SAN JOSE, Calif. — The ninth week of testimony in the fraud trial against Elizabeth Holmes raised questions of what risks and responsibilities investors have when they put money into high-growth start-ups like Theranos, Ms. Holmes’s failed blood testing company.
In past weeks of the trial, the jury heard from former Theranos employees who were alarmed by its practices, as well as executives and board members who said they were taken in by Ms. Holmes’s pitch for blood testing machines that could conduct hundreds of blood tests accurately and quickly from a drop of blood.
That built up to testimony from investors, who prosecutors said are the victims in the 12 counts of wire fraud at the heart of the trial. Before Theranos collapsed in 2018, it raised $945 million from investors, valuing it as high as $9 billion and making Ms. Holmes a billionaire.
Ms. Holmes has pleaded not guilty. If convicted, she faces 20 years in prison.
Here are the key takeaways from this week’s proceedings, which took place only on Tuesday after a water main break near the courthouse on Wednesday forced the cancellation of the day’s events.
Handpicked investors
Lisa Peterson, an investment manager at RDV Corporation, an investment firm representing Michigan’s wealthy DeVos family, explained how the group came to invest — and eventually lose — $100 million in Theranos.
RDV’s chief executive, Jerry Tubergen, met Ms. Holmes at a 2014 conference and became enthusiastic about Theranos, according to an email shown in court. Ms. Peterson, who was put in charge of researching and facilitating the investment, testified that Theranos had handpicked a few wealthy families to invest and that Ms. Holmes made the firm feel lucky to be included.
“She was inviting us to participate in this opportunity,” Ms. Peterson said. Theranos purposely sought out private investors who would not push the company to go public, a presentation shown in court said.
With Ms. Peterson’s testimony, prosecutors built on how Theranos had appeared to use fake endorsements from pharmaceutical companies to deceive its partners and investors. Theranos had shown Walgreens and Safeway executives a validation report that displayed the logos of pharmaceutical companies and said they supported its technology.
Last week, a Pfizer executive testified that the company had dug into Theranos’s technology and “come to the opposite conclusion.” Ms. Peterson said she had seen the validation report and believed it had been prepared by Pfizer, which helped entice her firm to invest.
Poor diligence
In a heated cross-examination, Ms. Holmes’s lawyers tried painting Ms. Peterson as a negligent steward of capital who did not do proper research before pouring cash into a young start-up.
Lance Wade, a lawyer for Ms. Holmes, highlighted contradictions between Ms. Peterson’s statements and an earlier legal deposition she had given. When Ms. Peterson insisted that her current testimony was accurate, he shot back, “Your memory has improved over time? Is that your testimony?”
Mr. Wade also prodded Ms. Peterson for not hiring scientific, legal and technology experts to dig into Theranos’s claims, nor did she demand to see copies of Theranos’s contracts with Walgreens and Safeway. “You understand that’s a typical thing to do in investing?” he asked.
Ms. Peterson said the firm relied on what Ms. Holmes and other Theranos executives told them.
Mr. Wade tried to diminish Ms. Peterson’s decision-making power within the firm by pointing out that she was not on RDV’s investment committee and was not present for all the meetings involving Theranos.
By arguing that investors like Ms. Peterson didn’t do enough research, Ms. Holmes’s lawyers walked a delicate line. That’s because their argument included an implied acknowledgment that Theranos’s technology did not do all that it promised, even as they also had to maintain that Ms. Holmes did not lie about the technology.
The ‘conspiracy period’
Jurors watched two videos of Ms. Holmes — most likely their first time seeing her face without a mask — as she defended Theranos in interviews after The Wall Street Journal reported in 2015 that the start-up’s blood testing machines did not do as much as claimed.
In an appearance on Jim Cramer’s “Mad Money” show on CNBC, Ms. Holmes said Theranos’s machines could do more than 100 tests, dismissing the critical report. In an interview with CBS in 2016, Ms. Holmes was more contrite, saying, “I’m the C.E.O. and founder of this company. Anything that happens in this company is my responsibility.”
Ms. Holmes’s lawyers argued to exclude the videos as evidence, at one point referring to the period of time after The Journal article as the “conspiracy period.”
Ms. Peterson testified that during that time, she and others at RDV met with Ms. Holmes. At the meeting, Ms. Holmes downplayed the revelations, Ms. Peterson said, saying The Journal’s reporting was “done by a very overzealous reporter who wanted to win a Pulitzer.”
Mr. Wade asked the court to strike that comment from the record.