Elizabeth Holmes, Her Sentence And The “Trial Penalty”

Elizabeth Holmes, Her Sentence And The “Trial Penalty”

Federal criminal jury trials like that of Elizabeth Holmes are exceedingly rare. Holmes, the founder and CEO of Theranos, went to trial in the fall of 2022. After a four-month jury trial, Holmes was convicted of defrauding investors in her company of hundreds of millions of dollars. Holmes’ codefendant, Sunny Balwani, was also convicted in a separate trial.

Holmes’ trial received broad media coverage. People have followed Holmes’ downfall closely since the scandal about her blood testing company surfaced in 2015. She raised close to a billion dollars of investor funds by claiming that her revolutionary blood testing technology worked with just a finger prick-sized blood sample. But the technology did not work. And Holmes and Balwani covered it up.

At trial, there was significant public interest in whether a brilliant, young CEO from Silicon Valley with fame, influence and money could beat the government. She couldn’t. For Holmes, losing at trial meant not just a prison sentence but one potentially harsher than if she had simply accepted a plea deal. In other words, Holmes, like countless defendants in criminal cases with virtually no media attention, paid the price known as the “trial penalty.”

Why are federal criminal trials so rare?

Three key factors make federal criminal jury trials so rare: the odds of conviction, the legal defense costs and the trial penalty (also known as a “trial tax”).

The Odds of Conviction

First, the odds of conviction in a federal criminal case weigh heavily in the government’s favor. The statistics (discussed more below) alone are intimidating, making most people avoid trial.

The Legal Defense Costs

Going through the criminal trial process is costly. The government has the unmatched resources of the Department of Justice and federal law enforcement, rendering the cost of mounting a proper legal defense at trial prohibitive for most people. 

Public defenders and appointed defense counsel have excessive caseloads. They lack the time and resources to take most of their cases to trial. Public defenders admittedly rely on resolving cases via plea negotiations to move them along.

Elizabeth Holmes was the rare white-collar defendant for whom money and resources were no object. The government’s pre-sentencing report stated that Holmes’ criminal defense exceeded $30 million. That was before the sentencing proceedings and the ongoing appeal.

The “Trial Penalty”

Further stacking the deck is the “trial penalty,” considered a leading contributor to mass incarceration in America. In essence, the system entices people to plead guilty under the threat of much harsher penalties after a jury trial. Criminal defendants hear this message repeatedly from prosecutors, defense counsel and even judges.

Indeed, according to the National Association of Criminal Defense Lawyers, going to trial after declining a plea deal means an automatically harsher sentence when convicted.

One argument to justify such disparity in outcomes is that a guilty plea offers credit at sentencing for accepting responsibility. In fact, the U.S. Sentencing Guidelines, which judges consult, recommend a lower sentence for a person who has accepted responsibility for his actions.

The government also touts the desire to reward people who plead guilty for saving the criminal justice system the burden and expense of a full-on criminal trial. On the flip side, critics note that the government prefers to secure the “win” without carrying its burden to convince a jury beyond a reasonable doubt.

Holmes’ (and codefendant Balwani’s) trial and sentencing outcomes provide an opportunity to explore whether the trial penalty affected their sentences despite their vast financial resources.

These basic statistics lure most people to plead guilty.

The DOJ’s conviction rate is over 99%, according to data published by the Pew Research Center in 2019. This includes cases resolved by guilty pleas. Most federal criminal cases never make it to trial: more than 90% end in guilty pleas, according to the CATO Institute.

Among the few cases that go to trial, more than 95% end in conviction; only about 1% end in acquittal. The NACDL has researched sentences and other data to determine why less than 3% of federal criminal cases proceed to trial. NACDL identifies the “trial penalty” as a leading cause. 

Holmes’ criminal defense cost is in the tens of millions.

Facing up to 20 years in prison, Holmes had the financial resources to present a vigorous legal defense at trial — the best defense money can buy. 

Overall, Holmes’ criminal case lasted more than four years. Her trial lasted approximately four months. At trial, jurors heard from more than 30 witnesses, including Holmes. She was on the witness stand for seven days. Judge Edward Davila admitted 931 exhibits into evidence. Jurors deliberated for more than 50 hours before delivering a guilty verdict. 

Unlike most criminal defendants, Holmes could deploy a large team of expensive lawyers to defend her case at trial. She hired one of the most prestigious law firms in the country. If anyone had the resources to go toe to toe with the government, she did. After her conviction, Holmes’ team continued the fight, asking the Judge for a new trial. She had the epitome of a vigorous legal defense. Media reports and the U.S. Probation Department indicate Holmes’ legal team cost well over $30 million.

To this day, Holmes’ defense team is active. She filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit from the final judgment in her fraud trial. By the time it is all said and done, Holmes may spend over $40 million on her criminal legal defense.

Image courtesy of Bjoertvedt via Wikimedia Commons.

Holmes received a stiff prison sentence after her trial.

Despite sufficient financial resources to mount a full-throated defense, Holmes could not avoid a stiff prison sentence from Judge Davila. Facing up to 20 years, Holmes asked Judge Davila for a sentence of 18 months on home confinement. The government argued for ten times that amount: 180 months or 15 years in federal prison.

