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The Evolution of Criminal Part 1: A Modern Primer on Law Conspiracy Law and 1. The Evolution of Criminal Conspiracy Law in the ‘Flipping the Script’ in Described by the U.S. Supreme as an “elas- tic, sprawling and pervasive offense,”1 at its core, a United States v. Elizabeth Holmes conspiracy is an agreement between two or more per- sons to commit a .2 Phrased more succinctly, a conspiracy is a “partnership in crime.”3 The Supreme Court has repeatedly expressed the view that criminal pose a more significant threat to society et against the backdrop of the upcoming than offenses committed by individuals.4 In that vein, trials of founder Elizabeth Holmes and the Supreme Court has noted that criminal conspira- Sformer President and Chief Operating Officer cies are dangerous because the association of more Ramesh “Sunny” Balwani, with Holmes’ trial currently than one criminal actor makes it easier, and thus more set for October 2020 in San Jose, California, and likely, to attain a more complex criminal goal.5 Balwani’s to follow, this article on federal conspiracy The law of criminal conspiracy in the United law is presented in two parts. States is largely based on legislative enactments, not Part 1 explores the evolution of criminal conspir- . Unlike many common law that acy law in the United States, provides a short modern can be traced back to England, the birth of modern primer on how DOJ has used the flexibility of con- conspiracy law in this country has its primary roots in spiracy law to its advantage in the prosecution of statutes enacted during the Civil War, such as the first white collar crime, and presents some ways the laws targeting conspiracies to violate federal law or to can effectively challenge conspiracy charges. defraud the government.6 Part 2 considers how DOJ is expected to advance its Since then, Congress has enacted numerous addi- case against Holmes and Balwani by using the govern- tional criminal conspiracy statutes. One is the general ment’s built-in advantages of conspiracy law. Finally, the federal conspiracy statute, 18 U.S.C. § 371, which was article explores how the defense potentially can turn the enacted as part of Congress’s to modernize the tables on DOJ and try to weaponize conspiracy law and federal criminal code by consolidating two early conspir- concepts as a defense tactic: by putting the government acy statutes into one and incorporating Supreme Court on trial and creating a narrative for the of a “press / precedent into the statute.7 But Congress has also created government conspiracy.” specialized conspiracy statutes to address specific kinds

BY SARAH HALL, JOHN MITCHELL, AND BRIAN STEINWASCHER

34 NACDL.ORG THE CHAMPION of conspiracies, including white collar tors committed in furtherance of the of former WorldCom CEO, Bernard conspiracies. These include statutes conspiracy, regardless of whether that Ebbers, and the founder of the hedge criminalizing conspiracies to commit particular defendant participated in fund Galleon Group, Raj Rajaratnam. federal fraud offenses (such as wire those acts. In other words, even the least Ebbers was charged with, among other fraud, mail fraud, and involved co-conspirator may be crimi- things, conspiracy to commit securi- health care fraud), to violate civil rights, nally liable for co-conspirators’ foresee- ties fraud under § 371, based on his to commit money laundering, to violate able criminal conduct, exponentially agreement with WorldCom’s chief the Controlled Substances Act (includ- expanding the potential criminal liabili- financial officer to engage in a scheme ing drug trafficking), to commit acts of ty that each conspirator faces. to defraud the public by hiding , to use weapons of mass In line with this broad reach of WorldCom’s true financial perform- destruction, and to U.S. employ- conspiracy liability, a co-conspirator ance.19 Ebbers was convicted on all ees, among others.8 who joins a conspiracy after it begins is charges by a jury, and his Although these statutes all share the liable for the substantive offenses the and were upheld on appeal.20 fundamental basis for a conspiracy — an other co-conspirators committed Similarly, Rajaratnam was charged agreement between two or more people through every moment of the conspir- with four counts of conspiracy to 14 to engage in a criminal act — they vary acy’s existence. Thus, a co-conspirator commit securities fraud under § 371; THE EVOLUTION OF CRIMINAL CONSPIRACY LAW in other ways. For example, the general remains liable for all foreseeable crimi- the alleged that he had conspiracy statute, § 371, requires proof nal acts committed in furtherance of agreed and worked with others to of an “” in furtherance of the the conspiracy, regardless of how active trade on insider information.21 conspiracy, i.e., some affirmative step he or she is in the conspiracy, unless Ultimately, Rajaratnam was convicted taken by at least one of the conspirators the co-conspirator can affirmatively on 14 counts of securities fraud and to advance the criminal scheme, even if demonstrate a withdrawal from the conspiracy and sentenced to 11 years the overt act itself is legal,9 such as a conspiracy, either by informing the in prison; his conviction and sentence phone call.10 By contrast, many of the authorities or communicating the were affirmed on appeal.22 more specific statutes, such as 18 U.S.C. withdrawal to the other conspirators.15 However, DOJ’s decision to charge § 1349 (conspiracy to commit fraud Regardless, even after withdrawal, the conspiracy offenses does not always offenses, including mail and wire fraud), individual remains liable for the rea- guarantee that the government will do not require proof of an overt act in sonable foreseeable crimes committed convict. One notable example of gov- order to obtain a conviction.11 in furtherance of the conspiracy during ernmental overreach in the conspiracy