WEBVTT - Elizabeth Holmes' Startling Admissions on the Stand

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<v Speaker 1>This is Bloomberg Law with June Brusso from Bloomberg Radio.

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<v Speaker 1>I'm the founder and CEO of this company. Anything that

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<v Speaker 1>happens in this company is my responsibility at the end

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<v Speaker 1>of the day. Elizabeth Holmes took full responsibility for thoroughness

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<v Speaker 1>in sixteen in an interview with NBC. Her view appears

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<v Speaker 1>to be a bit more nuanced as she fights eleven

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<v Speaker 1>counts of fraud and conspiracy in a Silicon Valley courtroom.

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<v Speaker 1>For nearly three months, Holmes has sat attentively listening to

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<v Speaker 1>witness after witness. Investors, former employees, scientists, and even a

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<v Speaker 1>retired four star general testified to deceptionalist, staggering scale and

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<v Speaker 1>the fabrication of the success of her blood testing technology.

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<v Speaker 1>Holmes decided to try to reverse the government's narrative by

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<v Speaker 1>taking the stand in her own defense. The greatest risk

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<v Speaker 1>of offend and can take at trial. Joining me is

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<v Speaker 1>Bloomberg Legal reporter Joel rosen Blatt, who was in the

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<v Speaker 1>courtroom for her testimony. How did she appear on the stand?

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<v Speaker 1>Did you hear her famous deep voice? Many people have

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<v Speaker 1>asked about that because it's such a curiosity. She does

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<v Speaker 1>not speak in any kind of irregular or deep voice

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<v Speaker 1>that we had heard previously or when she was pitching Tarranness.

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<v Speaker 1>She speaks in what seems to be her natural voice,

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<v Speaker 1>the way you would imagine, you know, a woman of

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<v Speaker 1>her age speaks. She had this reputation for being dynamic,

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<v Speaker 1>charismatic and dazzling investors. Did that come across on the stand. Yeah.

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<v Speaker 1>When she first appeared, she was basically pitching her company.

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<v Speaker 1>The start of her defense was that Frans is a

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<v Speaker 1>legitimate company. And they showed videos kind of ripping the

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<v Speaker 1>top off of her company's blood testing analyzers and really

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<v Speaker 1>looking at the inside of it, and her explaining that,

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<v Speaker 1>and you could see her almost pitching it the way

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<v Speaker 1>she pitched it too investors or to Walgreens or safe Way.

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<v Speaker 1>And so she came across as a saleswoman who very

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<v Speaker 1>much knew her stuff. You know, she studied chemical engineering

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<v Speaker 1>before she dropped out of Stanford, and she came across

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<v Speaker 1>as highly intelligent and pretty calm. I mean, she's clearly

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<v Speaker 1>rehearsed much of this testimony, but she came across somebody

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<v Speaker 1>knew what she was talking about. Did she ever come

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<v Speaker 1>out and say the blood testing machine actually worked? She

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<v Speaker 1>did say that, I mean, she's described it as a

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<v Speaker 1>kind of continuing work in progress, but that it was

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<v Speaker 1>working and it was doing what they had hoped it

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<v Speaker 1>would do, or it was just at least very close,

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<v Speaker 1>she emphasized definitely in the beginning and this changed, but

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<v Speaker 1>that it was working. She didn't make the claim that

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<v Speaker 1>it worked just exactly as she had advertised. In other words,

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<v Speaker 1>she didn't outright lie and say it did the hundreds

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<v Speaker 1>or even thousands of tests that Sanos had claimed that

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<v Speaker 1>the machine could do. But she explained how it did work.

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<v Speaker 1>She at one point explained the FDA approval for one

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<v Speaker 1>particular test was her main defense. Then when she said

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<v Speaker 1>coming up short is not a crime, that's where she

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<v Speaker 1>ultimately got to But it took a very dramatic turn

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<v Speaker 1>about why the company failed when she started pointing the

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<v Speaker 1>blame at other people, including her lab director and her

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<v Speaker 1>ex boyfriend and the former president of far Nos, Sonny Bowani.