Probation officials prepare a pre-sentence report to help judges determine a proper sentence, and federal judges heavily rely on it. According to the probation officials’ calculations, the federal sentencing guidelines produced an advisory sentence of life in prison for Holmes, primarily driven by investors’ massive financial losses. Nonetheless, officials recommended nine years in prison for Holmes. (Interestingly, many legal pundits and experts alike predicted Holmes would receive fewer than ten years.)

Nonetheless, Judge Davila sentenced Holmes, a first-time non-violent offender, to 11.25 years, 25% more than probation officials recommended. Such a departure, higher than the recommendation, is unusual. The pre-sentence investigation report is one of the most significant documents in the federal criminal process, and federal judges take their recommendations very seriously. Judge Davila acknowledged as much while adding 2.25 years to their recommendation.

The judge in Holmes’ case wanted her to “accept responsibility.”

Aspects of Holmes’ defense aggravated the Court. Specifically, Judge Davila found her refusal to accept responsibility particularly vexing. “She maintains that she did nothing wrong,” Judge Davila said, adding that, heading into the sentencing hearing, Holmes never accepted responsibility for her crimes. (Click on this link to Judge Edward Davila’s full remarks when sentencing Elizabeth Holmes.)

As was well within her rights, Holmes vigorously defended herself and testified in her own defense at trial. She never entered a guilty plea. Indeed, information regarding Holmes’ plea negotiations has never become public, though counsel likely explored it privately.

But walking that fine line between presenting a vigorous defense at trial and accepting responsibility and showing remorse for sentencing proved difficult for Holmes just as it does with anyone who refuses to plead guilty.

Thus, while Holmes admitted her failings during the sentencing allocution — when a criminal defendant has the chance to address the Court formally ahead of learning the sentence — it appears her statements did not move the needle with the judge. Holmes stated she wished she had handled matters differently. She admitted she tried to reach her end goals too fast. She offered a tearful apology to the Judge for the harm she caused.

“I am devastated by my failings,” Holmes told Judge Davila. “I have felt deep pain for what people went through because I failed them. To each of them, I am so, so sorry. I gave everything I had to save the company.”

Like the judge, the media wanted an admission of wrongdoing, too.

Many observers called this a non-apology. Wall Street Journal reporter John Carreyrou first exposed Theranos’ fraud. He was not impressed. “She didn’t acknowledge any wrongdoing; she didn’t apologize to patients; she didn’t apologize to investors,” he said. Instead, he continued, “[s]he said she let people down, but only in the sense that the company failed. She failed as an entrepreneur, and she had big regrets about that, but that’s not the same.”

Like Carreyrou, Judge Davila was not moved to reward Holmes with leniency for accepting responsibility or apologizing. Instead of crediting what Holmes expressed at the sentencing hearing, Judge Davila sided with prosecutors, who said this about Holmes: 

“She accepts no responsibility. Quite the opposite, she insists she is the victim. She … repeatedly chose lies, hype, and the prospect of billions of dollars over patient safety and fair dealing with investors,” the judge said. “Elizabeth Holmes’ crimes were not failing, they were lying—lying in the most serious context, where everyone needed her to tell the truth.”

(It bears noting that the outcome could have been much worse. Judge Davila significantly reduced Holmes’ potential sentence by calculating the financial loss at $121 million instead of the government’s assessment of close to a billion.)

In the end, Holmes’ counsel offered mitigating factors that could have resulted in a lower sentence. Still, Holmes failed to accept responsibility in a manner that satisfied Judge Davila, who ordered her to serve a prison sentence higher than recommended. 

Did Holmes’ sentence come with a trial penalty? 

Prosecutors do not argue overtly for a trial penalty at sentencing. Nor do judges specifically indicate as much. The trial penalty is there in retrospect when comparing the ultimate outcome after trial to the reasonable range of outcomes a person faced pretrial by pleading guilty.

In Holmes’ case, the answer boils down to whether her 11.25 years sentence after the trial is higher than if she had pleaded guilty (and included sentencing credits for acceptance of responsibility). 

As noted above, neither the media nor the parties have disclosed information about plea negotiations in the Theranos case. Undisclosed plea negotiations could have taken place. Balwani especially could have engaged in plea negotiations for his cooperation against Holmes. (It’s worth noting, though, that he eventually received a longer sentence than Holmes.) But even Holmes had an opportunity to plead guilty and offer cooperation against Balwani since she was convicted first.

We need more information to say that Holmes’ sentence includes an added trial penalty. If, all else being equal, Holmes would have received a sentence after a plea similar to or lower than what probation recommended, there would be a valid concern about the penalty. With a plea, the acceptance of responsibility sentencing credit would have played a favorable role. 

This is not to say that acceptance of responsibility is not available with a trial; rather, it appears Holmes could not thread the needle. To be clear, caselaw and guidelines commentary establish that defendants can get credit for accepting responsibility even when they go to trial. The opposite would be unconstitutional.

Judges in sentencing hearings get more information than juries do.

There is another way in which going to trial appears to hurt Holmes at sentencing: the Court had an extensive evidentiary record to evaluate any assertions Holmes and the defense made at sentencing.

