Former Theranos CEO Convicted of Defrauding Investors

Former Theranos CEO Convicted of Defrauding Investors

Elizabeth Holmes, founder and former CEO of blood testing start-up Theranos, was found guilty of one count of conspiracy and three counts of wire fraud for her alleged role in intentionally defrauding investors. She was found not guilty of charges that she allegedly defrauded patients with blood testing technology she knew did not actually work.

According to the June 2018 indictment, Holmes is alleged to have made misrepresentations to potential investors about Theranos’ financial condition and future prospects. For instance, investors were told that revenues in 2015 would reach approximately $1 billion when, in reality, Holmes and co-defendant Ramesh Balwani, former President and Chief Operating Officer of Theranos, knew that financial returns would be significantly less. Investors were also told that Theranos would conduct patient blood tests using its own manufactured analyzers, but the actual machines were purchased from third-party suppliers and were commercially available.

Holmes and Balwani used a variety of communication channels, including direct marketing, financial statements, and statements to the media, to defraud investors.

Each of the four counts Holmes has been found guilty of carries a maximum of 20 years imprisonment.

Balwani’s trial is currently scheduled for February 2022.

A link to DOJ’s website containing information about the case can be found here.

11th Circuit Holds That Excessive Fines Clause Applies to FCA Cases

The Eleventh Circuit became the first federal court to address whether the Eighth Amendment’s Excessive Fines Clause applies to monetary awards in non-intervened False Claims Act (FCA) cases. In the case before the court, US ex rel. Yates v. Pinellas Hematology & Oncology, a jury found that the United States, which declined to intervene, had sustained $755 in actual damages, but the district court trebled these damages and imposed a $5,500 per claim penalty, resulting in a total judgment of $1.179 million.

On appeal, Pinellas argued that the award violated the Excessive Fines Clause. The court held that the clause — which limits the government’s power to extract punitive fines — applies to an FCA monetary award even if the government declines to intervene for two primary reasons. First, the United States generally receives between 70 and 75 percent of the recovery in a non-intervened case. Second, all monetary awards in FCA qui tam actions are imposed by the government, and the relator effectively acts as a stand-in for the government. The court also noted that even in non-intervened cases, the government retains significant control over the action. Thus, the court concluded that a monetary award in a non-intervened qui tam case is imposed by the government and, as a result, subject to the Eighth Amendment limitations.

The Eleventh Circuit’s opinion can be found here.

9 Indicted in $23 Million Paycheck Protection Program Fraud

Nine individuals, all from Arizona, were indicted for their alleged role in a scheme to submit or assist in submitting Paycheck Protection Program (PPP) loan applications that contained misrepresentations, including fraudulent employment and payroll information.

Defendants are alleged to have submitted applications for 18 businesses seeking between $100,000 and $2.2 million for each business. According to the indictments, named defendants, Kimberly and Jason Coleman, submitted about two dozen fraudulent PPP applications seeking over $30 million in loans, and ultimately received more than $13 million. The remaining seven defendants conspired to submit eight fraudulent applications and received more than $10 million.

Defendants are alleged to have transferred PPP funds they received to personal bank accounts and allegedly used the funds to purchase vehicles, properties, and luxury items.

The indictments include charges for Conspiracy, Bank Fraud, Wire Fraud, and Transactional Money Laundering.

The DOJ’s press release can be found here.

Georgia Woman Sentenced to More Than Three Years Imprisonment for Role in PPP Loan Fraud 

Hunter VanPelt (aka Ellen Corkrum) of Georgia was sentenced to 41 months imprisonment for her role in a scheme to fraudulently obtain nearly $8 million in PPP loans.

According to the government, VanPelt submitted six separate PPP loan applications on behalf of entities that she either owned or controlled, in which she included false information about payroll expenses. She is also alleged to have submitted fraudulent tax returns and other financial statements. Three of the applications were submitted under the name VanPelt that she legally adopted in July 2016, and three others were submitted under her previous name, Corkrum.

The DOJ’s press release can be found here.