Ex-geneticist charged with fraud in the biggest biotech scandal in years

Holmes is on trial on 34 counts including securities fraud and wire fraud. The charges carry penalties ranging from six months in prison to 25 years behind bars.

Holmes started Holmes Lab, which she controlled through a line of stock, and used a cloud-computing system called Genotek to run it. Her vision was to develop drugs to treat diseases including Parkinson’s and cancer and, in the future, help people live normal lives despite debilitating conditions.

The idea was that Holmes Labs would produce valuable medical information about drugs so that large pharmaceutical companies could study them, potentially leading to new drug treatments. Holmes Lab promised to turn a profit by selling the information.

But the pharmaceutical industry came under attack in 2015 when the Daily Beast reported that $8.9 million in payments were being siphoned out of Holmes Lab at essentially no cost. Prosecutors say money moved from Holmes Lab to unrelated entities controlled by Holmes.

The Daily Beast also reported that Holmes Lab had sold patient test data to a company called and was secretly storing patient data on the cloud servers of Edison Systems.

According to the FBI, Edison Systems was a shell company in the Cayman Islands that Holmes set up to move money out of Holmes Lab.

In early 2015, Holmes Lab’s Web site and customer list began to vanish. Then one of Holmes’s alleged straw investors, John Mahon, filed a lawsuit alleging Holmes had stashed $300 million into a different Cayman Islands company called Genotek. He later dropped the case, but the FBI, which already had had an ongoing inquiry into Holmes Lab, began investigating further.

Much of the evidence against Holmes was revealed during jury selection. The federal jury hearing the case heard about how Holmes financed her lavish lifestyle including a $4 million house in Charlottesville, Va., and a $75,000 donation to the billionaire Koch brothers’ charity.

The 21 photographs Holmes submitted to a bank branch to get a $3 million loan for her real estate projects were deemed embarrassing and contained evidence of their former owner, Chuck Wexler, taking cocaine.

Each day of Holmes’s trial is testimony, called a transactional hearing, is generally closed to the public.

“You may note that the most public aspect of the trial at this time is the appearance of Ms. Holmes in a court dressed in her comfortable clothes,” U.S. District Judge Ayotte remarked at the beginning of her opening statement. “It doesn’t differ from the appearance before the Supreme Court but it differs from other trials. You’re told to avoid looking at the trial.”

Holmes’s attorney had asked for the judge to delay the trial until March 2019, saying Holmes’s brain cancer had worsened and had left her too weak to keep up with the legal schedule.

“There’s no doubt we’re going to spend a considerable amount of time before the jury hearing great detail about a very personal relationship between Ms. Holmes and those who knew her best,” the attorney said. “They were people who sacrificed for her as much as she sacrificed for them,” the lawyer continued.

During the first day of the trial, which started Tuesday, the jury heard from an expert who testified that he used to test more than 1,000 pharmaceutical products before writing a report for Holmes Lab in 2013.

The expert said he met with Holmes several times and described her as a “naturally gifted and brilliant young woman.” He said Holmes Labs could have been successful had it not been for “the trick she played.”

“The business was very simple,” he said. “Once we applied the right scientific principles, it wasn’t a puzzle to solve. It was just a question of application.”

The firm did not file a financial statement with the Securities and Exchange Commission from December 2010 to March 2011, despite paying for it through cash deposits in the bank, including a $5,000 deposit made to Holmes Labs on March 10, 2011.

Instead, she tried to manipulate investor and accounting systems to falsely represent the true state of the company.

Read more about Elizabeth Holmes on the Washington Post Business blog.

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