Analyzing the Theranos Appeals

In this Pharmaceutical Executive video interview, Matthew Yelovich, partner at Cleary Gottlieb, discusses the appeals of both Theranos founder Elizabeth Holmes and the company’s COO, Ramesh “Sunny” Balwani. The Ninth Circuit recently affirmed the duo’s convictions after considering questions about expert and lay testimony. Yelovich emphasizes the importance of careful vetting of statements to investors and the public, especially in tech-driven companies. The conversation also explores the complexities of sentencing in fraud cases, the importance of corporate governance and accountability, and his transition in late-2024 from federal prosecutor to a role at Cleary Gottlieb.

Pharmaceutical Executive: Can you discuss the history of this case and the specific issues involved in the appeal that you handled?
Matthew Yelovich: Theranos founder Elizabeth Holmes and her COO Ramesh “Sunny” Balwani were indicted by the United States’ Attorney’s office in San Francisco for fraud related to statements they made to investors and patients about their technology’s capabilities. They were convicted in separate trials and both appealed, where they raised a number of evidentiary challenges to their convictions, as well as some sentencing claims.

In a published opinion, the Ninth Circuit rejected those claims and affirmed the convictions and sentences.

PE: Having handled the government's response to the appeal, what were some of the most challenging legal arguments you encountered?
Yelovich: The Ninth Circuit’s opinion reflects that the court found the difference between expert and lay testimony to be a difficult line. Many courts have struggled to navigate that line across the country. This opinion shows a careful parsing of what the court viewed as expert and lay testimony, and when lay testimony may veer into expert testimony.

In this case, those differences didn’t alter the outcome of the trial. As the court said, the evidence was overwhelming, so any errors there were harmless to the conviction. In future cases, courts could take a more specific line on when a percipient or lay witness can talk about highly technical subjects. That’s what the majority of the court’s opinion focuses on.

PE: Holmes and Balwani have each served roughly two years of their sentences. In your opinion, what are the key legal and ethical considerations that arise when evaluating the proportionality of sentences in complex fraud cases like this?
Yelovich: Speaking broadly (and not these particular sentences), there are two key legal considerations in sentencings like this one. The first is that the court must calculate the advisory United States Sentencing Guidelines, which vary depending on the offense. In complex fraud cases, they’re driven largely by the amount that the fraud cost the victims, which dictates to a large extent what the monthly range will be for the prison sentence that the court must consider.

There’s also a federal law called Section 3553 which says the court must consider a range of different characteristics, including the nature & seriousness of the offense, the history & characteristics of the defendant, and principles of deterrence.

All of that is put together into a sentencing hearing where there is advocacy for both sides, and the court comes up with a proportional sentence that is not greater than necessary to achieve the purposes that are in that law.