“And the jury heard at least the evidence, heard the evidence that the government put forward, statements from victims, statements from other individuals about representations that were made. And that’s the troubling part of this,” the judge said. “Was there a loss of a moral compass here? Could, regrettably, Ms. Holmes partake in the fraud that the jury found existed, the conspiracy, and the three counts that they found that her culpable of? They heard the evidence. They heard the statements that were made to them. [A]nd t]hey heard, saw the texts, the chain, the messages, the collaboration, if you will, between the co-defendants, and they saw that.”

He continued: “And as we’ve read and we’ve heard, we have heard evidence and we have heard other individuals testify in the trial as to various reasons how they came to know her and how they came to believe her statements, and believe the product that she was selling that we know, we know from the testimony of 29 witnesses, was not working. It didn’t work. There was significant evidence about manipulation and untruths that were being used in the negotiation of the business.”

Judge Davila had the evidentiary record; he could also compare Holmes’ performance on the witness stand with her sentencing allocution. Moreover, the Judge knew that Holmes’ credibility was in doubt, with the jury rejecting many of her claims. 

Hindsight is always 20/20, and Holmes had few great choices in this case. That said, there is no direct evidence of coercion or threats of a trial penalty. But the trial record cost Holmes at sentencing. 

Image courtesy of OSD Deputy Secretary of Defense via Wikimedia Commons.

What about her codefendant’s sentence?

Balwani and Holmes, codefendants on a single indictment, had separate jury trials. Judge Davila severed their cases after Holmes accused him of abusive conduct during their relationship. Balwani denied the allegations.

Balwani became Theranos’ COO, responsible for managing the company’s laboratories and handling the finances and investor relations (among other things). In the wake of Holmes’ conviction, legal experts predicted Balwani would end up pleading guilty. To Clark Neily, writing for the Cato Institute, this made perfect sense because:

  • most defendants take a plea in the federal system;
  • prosecutors had already nailed the top defendant, Holmes;
  • prosecutors would make a generous offer to Balwani to avoid another trial and wrap up the case; and 
  • prosecutors could threaten Balwani with a massive trial penalty if he didn’t accept their deal.

Perhaps surprisingly, Balwani went to trial and was swiftly convicted. At sentencing, Balwani’s lawyers requested probation or home confinement, arguing that Holmes had the final say for everything Theranos and that he did not profit from Theranos. They also argued that the intense media coverage of Theranos has adequately punished him, as Balwani “has lost his career, his reputation and his ability to meaningfully work again.”

Holmes’ codefendant faced an even stiffer sentence, perhaps as a trial penalty.

In the end, Judge Davila handed down an even stiffer sentence for Balwani: just under 13 years or 155 months and longer than his boss and CEO. Legal experts have noted how uncommon it is for someone lower in the corporate structure to receive more time in a criminal conspiracy. 

Like Holmes, probation officials recommended nine years for Balwani, which, again, Judge Davila ignored. Balwani’s sentence is close to 31% higher. (Balwani is also appealing the judgment.) There is no public record of plea negotiations, if any, with Balwani.

Unlike Holmes, Balwani did not testify at trial. He did not speak at his sentencing. There is no evidence that Balwani accepted responsibility or showed outward remorse outwardly at any point. Also, Judge Davila was particularly concerned about specific financial projections Balwani prepared, stating in open court that they “weren’t just projections, they were lies” and “a true flight from honest business practices.” Finally, Balwani was in charge of the labs, which endangered patients.

Here again, there is no direct evidence of coercion to plead guilty or threats of a trial penalty made to Balwani. As with Holmes, the extensive trial record was unfavorable to him for sentencing purposes. 

The trial penalty in America isn’t going anywhere.

Today, most criminal defendants succumb to prosecutors’ power and waive their Sixth Amendment constitutional right to a jury trial. This practice is rampant and should be called out. 

Meanwhile, the debate continues. Is the difference between people who plead guilty and those convicted after a trial a benign plea discount or a coercive and unfair trial penalty? For some, the differential represents a penalty. The trial penalty is so pervasive that some worry the right to a jury trial is on the verge of extinction. At a minimum, a system that systematically undermines the constitutional right to a jury trial violates the spirit, if not the letter, of the Sixth Amendment. 

In the Theranos case, Holmes and Balwani exercised their jury-trial rights. They both received harsh sentences, against a significantly lower recommended sentence. However, direct evidence that their sentences include trial penalties is currently lacking. 

It is hard to say whether the sheer power of prosecutors influenced the Theranos defendants because for Holmes and even Balwani, they had the power to fight back. (Of course, it’s also worth wondering whether the prosecutors were even willing to offer high-profile defendants such as Holmes an Balwani an acceptable plea deal in the first place.)

At best, the trial penalty can be argued here only by assuming that their sentences would have been more in line with the nine years recommended by probation. Research on the pervasive existence of the trial penalty and what to do about it is ongoing, as it should be. But the statistics proving the dearth of criminal jury trials and why are overwhelming. And this systematic erosion of the constitutional right to a jury trial cannot stand consistent with the Sixth Amendment.

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