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<v Speaker 1>For a lot of the questions before trial were what

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<v Speaker 1>she would say about her relationship with bel Wanni. So

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<v Speaker 1>what did she say? Well, the testimony started and it

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<v Speaker 1>appeared that if she wasn't going to go down that road,

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<v Speaker 1>it almost got mundane. The testimony got kind of technical

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<v Speaker 1>and mundane. And then I think it was on day

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<v Speaker 1>three of her testimony where she explained first of all

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<v Speaker 1>that she was raped while she was a student at Stanford,

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<v Speaker 1>and then that quickly turned into meeting Sonny Bowani just

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<v Speaker 1>before actually she went to Stanford, and that she then

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<v Speaker 1>disclosed this rape to Sonny and how he then took

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<v Speaker 1>her under his arm and showed her how to become

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<v Speaker 1>an entrepreneur. But he did this in a way that

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<v Speaker 1>she described as almost kind of cult like dictating for example,

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<v Speaker 1>what she should eat, how much she should sleep, who

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<v Speaker 1>she could talk to, whether she could see her friends,

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<v Speaker 1>and discouraging her from seeing her family, and really very controlling.

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<v Speaker 1>And so in this way started pointing the finger at

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<v Speaker 1>Sunny Bolwanni as the person who kind of really made

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<v Speaker 1>her perform at Starranos the way he wanted her to

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<v Speaker 1>the way he thought she should. Now bel Wannie has

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<v Speaker 1>denied her allegations of abuse, but he's being tried separately

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<v Speaker 1>next year and can't be called to testify at this trial.

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<v Speaker 1>Did she have any kind of evidence to back up

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<v Speaker 1>her claims, Well, that's what's really missing from this so

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<v Speaker 1>she just described it. What she also described was sexual

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<v Speaker 1>assault by Sonny, and she said that that happened kind

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<v Speaker 1>of throughout the course of their ten year relationship. And

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<v Speaker 1>so she does have proof of that in the sense

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<v Speaker 1>she has contemporaneous notes that she took on her iPhone

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<v Speaker 1>or kind of eye message notes that she took about

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<v Speaker 1>how she felt after she was sexually assaulted by Sonny.

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<v Speaker 1>This was kind of shocking testimony, and it was upsetting.

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<v Speaker 1>She was crying on the stand as she explained it,

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<v Speaker 1>and so she has those notes. She also has handwritten

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<v Speaker 1>notes from Sonny kind of telling her how she should behave.

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<v Speaker 1>Now what she doesn't have, and what's kind of a

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<v Speaker 1>glaring omission is she doesn't have anything from Sonny saying

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<v Speaker 1>you should tell investors, or you should tell safe Way,

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<v Speaker 1>or you should tell anybody that our company is performing

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<v Speaker 1>these tests that it can't perform, or that we are

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<v Speaker 1>achieving this revenue that we don't have, and that you

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<v Speaker 1>should doctor reports endorsing fa NOS technology. She doesn't have

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<v Speaker 1>any of that, and that's what she's charged with. So

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<v Speaker 1>that's a problem, I think for her defense. So she

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<v Speaker 1>testified that Belwanni was controlling, but she admitted that he

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<v Speaker 1>didn't control the statements she made as the company CEO. Well,

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<v Speaker 1>that's I think the most interesting part of the testimony.

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<v Speaker 1>So her lawyer asked her, you know, did Sonny force

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<v Speaker 1>you to make the statements to investors or to journalists

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<v Speaker 1>or to her board, or did he control your actions

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<v Speaker 1>in your dealings with partner's Walgreens and safe Way, who

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<v Speaker 1>were deceived clearly, And her response to that was that

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<v Speaker 1>he did not. But in the almost the very next sentence,

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<v Speaker 1>she said, in fact, she wasn't so sure. I have

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<v Speaker 1>the quote she said, I don't know he impacted everything

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<v Speaker 1>about who I was, and I don't fully understand that.

