Thread by @doratki

Good morning from San Jose! Elizabeth Holmes' criminal fraud trial doesn't start for about an hour, but I'm in the overflow courtroom at the ready. It looks like we'll be watching at least one pre-recorded video deposition today. Perhaps Henry Kissinger? Just a guess. Stay tuned!

As we wait, on the docket, Judge Ed Davila granted Holmes' request to bar patient B.B. from testifying on a blood test, finding that the gov't didn't give the defense proper notice. A small win for the defense & a rare instance in trial when the judge changed his mind after args.

The jury is in the courtroom. There hasn't been any pre-trial motions arguments this morning. The government calls its next witness, Chris Lucas, the nephew of Donald Lucas, the former chairman of Theranos' board of directors and an early investor in the startup.

Lucas says he founded the VC firm Black Diamond Ventures in 1998, and he's currently its managing director. Lucas says his uncle Don Lucas introduced him to Holmes in 2005 or 2006.

Lucas said his uncle was introduced to Holmes, and "he started spending considerable time with her and he was very excited about the opportunity and he pretty much took it from there." Don Lucas also invested in Theranos and served as its board chairman, he says.

Chris Lucas says BDV invested $400k in Jan 2006 after learning about Theranos from his uncle and meeting Holmes. "She was very passionate about the project. Very sincere about what she was trying to do. She worked all the time. It was all Theranos, all the time for Elizabeth."

Chris Lucas says in early 2006 Theranos was a "very high risk," early stage startup and as an investor, "you took your chance and if it didn’t work out, you move on." Later that year, his firm invested $1.5M, and in December 2013 the firm invested an additional $5.4M.

Chris Lucas said he met w/ Holmes 4-5 times a year and had lunch, and he never heard anything negative about Theranos. He adds that "there was not a lot of transparency," but he felt that Holmes was telling him the info he needed to make his decisions.

Chris Lucas said he would typically review a startup's financial statements and "actually see everything working in the laboratory" but "we were not provided the opportunity." His uncle resigned from the board in 2012, but Chris says he still had a good relationship w/ Holmes.

Prosecutor John Bostic points to various investor emails in 2013 announcing Theranos' commercial launch and the WSJ 2013 article on Theranos. The article mentions Theranos would provide cheaper, more accurate, more accessible blood tests. "That’s its mission clearly," Chris says.

Chris Lucas sent Theranos 5 q's on Dec 18, 2013 before investing $5.4M. He asked if it was necessary to invest before Dec. 31, 2013, b/c Theranos had announced the fundraising round 2 weeks earlier and "the timing was quite compressed." He was told he needed to invest by EOY.

Lucas says the deal had to close by 2014, b/c Walgreens had lent Theranos money in the form of a note and it had the option to convert that note to stock by 2014. He asked if that was going to happen, b/c as an investor "You want more people in the wagon helping fund the co."

Lucas says if Walgreens was confident in Theranos and the decision to scale up, the company would want to participate in Theranos' scale up "for sure" by converting its note to stock. Holmes wrote him that Walgreens was participating, and he thought "great, they’re ready to go."

Lucas said it would have been helpful to have more info from Theranos, "but I had a relationship with Elizabeth and everything seemed to be going great." He adds that "the fact that she had been able to attract partners like Walgreens and others - that’s a huge factor."

Lucas says Holmes was concerned "and perhaps rightly so" about competitors stealing Theranos' IP and crushing the co before it got to fruition. But there was still financial info that typically he would have access to as an investor, which was "irregular," he says.

Lucas says he thought Theranos' devices could do dozens of blood tests and he would have been "very surprised" to learn that the devices could do only 12 tests. "If we’ve spent all this time and now we can only do 12, that would be a problem," he says.

Lucas says he would've been surprised to learn the military wasn't using Theranos' devices. He adds that he thought the risk between investing in 2006 and 2013 was different, b/c he thought "the risk profile" would drop over time as Theranos grew.

