Theranos' former COO Ramesh Balwani sentenced to nearly 13 years in prison for fraud

Theranos’ former chief operating officer, Indian-origin Ramesh ‘Sunny' Balwani, has been sentenced to nearly 13 years in prison for fraud that prosecutors said risked patient health and defrauded the blood-testing company’s investors of millions of dollars.

Balwani, 57, was sentenced to 12 years and 11 months in federal prison for fraud that risked patient health by misrepresenting the accuracy of Theranos blood analysis technology and that defrauded the company's investors of millions of dollars, US Attorney Stephanie Hinds said.

In addition to the 155 months prison term, US District Judge Edward Davila sentenced Balwani to three years of supervision following release from prison. A hearing to determine the amount of restitution to be paid by Balwani is to be scheduled in the future. Balwani was ordered to surrender on March 15, 2023, to begin serving his prison sentence.

Balwani was employed from September 2009 through July 2016 at the Palo Alto-based blood testing company founded in 2003 by his former girlfriend Elizabeth Holmes, once touted as Silicon Valley’s rising star.

Last month, District Judge Davila sentenced Holmes to 11 years and 3 months in federal prison and ordered her to surrender to begin serving her sentence on April 27, 2023. Balwani was 37 when he met then 18-year-old Holmes.

‘Fake it till you make it’

"There is an unfortunate saying in Silicon Valley - fake it till you make it,” Attorney Hinds said in a video statement.

Courtroom sketch: Prosecutor Jeff Schenk speaks as Ramesh “Sunny” Balwani appears before U.S. District Judge Edward Davila during his sentencing at federal court in San Jose, California, U.S. | Photo Credit: VICKI BEHRINGER

Holmes and Balwani “stretched this idea to a place much farther than the law allows and in so doing, put vast amounts of investor dollars at risk,” Hinds said adding that with Balwani’s sentencing, the court also made clear that his decision to deceive doctors and patients also put the health of patients at risk.

Hinds said that while patient health is the highest priority of the US healthcare system, and Silicon Valley has long been home to healthcare start-ups that enhance the care of patients through technological developments, Balwani, in a desire to become a Silicon Valley titan, valued business success and personal wealth far more than patient safety.

“He chose deceit over candour with patients in need of medical care, and he treated his investors no better,” Hinds said in a statement.

Spectacular wealth

Trial evidence showed that the fraud brought “spectacular personal wealth” to Balwani, who owned nearly 30 million shares of Theranos – over 6 per cent of the company – which were worth hundreds of millions of dollars at the peak of the fraud.

Balwani was born in Pakistan but his family is said to have moved to India. He moved to the US from India during the 1980s and studied at the University of Texas.

FBI Special Agent in Charge Robert Tripp said Balwani not only deliberately concealed defects in Theranos' blood-testing technology to mislead investors, he knowingly put patients’ health at risk.

During his employment at the now defunct Theranos, Balwani held the positions of board member, chief operating officer and president.

The blood analyser

Balwani and Holmes, who was chairperson and CEO, claimed Theranos developed a “revolutionary blood analyser” that could run any blood test run by conventional labs using only a small blood sample drawn via a fingerstick, rather than the traditional draw from a vein.

Balwani and Holmes asserted that the Theranos proprietary analyzer produced results that were cheaper, more reliable and less variable than existing methods, and obtained results at a speed faster than ever before possible.

However, evidence at trial demonstrated that both Balwani and Holmes knew that the analyzer performed only a few basic tests and was slower than existing devices. They repeatedly resorted to using conventional machines to obtain the blood test results that the Theranos analyzer was supposed to perform, the statement said.

However, they led investors and the public to believe that Theranos was conducting essentially all of its tests using only its Theranos analyser, it said.

Evidence demonstrated that Balwani and Holmes were aware that the Theranos analyzer’s limited capabilities meant it could not compete in the market, but they nevertheless trumpeted false claims and representations about the analyzer’s capabilities and conspired to convince patients and investors that the claims were true, the statement said.

Dark reality

Evidence at trial and examples in a sentencing memorandum filed by the government demonstrate the “dark reality” these misrepresentations created for patients. In order to portray Theranos as a legitimate enterprise, Theranos eventually offered the blood analyser to the public to perform a “full range” of tests, despite internal protests from Theranos employees and even resignations by staff. Prosecutors said because of this, numerous misdiagnoses followed.

Instances presented at trial included that of a pregnant woman who had suffered multiple miscarriages and obtained HCG values from Theranos testing that strongly indicated she was miscarrying again. However, confirmatory tests by conventional methods indicated a viable pregnancy, and the woman went on to deliver a healthy baby.

“This scenario played out with multiple pregnant women who received erroneous HCG results from Theranos tests,” prosecutors said.

Prosecutors said that amidst their repeated technology failures, Balwani and Holmes chose to continue deceiving their investor-victims and to proceed with the elaborate investor fraud conspiracy. They induced dozens of investors, many of whom were prominent public figures, to invest hundreds of millions of dollars in Theranos by using consistently glowing but false representations to investors and potential investors about the analyzer’s progress and its capabilities.

Theranos’ deceit

Balwani and Holmes asserted to investors that the Theranos technology had been comprehensively validated by multiple major pharmaceutical companies and was being used by the Department of Defense to treat wounded soldiers where, it was represented, it “actually saved lives in the battlefield.”

However in truth, pharmaceutical companies did little work with Theranos and did not validate its technology, and the Department of Defense never used Theranos’ analyzer to clinically treat soldiers, the statement said.

The duo also continued to tout Theranos’ analyzer as a revolution in healthcare while misrepresenting the dire financial status of the company. Despite Theranos having zero revenue in 2012 and 2013, they represented to investors in late 2013 and 2014 that Theranos had hundreds of millions in revenue from a combination of pharmaceutical companies and the military.

Balwani conspired to induce retail stores Walgreens and Safeway to invest in Theranos based on false pharmaceutical company endorsements and fantastical revenue projections. By March 2015, Theranos raised more than USD 730 million dollars from investors who invested subsequent to Theranos’ public relations push in 2013.

Federal criminal charges were initially filed against Balwani and Holmes in June 2018. In July 2020, a federal grand jury returned a superseding indictment charging both with two counts of conspiracy to commit wire fraud and 10 counts of wire fraud. In July this year, Balwani was convicted by a federal jury on all counts after a four month trial.

Balwani was tried separately from Holmes, and in her trial Holmes was not convicted of all counts.