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<v Speaker 1>So it's a gray area. And I think what she's

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<v Speaker 1>doing is she's putting in juror's mind that Sonny was

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<v Speaker 1>there and he was oppressive and controlling. She's not going

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<v Speaker 1>to go on record and make it so plain to

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<v Speaker 1>say he made me lie to investors, But now jurors

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<v Speaker 1>have this in their mind that you know, he was

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<v Speaker 1>a strong force in the background and the really manipulative

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<v Speaker 1>and you know, horrible man is her testimony that had

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<v Speaker 1>to be at play and had to be influencing her.

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<v Speaker 1>What about the forging of documents and the use of

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<v Speaker 1>pharmaceutical companies logos on documents. Did she link that to him.

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<v Speaker 1>She has not linked that to him, And this is

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<v Speaker 1>another aspect of her defense which is a real mix

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<v Speaker 1>of different kind of strategies. She didn't blame that on him,

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<v Speaker 1>and in fact, on her direct testimony, she admitted that

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<v Speaker 1>she was the one who did that. So she admitted

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<v Speaker 1>that she lifted the logos of Fiser and sharing Plow

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<v Speaker 1>and put them on reports that purported to endorse their

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<v Speaker 1>nosed technology. And this is a reason that Walgreen's bought

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<v Speaker 1>into the technology and adopted it. So she said that

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<v Speaker 1>she wished she had done that differently. So this is

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<v Speaker 1>another dimension of her defense where she's expressing regret and remorse.

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<v Speaker 1>Now on her cross examination, the prosecutor dug deeper into that.

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<v Speaker 1>You know, it wasn't just the lifting of logos, it

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<v Speaker 1>was also the manipulation of text and copy in those

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<v Speaker 1>reports where she doctored those documents to really make the

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<v Speaker 1>endorsements much more pronounced, and she had to explain that

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<v Speaker 1>she did that too, She was responsible for that. So

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<v Speaker 1>the apology worked. It was kind of effective. On her

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<v Speaker 1>own direct testimony. Under cross examination, it looked much much worse.

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<v Speaker 1>Did you see any reaction from the jurors, especially when

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<v Speaker 1>she was crying. Sometimes you can see a juror nodding

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<v Speaker 1>or patting their rise. This jury has been really hard

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<v Speaker 1>to read. They seem very studious. They're taking notes, and

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<v Speaker 1>they're displaying, as far as I can tell, just kind

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<v Speaker 1>of almost no expression, just really careful observers, but not

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<v Speaker 1>betraying kind of what they're thinking or feeling. I personally

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<v Speaker 1>felt like her explanations of abuse were incredible. They seemed believable,

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<v Speaker 1>But as to what the jurors are thinking, I can't tell.

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<v Speaker 1>She's confronted with so much wrongdoing. There's just so much

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<v Speaker 1>evidence against her that I think that's what's going on here.

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<v Speaker 1>It's a multifaceted and multi pronged defense where she has

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<v Speaker 1>to own up to some of this. I mean, you

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<v Speaker 1>can't just deny it, our point the finger or blame

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<v Speaker 1>Sonny for all of it. There's some of it that

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<v Speaker 1>she just did, you know, that lifting of the logos

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<v Speaker 1>and actually manipulating the copy. She did that, and so

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<v Speaker 1>what do you do with that? I mean, I don't

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<v Speaker 1>think there's anything left to do but say, you know,

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<v Speaker 1>I wish I had done it differently. The government has

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<v Speaker 1>to prove her intent to commit these crimes. How does

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<v Speaker 1>her defense negate intent? Where she's pointing to Wawani, the

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<v Speaker 1>argument is that I was so under his control that

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<v Speaker 1>I couldn't have formed the intent to defraud investors. I

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<v Speaker 1>think that if she's going to go kind of squarely

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<v Speaker 1>down that road, she needs a psychological expert to endorse that,

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<v Speaker 1>to explain that somebody who's undergone this trauma in some

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<v Speaker 1>way unable to distinguish to some important degree right from

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<v Speaker 1>wrong and was maybe deluded. This trial has been full

