April 18, 2024

Elizabeth Holmes, founder of the collapsed Silicon Valley blood-testing startup Theranos, has lost a bid to remain out of prison while she appeals to multiple convictions of defrauding the company’s investors.

On Tuesday, a three-judge panel for the 9th Circuit Court of Appeals in San Francisco rejected a motion from Holmes’ lawyers asking that the embattled entrepreneur and mother of two be spared from a lower court’s order also denying her request to remain free on bail , pending an appeal of her case.

A date for Holmes to report to prison was not included in the order.

“Appellant’s motion for bail pending appeal is denied,” the panel wrote in its decision. It disagreed with Holmes’ lawyers who argued in court filings that US District Court Judge Edward Davila, who presided over Holmes’ trial, made decisions reflecting “numerous, inexplicable errors.”

The judges wrote that Holmes failed to meet a legal standard that, if satisfied, would weigh in favor of granting continued bail. The standard required Holmes to raise a “substantial question” law or fact from the district court case that, if decided in her favour, would likely lead to a reversal of her four fraud convictions, or a shorter prison term.

In January 2022, a San Jose jury returned guilty verdicts against Holmes on four counts of financial fraud.

Holmes, 39, who dazzled investors and the media with the promise of her now defunct blood-testing startup, was found guilty five and a half years after an expose by The Wall Street Journal revealed she had overhyped Theranos’ “finger stick” technology.

Wealthy investors and drug store giant Walgreens poured nearly a billion dollars into the company, which Holmes started in 2003 as a Stanford University dropout. At its peak, Theranos, which promised to perform dozens of blood tests from just a few drops of blood, was valued at $ 9 billion, making Holmes at the time the world’s first self-made female billionaire.

Judge Davila, who ordered Holmes to serve 11 years and 3 months in federal prison, rejected his previous request to delay his surrender to prison. Her surrender date of April 27, however, was postponed by law because Holmes requested a review of that decision by the appellate court, which has final authority on the matter.

Theranos founder Elizabeth Holmes sits in court to be sentenced on her convictions for defrauding investors in the blood testing startup at the federal courthouse in San Jose, California, US, November 18, 2022 in this courtroom sketch.  REUTERS/Vicki Behringer

Theranos founder Elizabeth Holmes sits in court to be sentenced on her convictions for defrauding investors in the blood testing startup at the federal courthouse in San Jose, California, US, November 18, 2022 in this courtroom sketch. REUTERS/Vicki Behringer

Davila also presided over a separate trial for Theranos’ former president and COO Ramesh “Sunny” Balwani, in which a jury returned guilty verdicts on all 12 counts of wire fraud and conspiracy waged against him. Davilia was sentenced to Balwani, who was also Holmes’ boyfriend, for more than 13 years behind bars. He reported to federal prison in California on April 21.

In a separate decision, also issued Tuesday, Judge Davila ordered Holmes and Balwani to repay $452 million in restitution to investors defrauded in the duo’s scheme. The two are jointly liable to repay the penalty. During sentencing, government lawyers suggested that Holmes repay $800 million to defrauded investors.

Losses for investors defrauded by Theranos.

Losses for investors defrauded by Theranos.

During sentencing, Davila characterized Holmes’ legal battle — one of the most closely watched in Silicon Valley history — as one that could serve as a lesson for future founders.

“I suppose we step back and ask what is the pathology of fraud? Is it the refusal to accept responsibility or express contrition in any way?” Judge Edward Davila said. “Perhaps that is the cautionary tale that will go forward from this case.”

At sentencing, Davila also referred to letters from Holmes’ supporters who highlighted that venture capitalists had grown accustomed to startup failures like Theranos and considered it “normal” to lose 90% of the funds put at risk.

“One thing that was missing from those letters…the letters did not say anything about, nor did they endorse, failure by fraud,” Davila said.

Minutes before learning her sentence in a packed courtroom, Holmes had addressed the court.

“I stand before you take responsibility for Theranos,” she said. “I loved Theranos. It was my life’s work. My team meant the world to me. They wanted to make a difference in the world. I am devastated by my failings. ”

Holmes’ prison sentence represents approximately 14% of the maximum allowable time of 80 years that sentencing guidelines technically permit for her four fraud convictions. Each of those charges is allowed for a sentence of up to 20 years, along with $250,000 in fines, plus restitution.

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Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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