Lawyers Make Final Arguments in Fraud Case Against Former Theranos President

Mr. Balwani willingly collaborated with Theranos CEO Elizabeth Holmes, his girlfriend for more than a decade, to cheat investors and patients in a bid to keep the floundering startup afloat, Mr. Schenk said. He did this by luring investors with lies about the company, including inflated revenue projections, and approving marketing materials that touted Theranos tests as accurate, despite knowing they were anything but, Mr. Schenk said.

“Theranos was running out of money and Mr. Balwani had a choice to make,” Mr. Schenk told the jury. “He could watch Theranos fail. He could watch his girlfriend’s business collapse or he could pursue a different path.” And that path was fraud because Theranos “would not generate any revenue by being honest with people,” Mr. Schenk said.

Mr. Balwani’s lawyer began what he cautioned jurors would be days of closing arguments, arguing that Mr. Balwani didn’t commit any crimes and acted in good faith based on his sincere belief in Theranos’s technology. The lawyer, Jeffrey Coopersmith of Orrick Herrington & Sutcliffe LLP, said the government omitted important evidence and excluded key witnesses from its case, crafting an inaccurate and incomplete picture of Mr. Balwani.

“Over and over again, the government decided not to show you the whole story,” Mr. Coopersmith said.

Mr. Balwani, 57 years old, faces 12 counts of wire fraud and conspiracy to commit wire fraud. Ms. Holmes, who was Theranos’s founder, was convicted in January of four counts of fraud. She awaits sentencing in September. The pair were indicted together in June 2018, three months before the company dissolved, but U.S. District Judge

Edward Davila

ordered the trials severed in March 2020.

The closing arguments come 13 weeks after the start of Mr. Balwani’s trial, which has been beset by delays because of the pandemic affecting jurors and others involved in the trial. The government called 24 witnesses to testify, including former employees, scientists, investors and patients.

Mr. Balwani’s defense witnesses included a physician who walked back her confidence in Theranos tests while under cross-examination, and a technical consultant hired by the defense. Mr. Balwani didn’t testify.

Mr. Coopersmith said his closing arguments would continue Wednesday, and possibly into Thursday, after which the jury will begin deliberating Mr. Balwani’s fate. Each fraud count carries a maximum sentence of 20 years in prison, although such a severe sentence is unlikely in this case, lawyers have said.

Theranos claimed it could run almost 300 tests for health conditions using its proprietary technology, a miniaturized version of commercial blood analyzers that required only a finger prick of blood. In reality, it could perform just 12 tests on its own devices, and ran another 27 on modified commercial analyzers that the company hid from investors, prosecutors said.

To secure a conviction, the government must prove that Mr. Balwani knowingly participated in a fraud scheme, that the scheme was devised to obtain money from investors and patients, that the lies he told were material to Theranos obtaining that money, and that Mr. Balwani had the intent to defraud.

Mr. Schenk, the assistant U.S. attorney, sought to show that Mr. Balwani held tremendous power and influence at Theranos and was a true partner to Ms. Holmes. He displayed to the jury a text message Mr. Balwani sent Ms. Holmes in July 2015: “I am responsible for everything at Theranos. All have been my decisions too.”

During the trial, former employees testified that the pair ran Thearnos in tandem. “I considered Mr. Balwani and Elizabeth to be unified in all of their decision-making processes,” Mark Pandori, former Theranos lab director who reported to Mr. Balwani, said in his testimony in March.

Dr. Pandori testified that he told Mr. Balwani the company should stop using their proprietary testing device, called the

Edison,

because the results were unreliable. He said Mr. Balwani rebuffed him.

“He had a temper and he showed it to a lot of people when he disagreed with them,” Dr. Pandori testified.

In a text message he sent to Ms. Holmes in November 2014, Mr. Balwani called the lab a “disaster zone.” Ms. Holmes had given Mr. Balwani relatively free rein to run the lab, she testified in her own trial.

Mr. Schenk told the jury that Mr. Balwani was responsible for false information given to investors and to

Walgreens Boots Alliance Inc.,

with whom Theranos had a partnership to offer its tests inside retail pharmacies. In one instance, investor Alan Eisenman, whose nearly $1 million investment underpins one of the counts of wire fraud, forwarded an analyst report to Mr. Balwani. The report said Theranos technology relied heavily on traditional needle-in-the-arm blood draws and its results took longer than advertised—which was true. But Mr. Balwani dismissed the report as incorrect.

“What’s fatal to fraud? The truth,” Mr. Schenk said.

Mr. Balwani showed investors revenue projections in October 2014—with just two months of the year remaining—that said the company would make $140 million for the year. In reality, its revenue for that year was $150,000, according to a document shown in court. Theranos’s most lucrative year ever was in 2009, when the company made about $2.8 million, the document showed.

“It is only a matter of time before the house of cards crumbles and the financial projections never come true,” Mr. Schenk said.

Mr. Coopersmith pointed to evidence that Mr. Balwani tried to correct problems that arose in the lab and ensure that the public and investors received accurate information. In a text message from 2015 displayed in court, Mr. Balwani told Ms. Holmes that he was concerned about the company’s claims on its website that it could perform all its proprietary tests with a finger prick of blood. In other text messages, Mr. Balwani urged Ms. Holmes to tone down her media appearances because Theranos lacked “solid substance.”

Mr. Coopersmith argued that Mr. Balwani so sincerely believed in the capabilities of Theranos’s technology that he bought a $4.6 million equity stake in the company and personally guaranteed about a $12 million loan to help Theranos stay afloat.

“It wasn’t just because he wanted to give money to his girlfriend,” said Mr. Coopersmith.

Write to Heather Somerville at Heather.Somerville@wsj.com