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<v Speaker 1>of these kind of useful breaks, and there's a big

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<v Speaker 1>pause here now where her lawyers, I think it to

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<v Speaker 1>reassess how they've done and what the effect has been,

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<v Speaker 1>and decide whether or not her defense without pointing to

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<v Speaker 1>Bowani or with the least kind of putting him in

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<v Speaker 1>the sphere of her defense, is enough and they've done

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<v Speaker 1>enough kind of otherwise to cast some doubt on her intent,

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<v Speaker 1>or maybe just pry one juror loose if that's been enough,

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<v Speaker 1>or if they need to now bring in this psychological

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<v Speaker 1>expert to go more squarely down the road of blaming

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<v Speaker 1>Sunny Balwani. Her cross examination continues next week and I

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<v Speaker 1>know you'll be in the courtroom for that. Thanks Joe.

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<v Speaker 1>That's Joe Rosenblack, Bloomberg legal reporter. I'm gonna show you

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<v Speaker 1>how to make a gift from a video and put

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<v Speaker 1>your gifts on a giffy. You can make them out

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<v Speaker 1>of movies, video games, don't switches are your own human experiences. Yeah,

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<v Speaker 1>no matter how you pronounce it, those short video loops

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<v Speaker 1>of cats furiously typing dancing football players or even this

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<v Speaker 1>year's Turkey pardon where the final straw for UK regulators.

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<v Speaker 1>It's the first time a major global regulator has ordered

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<v Speaker 1>a Silicon Valley giant to unwind a deal after completion.

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<v Speaker 1>Joining me is Jennifer Ree, Bloomberg Intelligence Senior litigation analyst.

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<v Speaker 1>So this was a kind of stealth deal. Facebook bought

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<v Speaker 1>Giffe in without notifying regulators, right. So you know regulators

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<v Speaker 1>across globally, UK, US, Europe, they each have rules and

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<v Speaker 1>thresholds about the deals that actually have to get notified

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<v Speaker 1>to the competition authorities and can't close prior to the

0:11:51.679 --> 0:11:54.600
<v Speaker 1>competition authorities having a chance to take a look and

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<v Speaker 1>if they are of a certain size, there's no need

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<v Speaker 1>to do that. Legally, you can sign it, you can

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<v Speaker 1>close it immediately lee And that's what happened with this deal.

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<v Speaker 1>Now there's some allegations that they did a little bit

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<v Speaker 1>of finagling with the revenues in order to fall below

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<v Speaker 1>that threshold, but nonetheless it did fall below the threshold.

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<v Speaker 1>They didn't need to notify it legally and they were

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<v Speaker 1>able to legally close it. But on the other hand,

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<v Speaker 1>US and UK, as we see here, and even Europe

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<v Speaker 1>have the right still to challenge consummated deals. It isn't

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<v Speaker 1>done often, but it is within their charters, it is

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<v Speaker 1>within the law and they have the right to do that.

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<v Speaker 1>And in fact, that's what the UK's Competition Authority did here.

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<v Speaker 1>And Facebook did that while it was under investigation by

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<v Speaker 1>antitrust regulators for buying companies in order to eliminate them

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<v Speaker 1>as potential threats to its monopoly power. Yes, very much so.

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<v Speaker 1>Pretty nervy on the part of Facebook with that is

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<v Speaker 1>exactly right. And you know, UK turned around and fairly

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<v Speaker 1>quickly after the deal was completed, issued what's called the

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<v Speaker 1>whole separate order called an initial enforcement order, where They

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<v Speaker 1>basically said, look, we want to look into this, and

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<v Speaker 1>so we are ordering you not to integrate. You can't

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<v Speaker 1>integrate this company because it needs to be divestible at

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<v Speaker 1>the end of the day, at the end of our investigation,

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<v Speaker 1>and Facebook actually appealed that. They went to the Competition

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<v Speaker 1>Appeal Tribunal which is like a court, and they were denied.

