Headlines that Matter for Companies and Executives in Regulated Industries
Former Theranos Executive Ramesh “Sunny” Balwani Sentenced to Nearly 13 Years
On December 7, 2022, Ramesh “Sunny” Balwani, a former Theranos executive, was sentenced to nearly 13 years in prison, and three years of supervised release, for defrauding investors and patients in connection to his role in the multimillion-dollar fraud involving Theranos and its former CEO, Elizabeth Holmes. Judge Davila reserved decision on restitution and asked the parties to confer on a date for a subsequent hearing on that point.
Balwani was convicted in July 2022 of 10 counts of wire fraud and two counts of conspiracy to commit wire fraud. Following his conviction, Balwani urged the court to sentence him to probation, arguing that he had lost millions by investing in Theranos and noting that he received only a $1 annual salary (in addition to a separate salary for his position on the Theranos board). Prosecutors, on the other hand, argued that Balwani should be sentenced to 15 years in prison and ordered to pay $804 million in restitution to Theranos investors who lost money.
Ultimately, Judge Davila found that 12 Theranos investor victims had lost a total of $120 million for the purpose of determining the appropriate sentencing guideline range.
On November 18, 2022, Judge Davila sentenced Holmes to an 11-year sentence. Holmes had been found guilty on four counts of defrauding investors in a separate trial. On December 2, 2022, Holmes filed a notice of intent to appeal her conviction and sentence. On December 5, 2022, Holmes also filed a motion for release pending appeal, which is available here.
Government Files Amicus Brief Seeking Supreme Court Review of False Claims Act’s Intent Element
On December 6, 2022, the federal government submitted an amicus brief urging the Supreme Court to grant certiorari and review the Seventh Circuit’s decision in US ex rel. Schutte v. SuperValu Inc. According to the government’s brief, the question presented is: whether and when a defendant’s contemporaneous subjective understanding or beliefs about the lawfulness of their conduct are relevant to whether they “knowingly” violated the False Claims Act (FCA).
Two whistleblowers alleged that SuperValu Inc. — a supermarket chain that operates more than 800 retail pharmacies — had submitted claims to government healthcare programs that knowingly overstated SuperValu’s “usual and customary” prices, leading to reimbursement greater than what SuperValu was lawfully entitled to receive.
In August 2021, the Seventh Circuit ruled that SuperValu’s allegedly excessive pricing was based on an “objectively reasonable” but incorrect interpretation of the governing legal requirements, suggesting that a defendant’s subjective intent does not matter because the intent requirement is objective and turns on the defendant’s knowledge of the falsity of its claims.
The Government’s amicus brief argues that such a ruling renders SuperValu’s subjective beliefs irrelevant in connection with FCA liability and that a defendant “cannot escape liability merely by showing that its claims were consistent with an objectively reasonable (but wrong) understanding of the law.”
The government’s amicus brief is available here.