United States v. Holmes

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Questions Presented

1. Whether former Theranos employees improperly offered expert testimony as lay witnesses under Federal Rules of Evidence 701 and 702.
2. Whether the CMS Report was relevant and whether its probative value was substantially outweighed by the danger of unfair prejudice under Rules 401 and 403.
3. Whether evidence that Theranos voided patient-test results constituted an inadmissible subsequent remedial measure under Rule 407.
4. Whether limiting Holmes's cross-examination of Rosendorff violated the Sixth Amendment Confrontation Clause.
5. Whether Balwani's SEC deposition statements were admissible as statements against interest under Rule 804(b)(3).
6. Whether evidence concerning tests run on conventional technology constructively amended Balwani's indictment in violation of the Fifth Amendment.
7. Whether the government violated Napue by failing to correct allegedly false testimony from investor witnesses.
8. Whether the district court properly used the preponderance-of-the-evidence standard for sentencing loss findings and properly found the number of victims and loss causation.
9. Whether the restitution order could be based on the investors' total investments and whether the order had to account for residual value of Theranos shares.

Holdings

1. A witness's status as a percipient or on-the-job witness does not exempt opinion testimony based on specialized knowledge, experience, training, or education from Rule 702 and Daubert. Conversely, testimony is not automatically expert testimony merely because it concerns scientific matters or draws on the witness's personal workplace experience. The challenged portions of Das's, Rosendorff's, and Pandori's testimony entered expert territory, while Cheung's testimony about observed quality-control failures and her lay inference that repeated failures indicated device problems did not require specialized knowledge.
2. Any error in admitting portions of the challenged witnesses' testimony without the formal Rule 702 process or Daubert scrutiny was harmless and did not warrant reversal.
3. The district court did not abuse its discretion by admitting the CMS Report as relevant evidence of Holmes's knowledge, intent, and state of mind and by finding that its probative value was not substantially outweighed by unfair prejudice.
4. The district court did not abuse its discretion by admitting evidence that Theranos voided all patient tests run on the Edison. Rule 407 does not require exclusion when the defendant did not voluntarily participate in the subsequent measure, and the district court did not clearly err in finding the voiding decision involuntary.
5. The district court did not violate the Confrontation Clause by limiting Holmes's cross-examination into Rosendorff's post-Theranos employment.
6. The district court properly refused to admit Balwani's SEC deposition statements as statements against penal interest because the statements did not solidly inculpate him.
7. The evidence concerning tests run on conventional technology did not constructively amend Balwani's indictment. The indictment fairly and objectively charged misrepresentations concerning the accuracy of a non-exhaustive list of patient tests regardless of which type of device ran the tests.
8. Balwani's Napue claim failed under plain-error review because he did not show a clear or obvious violation based on testimony that was actually false, known by the government to be false, and material.
9. The district court properly applied the preponderance-of-the-evidence standard to Guidelines loss findings, and its findings concerning loss causation and the number of victims were not clearly erroneous.
10. The district court correctly identified the investors' money as the property lost under the MVRA and was required to consider credits for any residual value of the Theranos shares, but any error was harmless because the victims could not liquidate the shares and their actual losses equaled their total investments.

Key quotations

Factual background

Holmes founded Theranos and Balwani later became its president and chief operating officer. They promoted Theranos as capable of performing fast, accurate blood tests from finger-stick samples, while evidence showed that the Edison device and other testing practices produced unreliable results, relied substantially on conventional third-party machines, and generated serious laboratory concerns. Holmes and Balwani made allegedly false statements to investors about Theranos's technology, finances, military and commercial relationships, and pharmaceutical validation, and also marketed testing services to patients. After separate lengthy trials, Holmes was convicted on investor-related charges, Balwani was convicted on investor- and patient-related charges, and the district court imposed prison sentences and a $452 million restitution order.

Procedural history

The district court severed Holmes's and Balwani's trials. Holmes was convicted of investor-related conspiracy and wire-fraud counts and sentenced to 135 months; Balwani was convicted on all charged counts and sentenced to 155 months. The district court later ordered Holmes and Balwani jointly and severally liable for $452 million in restitution. Both defendants appealed their convictions, sentences, and the restitution order.