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<v Speaker 1>So that order went into effect. And since a June

0:13:16.360 --> 0:13:18.880
<v Speaker 1>of two thousand twenty, Facebook has had the whole Giffy

0:13:18.960 --> 0:13:23.040
<v Speaker 1>separate and not integrate the company. So why did the

0:13:23.080 --> 0:13:27.040
<v Speaker 1>c m A order Facebook to sell Giffy? What were

0:13:27.040 --> 0:13:30.439
<v Speaker 1>its reasons? So it did a really long investigation and

0:13:30.480 --> 0:13:32.400
<v Speaker 1>there were two separate areas where the c m A

0:13:32.480 --> 0:13:35.439
<v Speaker 1>had concerns. They felt that the deal would result in

0:13:35.480 --> 0:13:39.400
<v Speaker 1>a substantial lessening of competition in display advertising, where they

0:13:39.440 --> 0:13:43.720
<v Speaker 1>felt Giffy was a potential competitor. On the social media side,

0:13:43.920 --> 0:13:46.680
<v Speaker 1>they basically felt that with control of Giffy, it would

0:13:46.720 --> 0:13:50.360
<v Speaker 1>allow Facebook to disadvantage some of its social media competitors. So,

0:13:50.360 --> 0:13:53.360
<v Speaker 1>in other words, it could prevent Twitter or TikTok or

0:13:53.360 --> 0:13:57.200
<v Speaker 1>Snapchat from accessing this library of gifts and people like

0:13:57.440 --> 0:14:00.240
<v Speaker 1>using them, and all of these social media black forms

0:14:00.280 --> 0:14:02.840
<v Speaker 1>are about user engagement, and so what that would do,

0:14:03.080 --> 0:14:05.959
<v Speaker 1>according to the c m A, is drive more users

0:14:05.960 --> 0:14:08.839
<v Speaker 1>into Facebook and away from some of its rivals because

0:14:08.840 --> 0:14:11.080
<v Speaker 1>they liked the ability to use these gifts and have

0:14:11.160 --> 0:14:13.920
<v Speaker 1>access to them. The other thing they said Facebook could

0:14:13.960 --> 0:14:18.160
<v Speaker 1>do is actually demand money or consumer data from these

0:14:18.280 --> 0:14:20.960
<v Speaker 1>rivals in exchange for the use of the gift library.

0:14:21.200 --> 0:14:23.440
<v Speaker 1>So that was one area where they were concerned about

0:14:23.480 --> 0:14:26.920
<v Speaker 1>what we think about as foreclosure or a vertical concern.

0:14:27.360 --> 0:14:30.920
<v Speaker 1>The other concern was more about potential competition down the road.

0:14:31.680 --> 0:14:35.760
<v Speaker 1>Before Facebook acquired Gifty, Giffy was starting its own kind

0:14:35.800 --> 0:14:39.200
<v Speaker 1>of display advertising business. It was allowing companies to sort

0:14:39.200 --> 0:14:41.800
<v Speaker 1>of brand a gift. So maybe you could use a

0:14:41.840 --> 0:14:44.560
<v Speaker 1>gift that's kind of a dancing Pepsi cola can and

0:14:44.600 --> 0:14:48.040
<v Speaker 1>it's an ad to drive brand awareness. And when Facebook

0:14:48.040 --> 0:14:51.320
<v Speaker 1>book Giftee, but before that UK order went into effect,

0:14:51.360 --> 0:14:54.240
<v Speaker 1>Facebook shut down that business. And what the c m

0:14:54.280 --> 0:14:57.320
<v Speaker 1>A said is, well, that business another option for advertisers

0:14:57.360 --> 0:15:01.600
<v Speaker 1>outside of Facebook to advertise a product online, and this

0:15:01.720 --> 0:15:05.360
<v Speaker 1>was Facebook shutting down that potential competitor in the display

0:15:05.440 --> 0:15:08.160
<v Speaker 1>advertising market. And it was for those two reasons that

0:15:08.240 --> 0:15:11.960
<v Speaker 1>they determined that this would be deal that would substantially

0:15:12.000 --> 0:15:15.600
<v Speaker 1>lessen competition and was illegal. Is this the first time

