Opinion
5:18-cr-00258 EJD
05-16-2023
UNITED STATES OF AMERICA, Plaintiff, v. ELIZABETH A. HOLMES and RAMESH “SUNNY” BALWANI, Defendants.
ORDER ON RESTITUTION
EDWARD J. DAVILA UNITED STATES DISTRICT JUDGE
This matter comes before the Court to determine the amount of mandatory restitution owed to victims by Defendants Elizabeth A. Holmes and Ramesh “Sunny” Balwani as a result of their fraud and conspiracy convictions. Having considered the parties' written submissions and oral arguments presented at Defendants' respective hearings, the Court ORDERS restitution in the amount of $452,047,268 . Both Defendants will be jointly and severally liable for this sum.
I. BACKGROUND
A. Facts
On July 28, 2020, the government filed the Third Superseding Indictment (“TSI”), charging Defendants Holmes and Balwani with ten counts of wire fraud (Counts 3-12) and two counts of conspiracy to commit wire fraud (Counts 1-2). ECF No. 469. The TSI charged both Defendants with two schemes: one to defraud Theranos investors (TSI ¶¶ 11-13) and another to defraud Theranos patients (TSI ¶¶ 14-18).
The scheme to defraud investors lasted from 2010 through 2015 and involved misrepresentations made to prospective investors for the purpose of inducing them to invest money in Theranos. TSI ¶¶ 11, 13. Specifically, the TSI charged Defendants with making false statements regarding the capabilities of Theranos's proprietary analyzer, its financial revenue streams, and device demonstrations, as well as misrepresenting Theranos's relationships and interactions with Walgreens, the U.S. Department of Defense, the Food and Drug Administration, pharmaceutical companies, and research institutions. TSI ¶ 12.
Overlapping with the scheme to defraud investors, Defendants' scheme to defraud doctors and patients persisted from 2013 to 2016 for the purpose of inducing individuals to purchase and use Theranos blood tests. The TSI charged Defendants with delivering marketing materials to doctors and patients regarding Theranos's blood tests, posting misrepresentations on Theranos's websites, and transmitting blood tests results with inaccuracies and modifications. TSI ¶ 17.
B. Procedural History
In March 2020, the Court severed this case as to each individual Defendant. ECF No. 362. Defendant Holmes was tried in August 2021 and, on January 3, 2022, a jury found her guilty of conspiracy to commit wire fraud against Theranos investors and three counts of wire fraud against investors. ECF No. 1235. Defendant Balwani's trial began in March 2022 and, on July 7, 2022, a jury convicted him on all twelve counts charged. ECF No. 1507.
On November 18, 2022, the Court sentenced Defendant Holmes to 135 months' imprisonment and a $400 special assessment fee. In its sentencing, the Court found that the government had established loss by a preponderance of the evidence as to ten (10) specific investor victims. 11/18/2022 Hr'g Tr. 78:7-79:17; see also ECF No. 1712 (“Holmes Sent'g Order”), at 12-13. With respect to Defendant Balwani, the Court sentenced him to 155 months' imprisonment, a $25,000 fine, and a $1,200 special assessment fee on December 7, 2022. In doing so, the Court found that the government had established loss by a preponderance of the evidence for twelve (12) specific investor victims. 12/07/22 Hr'g Tr. 90:2-23; see also ECF No. 1730 (“Balwani Sent'g Order”), at 14-15.
For both Defendants, the Court deferred ruling on restitution until a separate hearing for restitution may be scheduled. On February 17, 2023, the Court heard oral arguments on restitution from Defendant Balwani and, on March 17, 2023, oral arguments from Defendant Holmes.
II. LEGAL STANDARD
Under the Mandatory Victims Restitution Act (“MVRA”), the Court is required to order full restitution to victims of a convicted offense when the offense is committed by fraud or deceit, without consideration of the defendant's economic circumstances or ability to pay. 18 U.S.C. §§ 3663A(c)(1), 3664(f)(1)(A). It is the government's burden to prove the amount of loss for restitution purposes by a preponderance of the evidence. 18 U.S.C. § 3664(e). The government must also show by a preponderance of the evidence that an individual is a victim of the crime on which the defendants were convicted, and that the victim's losses were caused by the defendants' offense conduct. United States v. Gossi, 608 F.3d 574, 579 (9th Cir. 2010).
