July 23, 2024


Technological development

Sunny Balwani, No. 2 Theranos Executive, Is Sentenced for Fraud

Ramesh Balwani, the former chief operating officer of the failed blood testing start-up Theranos, was sentenced on Wednesday to nearly 13 years in prison for defrauding investors and patients about the company’s business and technology.

Mr. Balwani, 58, and his convicted co-conspirator, Elizabeth Holmes, 38, the founder of Theranos, had promised that the start-up would revolutionize health care with machines and tests that could detect some illnesses using just a few drops of blood. But those claims were false, and Theranos became a tale of Silicon Valley’s ambition and hype run amok.

Mr. Balwani, also known as Sunny, was convicted in July of 10 counts of wire fraud and two counts of conspiracy to commit wire fraud.

Judge Edward J. Davila of U.S. District Court for the Northern District of California sentenced Mr. Balwani to 155 months, which is 12 years and 11 months, as well as three years of supervised release. Mr. Balwani must surrender to custody on March 15.

His sentence was longer than that of Ms. Holmes, who was found guilty of four counts of fraud in January and sentenced last month to more than 11 years in prison. Mr. Balwani plans to appeal. His lawyers asked that he be assigned to a minimum-security satellite camp in Lompoc, Calif.

While wire fraud carries a maximum sentence of 20 years in prison, prosecutors had asked that Mr. Balwani be sentenced to 15 years and ordered to pay more than $800 million in restitution to investors. His lawyers had asked for just probation.

As they did in Ms. Holmes’s case, prosecutors told Judge Davila that a long sentence would discourage Silicon Valley entrepreneurs and start-up founders from stretching the truth. In court filings, they also wrote that a long sentence would “rebuild the trust investors must have when funding innovators.”

Jeffrey Schenk, an assistant U.S. attorney and lead prosecutor, said in court on Wednesday that Mr. Balwani should receive a longer sentence than Ms. Holmes because he oversaw Theranos’s lab, which endangered patients.

“Mr. Balwani had significant autonomy in running the lab. He made decisions that directly impacted the information that was communicated to patients,” Mr. Schenk said. The lab, he added, was the source of “some of the greatest harm.”

Jeffrey Coopersmith, a lawyer for Mr. Balwani, blamed Ms. Holmes, who was not found guilty of defrauding patients. “She was the C.E.O. She was the face of Theranos,” he said.

Mr. Balwani, who appeared in court with his family members, did not read a statement to the judge. No victims spoke.

Michael Weinstein, a former federal prosecutor who leads white-collar litigation at the law firm Cole Schotz, said Mr. Balwani faced hurdles because he did not have “some of the same sympathies Ms. Holmes has.” He added that Mr. Balwani “being a little bit older and wiser” meant “the court would expect more from him as an executive.”

Before Theranos, Mr. Balwani worked at software companies and helped lead an e-commerce start-up, where he earned a reported $40 million payout at the height of the dot-com boom. He and Ms. Holmes met when he was 37 and she was 18, and they started dating in secret shortly after Ms. Holmes started Theranos in 2003. Mr. Balwani joined the company and invested $4.6 million in it in 2009.

After The Wall Street Journal exposed that Theranos’s tests did not work as advertised in 2015, Mr. Balwani left the company in 2016 and split with Ms. Holmes. Theranos shut down in 2018.

That year, federal prosecutors charged Mr. Balwani and Ms. Holmes with fraud. Their cases were later separated, and Mr. Balwani went on trial this year.

Prosecutors argued at the trial that he had known that Theranos’s technology did not work as promised because he was enmeshed in nearly every part of the business. Apart from leading the company’s lab, he created its financial projections and attended many meetings with investors.

Mr. Balwani’s lawyers argued that he had been a true believer in Theranos and its mission. They said Ms. Holmes, not Mr. Balwani, had been in charge.

Each defendant was frequently mentioned in the other’s trial, but they did not testify against each other. In her trial, Ms. Holmes accused Mr. Balwani of emotional and sexual abuse, which Mr. Balwani has denied and was not permitted as evidence in his trial.

Ultimately, a jury found Mr. Balwani guilty of defrauding Theranos’s investors and patients. After the conviction, he asked for and was denied a new trial.

Ms. Holmes, who is set to report to prison in April, signaled her plans to appeal her case in a filing this week. In it, she cited prosecutors’ differing presentations of her relationship with Mr. Balwani. The pair were presented as equals in her trial. But in Mr. Balwani’s trial, her lawyers wrote, “the government took the opposite position and highlighted Mr. Balwani’s age, experience and influence over Ms. Holmes.”

Before imposing Mr. Balwani’s sentence, Judge Davila reflected on Mr. Balwani’s educational and business history, saying that the executive’s prior successes made his actions at Theranos “tragic.”

“This was a successful business. The idea was strong,” Judge Davila said, referring to Theranos. But when problems at the company arose, he said, Mr. Balwani “chose to go forward with deception.”

Erin Griffith contributed reporting.