0:15:16.200 --> 0:15:21.280
<v Speaker 1>that a regulator has ordered a Silicon Valley giant to

0:15:21.880 --> 0:15:26.240
<v Speaker 1>unwind a deal after completion? Yes, so far it is

0:15:26.320 --> 0:15:30.160
<v Speaker 1>now other deals outside of Silicon Valley companies have actually

0:15:30.240 --> 0:15:33.480
<v Speaker 1>been ordered to unwind post acquisition and have done that,

0:15:33.880 --> 0:15:36.720
<v Speaker 1>but in this area we're talking about our big tech platforms,

0:15:36.800 --> 0:15:39.200
<v Speaker 1>this is the first. There is an ongoing effort in

0:15:39.240 --> 0:15:42.560
<v Speaker 1>the US by the Federal Trade Commission to force Facebook

0:15:42.600 --> 0:15:45.360
<v Speaker 1>to sell off Instagram or WhatsApp for both, and that's

0:15:45.440 --> 0:15:47.960
<v Speaker 1>leaving its way through the courts right now. Is Facebook

0:15:48.000 --> 0:15:50.880
<v Speaker 1>going to appeal this? They can. They have four weeks

0:15:50.920 --> 0:15:53.720
<v Speaker 1>to do it, and they would appeal to the Competition Tribunal.

0:15:54.080 --> 0:15:56.840
<v Speaker 1>Now it would be an uphill climb for Facebook right now.

0:15:56.960 --> 0:15:59.680
<v Speaker 1>The c m A statistics in front of that tribunal

0:15:59.720 --> 0:16:03.240
<v Speaker 1>are very good. They've won almost sevent of all merger

0:16:03.280 --> 0:16:06.480
<v Speaker 1>appeals since two thousand ten. And in the last couple

0:16:06.480 --> 0:16:09.360
<v Speaker 1>of years there were two consummated deal CMA ordered to

0:16:09.360 --> 0:16:12.880
<v Speaker 1>be unwound and they both appealed and the tribunal affirmed

0:16:12.920 --> 0:16:15.840
<v Speaker 1>the CMA's decisions. In both, so certainly you know it's

0:16:15.840 --> 0:16:18.560
<v Speaker 1>worth a staff for Facebook, and they probably will, but

0:16:18.640 --> 0:16:22.240
<v Speaker 1>it would be an upshill road. Is the FTC investigating

0:16:22.280 --> 0:16:25.320
<v Speaker 1>the Giffie purchase, so it might be there were some

0:16:25.400 --> 0:16:28.800
<v Speaker 1>reports that the FTC and DJ were discussing this and

0:16:28.840 --> 0:16:32.000
<v Speaker 1>that one of them probably is investigating. We don't know

0:16:32.080 --> 0:16:33.840
<v Speaker 1>which one, and we don't know where they are in

0:16:33.880 --> 0:16:38.400
<v Speaker 1>an investigation. Thanks Jen, that's Jennifer Ree, Bloomberg Intelligence Senior

0:16:38.480 --> 0:16:42.400
<v Speaker 1>Litigation Analyst. Coming up. Elizabeth Holmes takes the stand in

0:16:42.440 --> 0:16:45.600
<v Speaker 1>her own defense. This is Bloomberg and that's it for

0:16:45.640 --> 0:16:48.280
<v Speaker 1>this edition of the Bloomberg Law Show. Remember you can

0:16:48.280 --> 0:16:51.400
<v Speaker 1>always get the latest legal news on our Bloomberg Law Podcast.

0:16:51.760 --> 0:16:54.480
<v Speaker 1>You can find them on Apple Podcasts, Spotify, and at

0:16:54.600 --> 0:16:59.680
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<v Speaker 1>you join us every week night at ten pm Wall

0:17:02.600 --> 0:17:05.720
<v Speaker 1>Street Time for the Bloomberg Laws Show. I'm June Grosso

0:17:05.920 --> 0:17:07.600
<v Speaker 1>and you're listening to Bloomberg