risks associated with investing in its ambitious mission, but did so anyway “because I thought it was a very, very attractive opportunity that was going to be very, very good for people.”

‘All Theranos all the time’

The court also heard from another investor, Chris Lucas, who put money into Theranos much earlier. His firm, Black Diamond Ventures, invested more than $2 million across two funding rounds in 2006 and another $5.4 million towards the end of 2013. Most of that money came from the firm’s investors, but Lucas testified that he included some of his own money as well.

Lucas was introduced to Holmes through his uncle Don Lucas, a well-known Silicon Valley investor and onetime chairman of Theranos’ board. He said that early on, there was “not a high degree of transparency” into the company. He was accustomed to getting detailed financial statements from companies he invested in, but he said “we were not provided that opportunity” with Theranos.

Nonetheless, he trusted the judgment of his uncle, and was impressed by Holmes, whom he estimated he met and spoke to dozens of times over the course of seven years.

Elizabeth Holmes, founder of Theranos Inc., left, arrives at federal court in San Jose, California, U.S., on Tuesday, Nov. 2, 2021.

“I had a great relationship with Elizabeth,” he said on the stand, subsequently describing her as “very sincere in what she was trying to do. … It was all Theranos all the time for Elizabeth.”

Lucas said the company’s 2013 commercial partnership with Walgreens, in particular, was important to him, because “this is what Elizabeth and a dedicated team had been working on for so long, and they felt it was ready for prime time.”

Both Lucas and Mosley said they leaned on documents and materials for their assessment of the company that turned out to be misleading, including a report with Pfizer’s logo on it that was introduced earlier in the trial (the report was not prepared by Pfizer) and the 2014 Fortune magazine cover story that helped catapult Holmes to fame.

“Great article, great pictures, the whole thing,” Lucas said, adding that it made him “proud of the situation. Proud that we are involved. Proud of Elizabeth.” (Roger Parloff, the author of the Fortune story, is expected to testify in the coming weeks.)

‘Increasingly uncomfortable’

The final witness of the week, who took the stand for the last 30 minutes of testimony and is expected to continue next Tuesday, was Lynette Sawyer.

Sawyer briefly served as co-director of Theranos’ California lab for roughly the first half of 2015, but quit in June that year because she “became increasingly uncomfortable with the way things were done and how I was treated.”

Sawyer testified that she never set foot in the lab, visited Theranos, saw any of its devices or tests from devices, and was only required to sign reports she received via email, which she could not edit and which appeared to be from standard FDA-approved devices rather than Theranos’ proprietary devices.

“I didn’t have anyone I could talk to about issues” with the reports, she said. During cross-examination by Holmes’ attorney Lance Wade, Sawyer admitted her job did not require her to go into Theranos, nor did she ask to.

Jurors will likely hear more on both the scientific and investment fronts next week — Kingshuk Das, another lab director, is expected to take the stand, as is former investor Alan Eisenman.

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