The various conspiracy statutes the time that individual was a context can be seen in the “Chicago also have different statutory maximum member.16 This is true even if the pre- Eight” case. Following the in sentences. Section 371 has a relatively withdrawal crimes are substantial and Chicago surrounding the 1968 short statutory maximum of five years the withdrawing co-conspirator’s role Democratic National Convention, the imprisonment. Other conspiracy in the conspiracy was minimal.17 government brought charges against charges carry a heavier punishment, Other Supreme Court decisions eight demonstrators for conspiring to such as conspiracy to commit money have narrowed criminal conspiracy use interstate commerce with intent to laundering, with a statutory maximum law. Many seasoned defense attorneys incite a in violation of the anti-riot of 20 years imprisonment, and con- are familiar with the “hub and spoke” provisions of the then newly enacted spiracy to commit health care fraud if challenge to a prosecutor’s attempt to Civil Rights Act of 1968.23 The defen- the violation results in death, with a join multiple but distinct conspiracies. dants, known initially as the “Chicago statutory maximum of life imprison- This defense tactic has its roots in Eight,” and later as the “Chicago Seven” ment.12 Thus, federal prosecutors can Kotteakos v. United States, in which the after an early mistrial of one of the choose from a diverse arsenal of specif- Supreme Court held that where there defendants, had little connection ic statutes with higher statutory was one central defendant (the “hub”) among themselves other than having imprisonment ranges to increase the who engaged in several similar but dis- attended some of the same rallies and potential sentences of criminal con- tinct conspiracies with separate defen- planning meetings. Nevertheless, the spirators without having to fall back on dants who were not connected to each government charged that a conspiracy the general conspiracy statute. Indeed, other (the “spokes”), each defendant existed because the defendants had a § 371 is considered to have a low statu- must be charged with the central “tacit understanding” of a common tory maximum, especially for serious defendant in a separate conspiracy.18 goal of promoting a riot.24 The defen- fraud where the defen- Prosecutors can successfully charge a dants were acquitted of the conspiracy dant’s U.S. Sentencing Guidelines cal- single, overarching conspiracy only if charges, delivering a blow to the gov- culation commonly exceeds the five- each “spoke” defendant agreed with ernment’s attempt to string together year statutory maximum of § 371. each other “spoke” defendant to partic- these disparate demonstrators as co- The Supreme Court has played a ipate in the same scheme, creating a conspirators.25 The takeaway here is large role in the development of crimi- “rim” between the spokes. Thus, that federal prosecutors must do more nal conspiracy law, in some instances Kotteakos limits conspiracy liability, than simply show a common intent broadening conspiracy law and, in oth- restricting the benefits, discussed when trying multiple defendants under ers, narrowing it. Every law student below, that prosecutors can secure a — they must show learns of Pinkerton liability, first from charging multiple defendants an actual agreement. The particular dif- announced in the Supreme Court case with a single, wide-ranging conspiracy. ficulties of proving an actual conspira- Pinkerton v. United States.13 In Pinkerton, There is no shortage of examples torial agreement in cases where the the Court held that any member of a of successful conspiracy prosecutions defendants act in a “siloed” manner is conspiracy is liable for the foreseeable in the white collar context. A few explored in Part 2 of this article, the criminal acts of his or her co-conspira- notable cases include the prosecutions Theranos case study. As detailed below,

NACDL.ORG APRIL 2020 35 Holmes and Balwani occupied distinct First, the government frequently only needs to show by a mere preponder- and separate roles within the operation relies upon the expansive scope of crimi- ance of the the existence of the of the company and the alleged fraud, nal conspiracy law because a conspiracy conspiracy, the defendant’s and co-con- potentially posing challenges for the — an agreement — is often easier to spirator’s participation in the conspiracy, government to prove they entered into prove than the underlying substantive and that the statement was made during a conspiratorial agreement. offenses. The government also does not and in furtherance of the conspiracy.35 have to prove a formal agreement among The contents of the statement itself can 2. Commonly Charged the conspirators — any meeting of the be enough to satisfy the government’s Conspiracy Offenses in minds is enough.30 Indeed, the govern- evidentiary burden.36 This rule is broad White Collar Crime Cases ment can bring conspiracy charges so as to encompass not only out of court Two federal conspiracy statutes whether or not the underlying substantive oral declarations, but also “records, merit special attention in the white col- offense even occurred.31 The government notes, recordings, and other documents lar context: 18 U.S.C. §§ 371 and 1349. has successfully prosecuted criminal con- completed by a co-conspirator.”37 DOJ has charged these fraud-based con- spiracy cases against a single defendant Third, conspiracy charges also per- spiracy statutes in many notable white where the co-conspirators were not pres- mit the government to charge multiple collar cases. For example, all four con- ent at trial. For example, federal prosecu- defendants in one indictment, enabling spiracy counts against Raj Rajaratnam tors charged Zacarias Moussaoui, one of the government to try numerous defen- for insider trading were brought under the terrorists convicted in the September dants