To establish the amount of loss, “the government must provide the court with enough evidence to allow the court to estimate the ‘full amount of the victim's losses' with ‘some reasonable certainty.'” United States v. Kennedy, 643 F.3d 1251, 1261 (9th Cir. 2011). Ninth Circuit “precedent grants ‘district courts a degree of flexibility in accounting for a victim's complete losses.' [However,] ‘the district court may utilize only evidence that possesses ‘sufficient indicia of reliability to support its probable accuracy.'” United States v. Waknine, 543 F.3d 546, 557 (9th Cir. 2008) (internal brackets omitted).
The MVRA defines “victim” as “any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern.” 18 U.S.C. § 3663A(a)(2); see also United States v. Lo, 839 F.3d 777, 788 (9th Cir. 2016). For crimes that require proof of a “scheme, conspiracy, or pattern of criminal activity,” 18 U.S.C. § 3663A(a)(2), restitution may be ordered for “all persons directly harmed by the entire scheme,” which includes not only “harm caused by the particular counts of conviction” but also “related but uncharged conduct that is part of a fraud scheme.” In re Her Majesty the Queen in Right of Canada, 785 F.3d 1273, 1276 (9th Cir. 2015). In all cases, the harm to the victim must be “closely related to the scheme, rather than tangentially linked.” Id.
III. DISCUSSION
The government submits the same arguments and evidence for restitution as to both Defendants Holmes and Balwani. See ECF Nos. 1726, 1727. It primarily argues that the Court should order restitution for $807,465,307 to all Theranos C-1 and C-2 investors; $40 million to the Walgreens subsidiary that invested via a convertible promissory note; $30 million to Safeway based on two convertible promissory notes; and $100,000 to individual investor Eileen Lepera. Gov't Suppl. Br. Restitution (“Gov't Rest. Br.”) 4-5, ECF No. 1726. In the alternative, the government seeks full restitution as to the investors the Court specifically identified in its sentencing of both Defendants. Gov't Rest. Br. 6.
Defendants Holmes and Balwani object to several points in the government's restitution argument and instead argue that the Court should invoke the MVRA's “complexity exception” to decline ordering any restitution. Holmes's Suppl. Sent'g Mem. Restitution (“Holmes Rest. Br.”) 13-14, ECF No. 1741; Balwani's Suppl. Sent'g Mem. Restitution (“Balwani Rest. Br.”) 2-3, 9, ECF No. 1728.
A. Victims Identified at Sentencing
The Court begins by acknowledging and reaffirming certain findings relating to victims and loss calculation it had made in sentencing both Defendants.
1. Victims
For the reasons outlined at length in its prior sentencing orders, the Court finds that the government has established by a preponderance of the evidence that the following individuals and entities were victims of Defendants' scheme to defraud Theranos investors:
1. Partner Investments L.P., PFM Healthcare Master Fund, L.P., and PFM Healthcare Principals Fund, L.P. (collectively, “PFM”);
2. Mosley Family Holdings LLC;
3. RDV Corporation (Dynasty Financial II, LLC);
4. Keith Rupert Murdoch;
5. Richard Kovacevich;
6. Peer Venture Partners (Peer Ventures Group IV, L.P., or “PVP”);
7. Lucas Venture Group (Lucas Venture Group IV LP and Lucas Venture Group XI);
8. Mendenhall TF Partners;
9. Hall Group (Hall Black Diamond II, LLC);
10. Black Diamond Venture (Black Diamond Ventures XII-B, LLC);
11. Alan Eisenman; and
12. Sherrie Eisenman.Holmes Sent'g Order 13; Balwani Sent'g Order 14. For each of these investors, the Court identified specific reliable evidence indicating that they were induced to invest in Theranos by Defendants' misrepresentations as part of the fraud conspiracy. Holmes Sent'g Order 13-17; Balwani Sent'g Order 14-20. Therefore, the harm these investors suffered (i.e., their investments in Theranos) is sufficiently and closely related to the conduct underlying the convictions (i.e., Defendants' fraudulent representations and conspiracy) to qualify them all as victims of the conspiracy to defraud investors.