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Disgraced fraudster Elizabeth Holmes has officially started her 11-year prison sentence, more than a year after she was convicted.
The Theranos founder has reported to a minimum security prison in Texas and will serve time for deceiving investors about what her blood-testing start-up was capable of.
In addition to her conviction on four counts of fraud, Holmes (39) and her former romantic and business partner Ramesh Balwani, were ordered to pay $452 million (R8,9 billion) to the investors they misled.
Ramesh was sentenced to 13 years in prison for his involvement, which he’s already started serving in a California prison.
Elizabeth is only beginning her sentence at Federal Prison Camp now because she was given time to arrange childcare for her one-year-old son son, William, and her three-month-old daughter, Invicta.
Once ranked among the richest people in the US, Holmes will reportedly be earning between R2 to R23 an hour doing prison work alongside some 500 to 700 other inmates.
But it'll be a long time before she gets to spend any of her prison income, because some it has to go towards paying restitution.
Holmes was hailed as the next Steve Jobs, and as America’s youngest self-made female billionaire, she had investors falling over themselves to back her.
Everyone from former US secretary of state Henry Kissinger to media mogul Rupert Murdoch and bosses at US supermarket chain Walmart dug deep to be part of a company that seemed to be at the cutting-edge of revolutionary start-ups.
She was the darling of the tech scene – the young, attractive and beguiling founder of a company that promised to change the world of medicine.
Theranos, her blood-testing firm, soared from ambitious start-up into a $9 million (now R153m) enterprise and its founder lived the high life – until it all came tumbling down when she was exposed as a fraud, and her technology a failure.
Her prison sentence brings an end a saga that’s inspired books, documentaries, movies, podcasts and series, including the Disney+ series The Dropout starring Amanda Seyfried as Holmes.
Holmes, who was visibly pregnant with her second child during her trial last year, wept as she apologised to “the people who believed in us”.
“I’m devastated by my failing. I regret my failings with every cell in my body.”
Judge Edward Davila was unmoved. “Failure is normal,” he said. “But failure by fraud is not okay.”
Elizabeth was raised in a wealthy family in Washington, DC.
Her father, Christian Holmes IV, was vice-president of energy company Enron until it went bankrupt after an accounting-fraud scandal in 2001, and her mom, Noel Anne Daoust, was a former model.
Her dad’s family has big money. Her paternal great-great-grandfather, Christian, was an engineer and doctor who emigrated from Denmark to Cincinnati and became so successful a hospital was named after him.
Christian married Bettie Fleischmann, heiress to Fleischmann’s Yeast, a pioneering packaged-yeast company that changed the US’ bread-making industry.
Money meant a lot to Elizabeth’s family – and the fact that they were so successful might’ve spurred her on to do what she did, insiders say.
“The family were very status-orientated,” says former neighbour Richard Fuisz. “They lived for connections. I believe there was huge pressure on her.”
READ MORE | Theranos founder Elizabeth Holmes seeks new fraud trial
When she was nine, Holmes wrote a letter to her dad declaring that what she really wanted out of life, was “to discover something new, something mankind didn’t know was possible to do”.
She studied chemical engineering at Stanford University and came up with an idea for a patch that could scan the wearer for infections and release antibiotics as needed.
But when she pitched the idea to a professor, she was shot down. “She just stared through me,” Dr Phyllis Gardner recalls. “She just seemed absolutely confident of her own brilliance. She wasn’t interested in my expertise and it was upsetting.”
Then she came up with the concept for Theranos and dropped out of university at the age of 19 to build her business.
Her flagship product was the Edison machine, which she claimed could detect cancer, diabetes and other diseases using just a few drops of blood.
For a while it was the talk of the tech world, and she jetted around the globe promoting her invention.
Along with Ramesh, the pair were sought-after at dinner parties hosted by the high-flying Silicon Valley set.
But by 2015 things started falling apart. The Wall Street Journal conducted an in-depth investigation into Theranos, revealing inaccuracies and shortcomings that would see the company shut its doors – and then the cops come after Holmes.
READ MORE | The Dropout
Authorities discovered she was responsible for $121m (then R1,8bn) in losses to investors, one of whom was Eileen Lepera, a Silicon Valley secretary who lost a chunk of her life savings by investing in Theranos.
She’s happy Holmes has been sentenced to serve time in prison, Eileen told the BBC.
“I think it’s fair, considering all the facts of the case. She knew it was fraud and she put people’s lives at risk.”
George Shultz, another former US secretary of state, was also an investor. His son, Alex, gave a victim’s statement in court describing the impact the Theranos scandal had on his family life.
Alex’s son, Tyler, worked at Theranos and blew the whistle when it became clear it was all a scam.
“My son slept with a knife under his pillow, thinking someone would murder him,” Alex said. “My family home was desecrated by Elizabeth.”
But she has her supporters too. More than 130 friends, family members and former Theranos employees wrote to the judge appealing for clemency, pointing out she was a young mom.
Her husband, William “Billy” Evans (29), told the court he “fears for a future in which my kids grow up with a relationship with their mother on the other side of glass armed by guards”.
Billy and Elizabeth met at a party in 2017 and she was smitten by the handsome heir whose grandparents founded the successful Evans Hotel Group in California.
Getting all parties to approve of their relationship wasn’t easy, though. Elizabeth had already been exposed as a fraud.
“It was like he’d been brainwashed. He had a lot of people close to him sit down and have a talk with him. They told him it could be the biggest mistake of his life and the negativity could blow back on him,” an insider says.
But they stuck together.
“The relationship was opportunistic for both of them,” the insider says. “Elizabeth needed a lot of support and Billy was looking for whatever he could to raise his profile.”
Elizabeth's conviction has been hailed as groundbreaking in the US where successful prosecutions of high-profile white-collar fraud cases are rare.
Her downfall continues to cast a long shadow over the tech set, writes The Guardian.
“It’s seen as an indictment of Silicon Valley’s ‘fake it till you make it’ culture, which encourages founders to make big promises to secure investments.”
The 11-year sentence, which is far more than the 18 month’ house arrest her lawyers asked the court for, sends a strong message to tech entrepreneurs, US law professor Anat Alon-Beck says.
“There’s a new sheriff in town. This is going to change things for both founders and investors. People are going to be more careful.”
Sources: bbc.com, washingtonpost.com, theguardian.com, newyorker.com, people.com, bustle.com
