Ex-Theranos exec Balwani is resisting a US$900 million restitution request

Remember the Theranos scandal that rocked the tech industry a few years ago?

Ex-Theranos exec Balwani is resisting a US$900 million restitution request
Ramesh "Sunny" Balwani, former president and chief operating officer (COO) of Theranos and ex-boyfriend of founder Elizabeth Holmes, leaves after the opening day of his federal trial for wire fraud and conspiracy to commit wire fraud was postponed due to coronavirus disease (COVID-19) exposure in the courtroom in San Jose, California, U.S. March 16, 2022. REUTERS/Brittany Hosea-Small/File Photo

The backstory: Remember the Theranos scandal that rocked the tech industry a few years ago? Well, the story continues to make headlines. The blood-testing startup, led by the infamous Elizabeth Holmes, had claimed that its revolutionary device, the Edison, could transform the diagnosis of diseases using just a tiny amount of blood from a finger prick. With a once eye-popping valuation of US$9 billion, it's no wonder the company received more than US$700 million in funding from investors.

But as it turned out, it was all smoke and mirrors. The device simply didn't work, and Holmes and her then-partner Ramesh "Sunny" Balwani were convicted of fraud for their false claims about its capabilities.

More recently: Balwani was found guilty on all 12 charges brought against him and is set to serve nearly 13 years in prison starting March 15, which is longer than Holmes's 11-year and three-month sentence for her involvement in the scandal.

The development: Last week in court, prosecutors demanded the ex-Theranos exec Balwani cough up close to US$900 million in repayment to compensate the victims of his fraud. This hefty amount includes about US$65 million owed to former Theranos business partners Walgreens and Safeway and over US$800 million owed to other investors.

Balwani's defense argued that when he was fired in 2016, the company still had a decent amount of cash and intellectual property, which means that his wrongdoing may not be the only reason for the company's collapse two years later.

The judge questioned whether Balwani's actions could be "completely divorced" from the collapse of Theranos. The defense pointed out that investors may have lost money because of broken contracts, but it wasn't because of fraud by Balwani.

Key comments:

"At the end of the day shareholders lost all of their money," said attorney Amy Walsh to the judge. "That's unfortunate, but it's not because of Mr. Balwani."

"I am responsible for everything at Theranos," said text messages from Balwani read out in a court hearing in December. "All have been my decisions too."

"The defendants chose to go forward and continue with deception, misleading information, active misleading, and continued to perpetuate the fraud," said the judge before sentencing Balwani in December.

"Ramesh Balwani, in a desire to become a Silicon Valley titan, valued business success and personal wealth far more than patient safety," said Stephanie Hinds, the US Attorney in San Francisco, when the court sentenced Balwani. "He chose deceit over candor with patients in need of medical care, and he treated his investors no better."