Prosecutors wrap direct pointing to @rparloff's Fortune Mag cover story on Elizabeth Holmes. Chris Lucas says "Great article. Great pictures. Everything.” He adds that he was proud when he read it. "Very proud of the situation. Very proud we were involved. Proud of Elizabeth."

Kevin Downey is up for Holmes. He starts by asking Lucas about his impression of Holmes. "She was very articulate. Very passionate. She is very smart and she was on a mission. This was not just for her" or about making money. It was about bringing impt tech to the world, he says.

Downey gets Lucas to acknowledge that his firm didn't hire outside counsel to conduct due diligence of Theranos before investing in the startup. Lucas also says his uncle's investing philosophy is that "it’s always about the people," not necessarily the financials.

Lucas acknowledges that it's customary to look at a startup's IP portfolio, contracts and other corporate docs before investing, but his firm didn't do that. Lucas adds that "we were going on [my uncle Don Lucas'] experience as well.”

Downey is flipping through a document explaining Theranos' technology and prospective growth. Lucas says "what I would have seen would have been quite rudimentary." We're taking a break. Back in 30!

There's something that the judge says the attorneys need to discuss with him, but they're going to do it after the break. The judge has cryptically described the issue as "the morning matter" and "the transaction."

It appears that the attorneys discussed the mysterious "morning matter" with the judge in chambers. The jury is in the courtroom and Judge Davila is on the bench. Chris Lucas is back on the stand.

Downey gets Lucas to concede that developing tech is "kind of like renovating your kitchen. It costs more and takes longer than you think."

Lucas laughs and says "that’s particularly relevant to me right now."

Kevin Downey asks Lucas how old Elizabeth Holmes was when he met her in 2005, around the time his firm gave her ~$1.9 million. "I believe 19," he says.

Kevin Downey points to a document detailing Lucas' Black Diamond Venture's 2006 investments into Theranos in addition to the $400k. There is a $1.98M entry and a $925k investment, which Downey is over $2 million. (DOJ said it was $1.5M + $400k on direct, so that seems to be off.)

Downey notes that at the time investor Craig Hall also invested $1.92 million into Theranos through the entity Black Diamond 55 LLC. Downey adds that Hall was the largest American Airlines shareholder and a Black Diamond Ventures client. Lucas agrees.

Downey pulls up a June 2007 email Lucas wrote to Holmes with a spreadsheet analyzing three of Theranos' "cash-flow scenarios." But he says he doesn't remember what documents he used to prepare the spreadsheets for Holmes.

Lucas sent other spreadsheets in July 2011 to Holmes w/ "two current models" of revenues. He says he doesn't remember what the docs are, but adds "I don’t know that we Black Diamond developed the model. It's actually a pretty good model, it seems. I don’t think we prepared this."

Downey pulls up an email with a Black Diamond Venture employee mentioned. Lucas initially doesn't seem to remember the person. "You’re certainly taking me down memory lane. I’m seeing this person and I’m seeing them and I’m like ‘Oh my gosh, I forgot about that person!'”

In an Aug 2007 email, Lucas wrote Holmes that he agrees Theranos' docs "properly represent Theranos’ financial forecast based upon our discussions and assumptions." He adds, "let me know how I can further help you and the company. I’m very interested to do so, if you would like."

Lucas says his uncle resigned as chairman of Theranos due to health reasons in 2012 and he acknowledges that George Schultz took over. He also agrees that when he first invested in Theranos its stock was under a $1 a share and later investments were just under $3 per share.

Downey points out that in December 2013, Chris Lucas knew that Black Diamond Ventures' Theranos shares had grown in value from pennies to $75 per share and chose to purchase more at $75 per share.

I believe Downey is pointing out that Walgreens paid $50 million to Theranos for $15 per share at the same time Black Diamond Ventures was paying $75 per share in December 2013.

