Former Theranos COO Ramesh Balwani fights US over $900 mn restitution

Balwani and Holmes, who had a romantic relationship while they worked together, were tried and convicted separately of lying about the accuracy and capabilities of Theranos's blood-testing machines

Joel Rosenblatt | Bloomberg
Photo: Bloomberg

Photo: Bloomberg

Former Theranos Inc. Chief Operating Officer and President Ramesh “Sunny” Balwani battled with US prosecutors over their proposal that he be ordered to pay almost $900 million to compensate victims of his fraud, telling a judge he owes nothing to investors in the failed blood-testing startup.
A lawyer for Balwani, who’s scheduled to report to prison next month to begin serving a 13-year sentence, argued Friday that Theranos was flush with hundreds of millions of dollars in cash and intellectual property when he was fired in 2016, leaving the company once valued at $9 billion in the hands of its founder and chief executive officer Elizabeth Holmes until it collapsed in 2018.

“At the end of the day shareholders lost all of their money,” attorney Amy Walsh told US District Judge Edward Davila at a hearing. “That’s unfortunate, but it’s not because of Mr. Balwani.”
Balwani and Holmes, who had a romantic relationship while they worked together, were tried and convicted separately of lying about the accuracy and capabilities of Theranos’s blood-testing machines.

Both have since said in court filings that they can’t afford to pay the nine-figure sums the government is demanding, making the fight over restitution largely symbolic. Both are also asking Davila to let them remain free on bail while they appeal their convictions, which legal experts have said is a long shot. If Holmes isn’t granted bail after her hearing next month, she is due to surrender for prison in late April to begin an 11 1/4-year sentence.
Prosecutors say Balwani owes former Theranos business partners Walgreens and Safeway about $65 million, and they enumerated other investors owed more than $800 million, including $125 million for Rupert Murdoch and $100 million to the family of Betsy and Dick DeVos. 

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At the hearing in San Jose, California, Davila pressed Walsh on whether the demise of Theranos could be “completely divorced” from Balwani’s conduct. Might the company’s collapse be traced to the “conspiracy and the conduct that the jury found?” he asked.
Investor losses had to be foreseeable to count toward restitution, Walsh said, adding that when Holmes fired Balwani in 2016, the company had “enormous value,” including $350 million in cash and intellectual property worth another $100 million.

As for Walgreens and Safeway, the lawyer said, the partners’ losses may be the result of broken contracts, but Balwani can’t be held liable for the sums as part of his conviction, Walsh said. “These amounts might be the result of unrealized promises but they’re not the result of fraud,” she told the judge.
Bob Leach, a lead prosecutor, described Balwani’s argument as “extraordinary.”

“It’s a remarkable position to say that restitution here is zero,” he told Davila.
Theranos shareholders invested based on Balwani’s and Holmes’s lies, Leach said, making their losses “completely foreseeable.” It’s too much of a stretch for Balwani to join a conspiracy with Holmes and now argue “that the victim is somehow out of luck because he left the company,” he said.

Davila said he’ll rule on Balwani’s restitution at the same time he decides what Holmes owes investors.
The case is US v. Balwani, 18-cr-00258, US District Court, Northern District of California (San Jose).

First Published: Feb 18 2023 | 8:19 AM IST

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