Thread by @eringriffith

🩸🩸Back in court today for US v Holmes.🩸🩸

The United States has called Christopher Lucas, nephew of famed investor Donald Lucas, whose firm Black Diamond Ventures was an early investor Theranos.

Chris Lucas founded the firm in 1998. Don Lucas introduced him to Holmes, who he said this about:

"She’s very passionate about the project. Very sincere in what she was trying to do. Worked all the time. It was all Theranos all the time for Elizabeth."

In 2006, Black Diamond Ventures invested $1.5m into Theranos. "It was certainly beyond a drawing on a napkin but we didn’t believe at that time that is was functional and fully developed."

In 2013, the firm invested $5.4 million. Holmes was his main source of info for Theranos. His uncle secondary. They frequently had meals together and knew each other socially. But "there was not a lot of transparency" about what was going on in the company, he said.

~ Checking the boxes ~ Prosecutor John Bostic asks about all the various (inaccurate) claims Theranos made about its technology, partnerships, expansion plans, accuracy, etc.

Was that an important factor in investing and why?

Every investor has gotten this list of questions.

We see a list of questions that Lucas emailed to Holmes in advance of the 2013 investment. He was pushing her on when investors could get a liquidity event.

Lucas was also wary of how quickly Theranos was trying to close the round.

Two weeks between opening the round and closing was "quite compressed."

Sound familiar to any VCs doing diligence today?? 👀

Why the urgency? Because Walgreens had to convert its $40m note to equity by the end of the year. Lucas says he supported that because "You want more ppl in the wagon helping fund the company."

This is a wire fraud case so we gotta talk about the actual, you know, money wires.

Lucas discusses the logistics of the wire transfer from Lucas's fund to Theranos, which, fun fact, is actually officially named Real-Time Cures.

US Atty John Bostic goes through all the legalese in the investment docs, since we know that the defense will try to use these disclaimers that say investors acknowledge risk and are sophisticated etc in its cross-exam.

Lol I sat in the overflow room today so I could type loudly with abandon, and it has 🥜Big Peanut Gallery🥜 vibes. Someone walked in, saw who was on the stand and said "another rich white guy?"

Lucas testifies that it was very unusual to invest without getting full financials from a portfolio company but he felt comfortable doing it with Theranos because of his relationship with Holmes.

Lucas testifies that the risk profile of his two investments in Theranos were very different: In 2006, it was early stage and high risk. By the latest stage 2013 deal, "the risk goes down and you would hope to have a higher certainty of return."

Why didn't Holmes want to give full financials to investors? Trade secrets.

"She was very concerned, and potentially rightly so, that what she was working on was very transformative and they did not want to have any information get out into the public domain...

"...so as to give one of her competitors a chance to crush the company before the company got to fruition."

Once again, we see the Parloff Fortune article.

At issue is not the fact that the article had inaccurate info (which Fortune later corrected), it's that Holmes sent it to so many investors.

"Great article!" Lucas says.

Lucas continues: "Very proud of the situation, proud we were involved, very proud of Elizabeth, the whole thing."

fortune.com/2014/06/12/the…

Lucas is now being cross-examined by Kevin Downey.

Did he engage in the normal process of assessing a company? "I don't remember how much diligence we did. This was a situation where Don had already been on the board ... obviously we felt very comfortable."

Downey asks if its customary for VC firms to retain a law firm for diligence in deals and whether Don Lucas or Pete Thomas of ATA Ventures, another Theranos VC investor, did so. Chris Lucas says he doesn't know.

Downey shows Lucas a list of standard due diligence documents - Corporate records, and IP lists, and material agreements, etc. Did Lucas look at these for Theranos? "No we did not conduct all of this."

Downey spends a lot of time on Theranos's patents and I'm not sure what the upshot is besides showing that having a patent is a positive for investors. Lucas says developing the technology is more important.

We're going on a break and counsel plans to talk about "that morning matter" which was a cryptic thing about "transactions" (????) before we return. No idea what it could be.

Oh man, all trial have been very careful about not breaking these threads and today I failed, this one is a mess. SORRY! It picks back up somewhere around here.

https://twitter.com/eringriffith/status/1456319970292342787

Anyway, I messed it up because I was closing this article about DILIGENCE, please read it! nytimes.com/2021/11/04/tec…

Once again we are shown a million-dollar investment amount with a 25 cents on the end - Downey asks Lucas to explain that and he offers up a "really? you want me to answer that?"

(The reason is to make it an even number of shares. Another example of this:

https://twitter.com/eringriffith/status/1455662973012234245

For the last 30 min or so we have done a deep dive into the minutia of Black Diamond's 2006 investment. Which funds, the closes, the co-investors, the price, the dollar amounts.

Downey tried to make the point that Lucas's rush to get into the late 2013 deal may have been to get in at a lower price since Theranos was also planning another round of funding at a higher price the next year.

Defense points out that Lucas got a 2.5% fee and 16% of the upside for investments he made on behalf of Hall Group into Theranos.

Black Diamond Ventures got similar terms on the investments made into Theranos on behalf of 30 individuals.

Defense made some points earlier about Holmes's age. Lucas incorrectly estimated her age as 19 when he first invested (she was 21). In re-cross, Bostic points out that she was 29 with a decade at the helm of Theranos by the time Lucas's second investment was made.

During that time, was Ms Holmes still your primary source of information about Theranos? Lucas says yes.

Lucas also testifies he didn't have any information about Theranos's financial situation before investing in 2013.

Downey back up for final questions to Lucas. We bring up the Fortune article once again, and highlight this bit. Bizarre, considering the validation reports referenced (I believe) are the falfisied ones with the pharma logos.

New witness for the last 30 minutes of the day. The US has called Lynette Sawyer.

She was a co-director of Theranos's California clinical lab between 2014 and 2015. Originally meant to be a fill-in for 2-3 mo.

So, Dr. Sawyer became co-director of the lab after Rosendorff left. She was told nothing about his departure. She never went to Theranos's lab. Never knew anything about it developing its own tests. Never heard of Edison, Minilab, or any of Theranos's labs.

She never met Elizabeth Holmes. She never met her lab co-director (the longtime dermatologist of Sunny Balwani). Her job was to sign Docusign documents that she had no ability to edit.

She never got reports about lab activities. She only saw documents about FDA-approved tests on regular blood analyzers. She had no understanding that Theranos was using its own devices on assays.

Whew.

She resigned in 2015 because she was "very uncomfortable about the lack of clarity about the lab" and who was in it. There was not even a person she could reach out to to talk about issues she had with the documents she was meant to sign off on.

Cross examination by Lance Wade. He's asking Sawyer about Laboratory Consulting Services, the company she worked for that was retained by Theranos. laboratoryconsultingservices.com

Sawyer testifies that she has worked part-time for other labs in the past and knew this was maybe 5 hours a week. Says she never asked to go on site at Theranos.

Jury is dismissed.

Prosecution says they anticipate calling the lab director who voided Theranos's tests.

Next week, in addition to Dr. Sawyer, we should hear from Kingshuk Das, another former lab director, as well as Alan Eisenman, an investor. The lawyers are fighting over admitting a CMS report as evidence. Lance Wade is arguing Dr. Das isn't relevant.

These lawyers have had four years to fight over what can and can't be discussed in front of the jury, yet here we are! Judge Davila expects two more hours of fighting over what Dr. Das can testify about next week 😭