Chris Lucas wasn't aware of the price-per-share difference, and said it was the first time he saw Walgreens' terms with Theranos. "That was pretty exciting to see," he says.

Trial is taking a 30 minute break. Brb.

We're back! Holmes' counsel Kevin Downey pulls up a transcript from an early 2013 Safeway investor call. A Merrill Lynch analyst asks about Theranos, and then-Safeway CEO Steven Burd says the rollout delay is b/c Theranos wants to ensure the "infrastructure" can handle the tech.

(Burd testified earlier in this trial. ICYMI, here's one of two stories of mine on his testimony from a month ago.) law360.com/articles/14287…

Downey shows a form from Jan. 2014 indicating Black Diamond Venture's $5.35 million investment in Theranos. Under the entry is a line item showing that Boies Schiller Flexner LLP gave Theranos $4.84 million.

Downey points out that Black Diamond Ventures charges a 2.5% management fee and ~16% on profits of investments, and roughly 30 individual investors joined BDV's investment in Theranos. Lucas adds that the fees also went to helping cos grow if possible.

Downey wrapped cross, and John Bostic is up for the DOJ on redirect, and points out that Chris Lucas invested his personal funds in Theranos. Bostic also notes that Holmes was 21 in 2005, and not 19, which he thought. She was also 29 when BDV invested in 2013, Bostic notes.

Redirect was brief. Lucas said he got his info about the number of tests Theranos devices could perform "likely just from Elizabeth." On recross, Holmes' counsel gets Lucas to acknowledge that news articles on Theranos also influenced his decision to invest. His exam wrapped.

Up next: The government calls Dr. Lynette Sawyer, who served as Theranos' co-lab director from 2014 to June 2015. She says she left Theranos, b/c she "grew increasingly uncomfortable with the way things were done as a director."

Sawyer says she never set foot in Theranos' lab, was never invited there, never saw Theranos' blood-testing device, never reviewed data of Theranos' blood analyzers and wasn't told that Theranos was using blood-analyzers in the CLIA lab.

Sawyer says she only reviewed SOPs on "ordinary, FDA-approved assays" virtually and wasn't asked to review any SOPs related to Theranos' devices. She said generally she only had contact w/ a Theranos employee who sent her the paperwork.

Sawyer says Sunny Balwani hired her, but told her she was only needed for part-time work, and she was never introduced to the other co-lab director and never heard about the prior lab director, Adam Rosendorff. She's never met Holmes, she says.

Sawyer says she quit b/c she was "uncomfortable about the lack of clarity about the lab" and "I didn't have a person I could talk to about some of the issues I had w/ the SOPs." "It was a little uncomfortable because [Balwani] was a little pushy about it." Direct wrapped.

Lance Wade is up for Holmes on cross, getting Sawyer to acknowledge that she knew her job would be part time and "very temporary" and she never asked to visit Theranos or to go "on site."

Trial is breaking for the week. The jury left and prosecutors note that the gov't's next witness is lab director, Dr. Kingshuk Das, who defense counsel has tried (unsuccessfully) to block from testifying. Here's my coverage on that pre-trial battle. law360.com/articles/14148…

Prosecutor Robert Leach says there's likely going to be some debates about Das' testimony. Direct should last 1-2 hours, according to the gov't. Defense says Das' exam will be "one-long day." After Das, the gov't plans to call Theranos investor Alan Eisenman.

Judge Davila suggests that the parties meet Tuesday morning to discuss Das' testimony, but he notes that's going to take a couple of hours and he doesn't think Das' exam will be done by Wednesday for another witness. "I just don't see it realistically."

And that's all for this week! No Kissinger. No Murdoch. Not yet anyway.✌️

Black Diamond Venture exec testified Elizabeth Holmes gave him less than a month to decide whether to invest $5.4M due to Theranos' stock deal with Walgreens. Catch up with my recap of yesterday's trial action! law360.com/articles/14377…