A20 EZ RE THE WASHINGTON POST.TUESDAY, NOVEMBER 23 , 2021
BY RACHEL LERMANsan jose — Elizabeth Holmes
took the stand for the second time
Monday to defend herself against
charges she defrauded investors
regarding the capabilities of her
blood-testing start-up Theranos.
The entrepreneur rose to inter-
national fame roughly a decade
ago as her start-up promised to
run dozens of blood tests from
just a few drops of blood. But
prosecutors have alleged for the
first two months of the federal
trial that she knew the limits of
the company’s technology, and
specifically that Theranos over-
played what it said were approv-
als with two large pharmaceutical
companies.
Her defense team on Monday
sought to dispute that. Her lead
lawyer, Kevin Downey, asked
about the results of studies in
which tests run on Theranos’s
device were compared with the
results of tests conducted on tra-
ditional equipment in partner-
ship with pharmaceutical compa-
nies.
“It performed well,” Holmes
said in response to one such
question.
The founder of Theranos be-
gan testifying Friday afternoon in
a late-day surprise, and she is now
expected to testify for several
days. The entrepreneur, who
started Theranos when she was a
student at Stanford, is charged
with 11 counts of wire fraud and
conspiracy to commit wire fraud.
She has pleaded not guilty, and
her defense lawyers have arguedthat she acted in good faith while
running the company.
Theranos was a highflying and
closely watched Silicon Valley
start-up with hundreds of em-
ployees and hundreds of millions
in funding when an explosive
Wall Street Journal investigation
cast doubts on the company‘s
abilities in 2015. Concerned for-mer employees spoke out about
Theranos’s blood-testing device,
which was designed to run multi-
ple tests in a portable machine
from a few drops of blood, to say it
was not functioning properly and
often returned erratic results.
Theranos crumbled in 2018
amid media and regulatory inves-
tigations. The case is closelywatched in Silicon Valley, where
start-ups have long relied on a
“fake it till you make it” credo.
The verdict could shape how
start-ups evaluate risk and pre-
sent promises to investors and
partners.
On Monday, the defense team
showed jurors a slide from a
presentation at Theranos that
showed “Completed Successes” —
a list of studies the company
completed with various pharma
companies. Many of the studies
were designed for the larger com-
panies to evaluate how well Ther-
anos’s technology performed
compared with traditional test-
ing methods.
During the prosecution’s case,
representatives from Pfizer and
Schering-Plough testified that
they were unimpressed with
Theranos’s technology and did
not pursue further partnerships
with the start-up, according to
the Wall Street Journal.
“I was dissatisfied, quite hon-
estly,” Connie Cullen, a scientist
who worked at Schering-Plough,
said on the stand, according to
the Journal. “There was insuffi-
cient technical detail for us to be
able to evaluate the technology.”
Cullen and a representative
from Pfizer said they did not
approve the final reports that
Theranos allegedly showed to in-
vestors, which included logos
from the pharmaceutical compa-
nies — suggesting they were en-
dorsing Theranos’s technology.
On the stand Monday, Holmessaid that she had not spoken
directly to Cullen about the re-
sults of the Theranos test with
Schering-Plough, but that she
heard from an employee that Cul-
len was pleased. Holmes also said
that she did not hear directly
from Pfizer about the study it
conducted with Theranos, but
that the two companies contin-
ued talking as recently as 2015.
Though Holmes testified that
many of the studies with pharma-
ceutical companies were success-
ful, Theranos did not make signif-
icant deals with the companies
after the validation studies.
The prosecution rested its case
Friday after calling 29 witnesses
over two months. Former em-
ployees testified that the Thera-
nos device could run only about a
dozen blood tests and that the
company was largely relying on
outside machines to complete
tests.
Business partners and inves-
tors outlined their disappoint-
ment in working with Theranos,
which many witnesses said failed
to live up to its promises.
Holmes’s defense called two
witnesses before Holmes on Fri-
day, including a former Theranos
board member who joined after
the Journal investigation. The
board member, Fabrizio Bonanni,
a former executive vice president
at biotech company Amgen, said
he was impressed with Thera-
nos’s technology when he met
with company leaders in 2016.
[email protected]Holmes testifies on Theranos’s ‘successes’ with pharmaceutical companies
BRITTANY HOSEA-SMALL/REUTERS
Elizabeth Holmes, founder of the blood-testing start-up Theranos, arrives at federal court in San Jose.
Monday was her second day on the stand, and her testimony is expected to last several days.At fraud trial, founder
of start-up says its device
performed well in testsIn 2020, the coronavirus dealt
a catastrophic blow to the econo-
my, with 20 million people
abruptly l osing t heir jobs in April
and wide swaths of the global
economy effectively shutting
down. The Fed responded with
full force, slashing interest rates
and deploying a range of tools to
rescue the financial system.
Powell worked closely with
members of Congress from both
parties to explain his decision-
making, helping him earn credi-
bility with lawmakers who were
looking to understand the Fed
during a time of extreme uncer-
tainty. Powell also worked well
with Trump’s treasury secretary,
Steven Mnuchin, despite a public
clash late last year over emergen-
cy lending programs propped up
through the Cares Act.
Throughout the pandemic,
Powell found himself aligned
with many of the Biden adminis-
tration’s views. Powell repeatedly
urged Congress not to withdraw
stimulus aid too quickly, espe-
cially because fiscal policy could
target more vulnerable house-stem a wave of layoffs and corpo-
rate closures.
There was also never an orga-
nized campaign against Powell
on the r ight. I f anything, his m ost
vocal opponents came from lib-
eral groups and lawmakers who
argued Powell was too lax on
banking regulation and climate
issues.appointments during his presi-
dency. Yet economists and law-
makers from both parties give
Powell credit for h is leadership of
the Fed during the pandemic. In
March 2020, he led the central
bank as it offered tremendous
financial support for the econo-
my, a decision that arrested a
stock-market free fall and helpedhot as the president sought re-
election.
