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Opening arguments to begin in high-stakes criminal trial

Opening statements are set to begin today in a long-delayed and anticipated criminal fraud trial against Elizabeth Holmes, a Stanford University dropout whose blood-testing company, Theranos, propelled her to become the world’s youngest female self-made billionaire.

Holmes, now 37, launched the Silicon Valley startup in 2003 at just 19 years old, with a vision to overhaul diagnostic health care. Over more than a decade, the entrepreneur sold investors on the idea of developing an analyzer, the size of a desktop printer, that could run a suite of common tests on as little as a drop or two of blood taken from a patient’s finger.

Watch Yahoo Finance’s new Elizabeth Holmes documentary here

A decade into her endeavor, in 2013, Holmes notched a deal with drugstore giant Walgreens to transition the analyzer from the research and development phase to a commercial product. Under a $140 million contract, Theranos placed the machine, known in its various iterations as the TSPU, Edison, or miniLab, inside Walgreens wellness centers, where customers ordered a variety of common blood tests.

However, former Wall Street Journal reporter John Carreyrou exposed Theranos’ technological shortfalls in a bombshell investigation published in October 2015.

While Holmes had publicly claimed Theranos could perform nearly 200 common diagnostic tests, in reality, her proprietary analyzer and blood draw method was far from producing reliably accurate tests. Instead, Theranos relied on traditional, off-site laboratory analyzers, and larger blood draws to perform the bulk of its offered tests.

Elizabeth Holmes, the founder and former CEO of blood testing and life sciences company Theranos, arrives for the first day of jury selection in her fraud trial, outside Federal Court in San Jose, California on August 31, 2021. Photo by Nick Otto / AFP) (Photo by NICK OTTO/AFP via Getty Images)

In January 2016, the Centers for Medicare and Medicaid notified Theranos of laboratory deficiencies that it said posed “immediate jeopardy” to patient health. The agency sanctioned the company and agreed to a settlement that banned Holmes from owning or operating a clinical laboratory for two years. The agreement forced the company to shutter its Walgreens and laboratory operations.

The revelations prompted Walgreens, three investors, and Theranos customers to sue Theranos and Holmes. Walgreens sued for breach of contract, and the investors claimed fraud. Holmes settled the suits, paying Walgreens $25 million to end its breach of contract claim. An attorney for two late-stage investors said his clients recouped their investments in a settlement with Holmes and Theranos. Separately, Holmes faced claims of fraud from the Securities and Exchange Commission and agreed to a $500,000 fine.

In 2018, a federal grand jury indicted the entrepreneur and former Theranos COO and president Ramesh “Sunny” Balwani, who was also Holmes’ onetime boyfriend, charging them with wire fraud and conspiracy. The indictment claims the pair used Theranos to defraud investors and patients and misrepresented its technology from 2010 to 2015. The charges each carry a maximum penalty of 20 years in prison.

Holmes and Balwani will be tried separately, due to Holmes’ claims that Balwani abused her when she ran Theranos. In court documents, Holmes’ attorneys said she suffered “a decade-long campaign of psychological abuse” by Balwani that caused her to suffer from post traumatic stress disorder. Balwani allegedly controlled what she ate, how she dressed, and how long she slept. Balwani monitored her phone calls, texts, and emails and threw hard, sharp objects at her, the documents allege.

A jury of seven men and five women was selected last week for the Holmes trial, which is expected to last as long as four months. Balwani will be tried in 2022.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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