Elizabeth Holmes’s Victims Likely Won’t Get Much Restitution for Theranos Fraud

Holmes, who founded the blood-testing startup, surrendered to authorities on Tuesday to begin a sentence of more than 11 years in prison after being found guilty of fraud-related charges in a California federal court in 2022. Balwani, who was convicted of 12 fraud counts in a separate trial, already started serving his sentence of nearly 13 years in prison.

In mid-May a federal judge determined the amount of restitution, or the money taken from victims that the Justice Department can seek to collect from defendants. U.S. District Judge Edward Davila identified 14 Theranos investor victims. Some are individuals, including Rupert Murdoch, executive chairman of News Corp, which owns The Wall Street Journal. He is owed $125 million. Others are companies including Walgreens Boots Alliance, which is owed $40 million in restitution.

While the two defendants once lived lavish lifestyles, traveling on private jets, staying in luxury hotels and driving expensive cars, Holmes and Balwani each told court officers that their resources have dwindled.

Holmes’s lawyers told the judge that she had no assets of meaningful value. Her former lawyers in a separate civil case in Arizona said she had limited means. Those lawyers were allowed to withdraw as her counsel after saying in a 2019 filing that they hadn’t been paid for their legal services in a year and, given her financial situation, didn’t believe they ever would.

Balwani has told the court that he has millions of dollars in assets, but he sold a property for $15 million shortly before his trial began to help cover his legal fees, according to court filings.

Both Holmes and Balwani face ongoing civil litigation connected to Theranos. Lawyers for the two didn’t respond to requests for comment. Holmes is appealing the restitution order.

Federal defendants, if they can, must begin reimbursing victims as part of their probation or supervised release, although some start making payments while serving time in prison. In an effort to collect restitution, the Justice Department enforces judgments on identified assets and sometimes seeks garnishment of tax returns, but the amount of money actually recouped in most cases is low, lawyers said.

“It’s highly unusual for any victim to get much in restitution," said lawyer Nicholas Gravante Jr., a partner at the firm Cadwalader, Wickersham & Taft. “Almost every defendant I’ve had convicted of fraud has had a restitution order entered against them. Typically nobody wastes their time chasing them."

Collecting restitution has been a longstanding challenge for the Justice Department.

In fiscal year 2022, the department collected $553 million in restitution owed to nongovernment victims, and ended the year with $15 billion in debts to these victims that it deems possible to collect.

Those figures don’t include money the government thinks it has no hope of recovering. A previous report by the Government Accountability Office, analyzing 2016 fiscal year data, found that the department had $110 billion in unpaid restitution, $100 billion of which was deemed uncollectible.

A Justice Department spokesman said that restitution is imposed without consideration of a defendant’s ability to pay, and recovery largely depends on whether a defendant has assets to repay victims. Over the past three years, the department has recovered more than $2 billion for victims of crime, the spokesman said.

In fiscal year 2021, judges ordered restitution in 12.4% of cases with individual offenders, for a total of $8.5 billion, according to U.S. Sentencing Commission data. The most common types of cases with restitution were those involving taxes, arson and fraud-related crimes, the commission said.

U.S. attorney’s offices typically have limited staffing for collecting restitution, according to Alex Wilson, a former federal prosecutor and partner at the law firm Jones Day.

“You tend to have more focus on asset recovery in cases with victims who really need the recovered money," Wilson said. High-profile cases like Holmes’s are also given priority, he added.

At its height, Theranos was valued by investors at more than $9 billion. Holmes testified at trial that she owned half of the company, with a paper value of around $4.5 billion. The startup dissolved in 2018.

Holmes reported to the court that she lives with her partner, Billy Evans, with whom she has two young children, on an estate with monthly expenses exceeding $13,000. She has said that Evans covers the costs, court filings show.

Holmes listed patents that she holds or intends to work on as a potential future source of income.

The judgment could hang over Holmes’s head as she looks to rebuild her life after being released from prison. Under the law, she is liable for the restitution until 20 years after being released from prison.

Howard Master, a partner at the investigations firm Nardello & Co., said that after a conviction, prosecutors lack tools such as search warrants and subpoenas, making it unlikely they would find any additional assets.

“Prosecutors typically don’t have the ability to find it if they haven’t found it already," said Master, a former federal prosecutor. “And they can’t make someone turn it over if they don’t know where it is or if it exists."