“My only question is, who is
our bigger enemy, Jay Powell or
Chairman Xi?” Trump tweeted
following one of Powell’s major
policy speeches in 2019.
Powell did not budge under
the pressure. Meanwhile, Trump
appears to still be fuming. At
lunch at the Trump International
Beach Resort in Florida about
two weeks ago, he told others
that Powell damaged him in the
2020 presidential election, ac-
cording to Stephen Moore, a
conservative policy analyst who
was one of a handful of people at
the meeting.
“He was really railing against
Powell and said he had under-
mined everything he was trying
to do with tight monetary policy
in the last few years of his
presidency,” said Moore, w ho was
appointed by Trump to the cen-
tral bank board but withdrew
amid scrutiny of his past remarks
about women.
Moore said Trump complained
that Powell was one of the worstholds and struggling pockets of
the economy.
Earlier this year, Powell batted
away concerns that the Biden
administration’s $1.9 trillion
stimulus package would cause
runaway inflation. He has also
put a strong emphasis on full
employment — especially for
communities of color and other
groups that have historically
been among the last to benefit
from a tight labor market.
Perhaps none of that history,
though, could have prepared
Powell for one of the Fed’s big-
gest scandals in years. In Sep-
tember, two Fed regional bank
presidents, Robert Kaplan and
Eric Rosengren, exited their
posts amid intense scrutiny over
their stock-trading behavior dur-
ing the pandemic.
Those activities spurred an
independent investigation by the
Fed’s inspector general over
whether the actions violated eth-
ics rules and the law. The Fed’s
public perception also took a
massive blow, with Powell saying
the Fed’s guidelines on financial
activity were “now clearly seen as
not adequate to the task of really
sustaining the public’s trust in
us.” Powell said in September
that “no one” on the Fed’s policy
committee is “happy” to “be in
this situation.”
A few weeks later, the Fed
announced a major tightening of
its rules overseeing the personal
financial activities of top offi-
cials. The inspector general in-
vestigation is ongoing.
Ultimately, the stock-trading
incidents, and Powell’s own fi-
nancial disclosures, did little to
rattle support for Powell himself.
After Biden’s announcement on
Monday, Republican and Demo-
cratic lawmakers praised Pow-
ell’s renomination, including the
top officials on the Senate Bank-
ing Committee, which vets Fed
nominees before a vote of the full
Senate. So far, three progressive
senators — Elizabeth Warren (D-
Mass.), Sheldon Whitehouse
(D-R.I.) and Jeff Merkley (D-
Ore.) — have opposed a second
term for Powell.
Warren first came out against
Powell in September, calling him
a “dangerous man” because of
the Fed’s moves to gradually ease
rules on Wall Street. “So far,
you’ve been lucky,” Warren told
Powell during a Senate Banking
Committee hearing. Powell sat
quietly, waiting for his next ques-
tions.
[email protected]
[email protected]Ty ler Pager contributed to this
report.stability and independence at t he
Federal Reserve. Jay has proven
the independence that I value.”
The challenge ahead is a hefty
one. The Fed is looking to en-
courage more employment, un-
wind its pandemic-era stimulus
and prevent inflation from be-
coming a permanent feature of
the economy. By many measures,
the head winds of this moment —
rising prices, a great reassess-
ment of work in America, global
supply chain backlogs — hardly
resemble the trials of the 2020
pandemic recession. This has
created a new set of challenges
for Powell and his Fed col-
leagues.
Before the pandemic, Powell
“did a nice job of bringing the
economy to a soft landing with
low unemployment in 2019,” said
Ben S. Bernanke, who served as
Fed chair during the Bush and
Obama administrations.
“He was very effective in re-
building the Fed’s relations with
Congress and keeping legislators
and the public informed about
what the Fed was doing. He
managed the pressure from Pres-
ident Trump extremely well. If
covid had never happened, it
would have been a very solid
performance. And then covid
came,” Bernanke said.
In keeping Powell, Biden also
said he planned to elevate Fed
governor Lael Brainard, the cen-
tral bank’s only Democrat, to
become the Fed’s new vice chair.
Brainard, 59, emerged as the
main alternative to Powell for the
Fed’s top job, in part because of
her broad influence on a range of
issues, including monetary pol-
icy, climate change and banking
regulation. She is also a highly
respected economist with years
of policymaking experience. If
confirmed by the Senate, Powell
and Brainard would lead the Fed
together.
Precedent might suggest Pow-
ell was going to be reappointed
all along. For decades, new ad-
ministrations have reappointed
sitting Fed chairs, especially be-
cause the Fed is supposed to be
insulated from the White House
and Washington’s political
churn.
But that tradition was bucked
in 2017 when Donald Trump
replaced Fed Chair Janet L. Yel-
len and tapped Powell, who was
put on the Fed board by Presi-
dent Barack Obama. But Trump
quickly turned on Powell, lam-
basting him from 2018 to 2020
and alleging that Powell was not
doing enough to lower interest
rates and make the economy run
POWELL FROM A
Powell weathered covid, ethics scandal, Trump’s attacks
DEMETRIUS FREEMAN/THE WASHINGTON POST
President Biden announced his nomination of Jerome H. Powell to another term as chair of the Federal Reserve on Monday. He nominated
Lael Brainard, the main alternative to Powell for the Fed’s top job and the only Democrat on the central bank board, to serve as vice chair.“A this moment of both enormous potential andenormous uncertainty for our economy, we needstability and independence at the Federal Reserve.Jay has proven the independence that I value.”President Biden, on his decision to nominate J erome H. Powell to serve a
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