Ramesh "Sunny" Balwani, former president of Theranos Inc., was one-half of a business duo that lied to cheat investors and patients out of money, a government prosecutor told a jury Tuesday as the second criminal-fraud trial involving the defunct blood-testing company got under way.
Mr. Balwani and Elizabeth Holmes, the company’s founder, each at times took the lead in misleading investors, business partners and patients about the capabilities of Theranos’s technology and its finances, U.S. Assistant Attorney Robert Leach said in the government’s opening statements.
"They were partners in everything, including their crimes," said Mr. Leach, addressing a jury of 12, plus a pool of five alternate jurors.
The pair deceived and cheated others because Theranos was quickly running out of money and its blood-testing technology didn’t work, said Mr. Leach. For a time, he said, their scheme was enormously successful: they raised hundreds of millions of dollars from investors, and it "brought them fame and adoration."
Mr. Balwani, 56 years old, is the former president and chief operating officer at Theranos—a company he helped to finance and run from 2009 to 2016—and the ex-boyfriend of Ms. Holmes, who started the company as a Stanford University dropout. Mr. Balwani faces a dozen counts of wire fraud and conspiracy to commit fraud. He has pleaded not guilty to all charges.
Ms. Holmes and Mr. Balwani were indicted together in June 2018, but U.S. District Judge Edward Davila agreed in March 2020 to Mr. Balwani’s request to sever the trials so they would have separate court appearances. Judge Davila presided over Ms. Holmes’s trial and is also overseeing Mr. Balwani’s proceedings; the same assistant U.S. attorneys who brought Ms. Holmes’s case are also prosecuting Mr. Balwani’s case.
Ms. Holmes was found guilty of wire fraud and conspiracy in January in a separate criminal trial.
Theranos claimed it could test for more than 200 health conditions using just a few drops of blood from a finger prick. In fact, Mr. Leach said, the company used its proprietary device for just 12 types of patient tests, "and it did those tests badly." Theranos relied on commercial blood analyzers for the rest, all the while claiming it had revolutionized healthcare, Mr. Leach said.
Mr. Leach said Mr. Balwani was a full participant in the lies Theranos spread, which was driven by its dwindling cash reserves and unreliable technology. The company was down to $6.9 million in cash in 2013, its relationships with pharmaceutical companies were deteriorating and it went years without revenue.
"This is a case about fraud. About lying and cheating to obtain money," said Mr. Leach. "He did this to get money from investors and he did this to get money and business from paying patients who were counting on Theranos to deliver accurate and reliable blood tests so that they could make important medical decisions."
Mr. Leach said Mr. Balwani’s lies spanned all aspects of the company. He lied about the functionality of its blood-testing device, about its relationships with pharmaceutical companies and the military, about its financial condition and financial forecasts, and about the state of its crumbling partnership with Walgreens Boots Alliance Inc., Mr Leach said.
He also said Mr. Balwani, who often took the lead on company financial projections, told investors to expect Theranos would have $990 million in revenue in 2015, when in fact the company had less than $2 million in sales.
At Theranos’s peak valuation of more than $9 billion, Mr. Balwani’s stake in the company was worth about $500 million on paper. Ms. Holmes, who owned about half the company, had a stake worth about $4.5 billion. Theranos dissolved in 2018, and both walked away without making money.
Mr. Balwani’s trial had already faced delays due to a prolonged jury selection, the pandemic and because Ms. Holmes gave birth to a baby boy last year, which postponed her own trial.
Mr. Leach’s opening statements gave a preview of a case that echoed the one against Ms. Holmes. He told the jury that they would see text message exchanges Mr. Balwani and Ms. Holmes shared during their more than decadelong romantic relationship, which was largely hidden from Theranos investors, employees and board directors. Prosecutors also introduced hundreds of these messages during Ms. Holmes’s trial, showing the two worked in tandem as the two top officers of a multibillion-dollar company and as romantic partners.
"They candidly explained to each other how mad things were inside Theranos at the time they were touting Theranos as a revolution in healthcare," said Mr. Leach.