together, regardless of their varying § 371, as was the conspiracy count 11 attacks, with five separate conspiracy roles in the conspiracy.38 Not only does brought against Bernard Ebbers for counts, ranging from aircraft piracy to trying multiple defendants together in a joint trial reduce prosecutors’ workloads when compared to individual trials, but Charging a conspiracy provides prosecutors it also permits prosecutors to show the jury the full breadth and scope of the with significant advantages, but defense alleged criminal enterprise. To defen- dants’ chagrin, a trial in which several co- lawyers have opportunities to fight back. conspirators are sitting next to each other at the defense table often causes securities fraud based on WorldCom’s murder of government employees, but no evidence to “spill over” between the false SEC filings. , the for- substantive counts. Moussaoui was tried defendants, creating a “guilt by associa- mer CEO, was also charged under alone, because his co-conspirators either tion” dynamic. Indeed, the Supreme § 371 for conspiring to commit honest were dead or outside of the country.32 The Court itself has cautioned that the join- services fraud in violation of 18 U.S.C. government’s core theory was that der of defendants in criminal cases may §§ 1343 and 1347.26 Moussaoui was a member of the group of make it more difficult for to distin- But the government also frequent- terrorists that planned and carried out the guish between the more and less culpable ly relies on § 1349 to obtain convic- attacks, even though he ultimately did not defendants.39 Yet rarely permit the tions for conspiracies including those personally take part in piloting or hijack- severance of co-conspirators who can be to violate the wire fraud and health ing any of the aircraft. The government’s tried together.40 It was somewhat surpris- care fraud statutes. This conspiracy use of conspiracy charges resulted in ing then, in March 2020, that the judge in statute allows the government to seek a Moussaoui pleading guilty and receiving a the Theranos case ordered that the trials longer sentence than the five-year life sentence.33 Moussaoui’s case is addi- of the two defendants be severed. statutory maximum under § 371, and tionally relevant in the context of the Elizabeth Holmes will go to trial first in to do so without having to prove an Theranos case, discussed below, because October 2020 with Balwani’s trial to fol- overt act.27 Indeed, the government the two co-conspirators, Holmes and low.41 The judge did not explain his charged Holmes and Balwani with Balwani, will be tried alone for conspiring rationale, noting only that there was § 1349, conspiracy to commit wire with one another. “good cause” for the rare severance.42 fraud, in the Theranos case. Second, Federal Rule of Evidence Fourth, conspiracy charges may 801(d)(2)(E) provides that a co-conspir- span long time periods that exceed the 3. Built-In Advantages ator’s statements made in furtherance of statute of limitations of the underlying for the Government the conspiracy are not hearsay when substantive offense. Under general con- THE EVOLUTION OF CRIMINAL CONSPIRACY LAW Almost 100 years ago, in 1925, offered against the defendant.34 This gives spiracy law, the statute of limitations Judge Learned Hand referred to con- prosecutors a significant evidentiary begins to run at the time of the last act spiracy charges as “the darling of the advantage because they can admit into in furtherance of the conspiracy.43 By modern prosecutor’s nursery.”28 Sixty- evidence damaging and inculpatory charging a conspiracy offense, the gov- five years later, in 1990, not much had statements against defendants in a con- ernment can include conduct that changed, with the Seventh Circuit spiracy, even when those statements would have otherwise been excluded by observing that “prosecutors seem to might otherwise be inadmissible hearsay the statute of limitations. Although have conspiracy on their word proces- in other contexts. Under this govern- courts can exercise judicial review of sors as Count I.”29 There is good reason ment-friendly feature of evidence law, perceived overreaches in this area,44 for this view. Charging a conspiracy the defendant against whom the state- prosecutors may view a conspiracy provides prosecutors with several dis- ments are offered does not even need to charge as a way to expand the look-back tinct advantages. And as seen in Part 2 know that the statements had been made period and capture older conduct. In of this article, the government is likely during the conspiracy for them to be the Theranos case, however, the remain- to rely on many of these advantages in admitted into evidence. In order to ing charges in the current superseding the trials of Holmes and Balwani. admit such statements, the government indictment allege only that the criminal

36 NACDL.ORG THE CHAMPION conduct took place during the relatively introduction of the hearsay evidence (a “manifestly prejudicial.”50 Even in light brief time frame of 2013 to 2015. It is Vinson proffer); or (3) admit the hearsay of this stringent standard, defendants notable that the government could have statements subject to connection.49 If should strongly consider seeking sever- taken a more expansive approach to granted a hearing, the defense may gain ance — multiple trials not only increase capture more years of conduct. For significant insight into the government’s the government’s workload, but sever- example, DOJ could have defined the case, particularly if the court permits a ance permits the defendant who is to be time period of the conspiracy to include “mini-trial” about those statements. tried second to observe the first trial the years 2009 and forward — the time Second, the Federal Rules of and get a preview of the government’s period during which Holmes and Evidence offer impeachment opportuni- case and witnesses. If the first trial Balwani were both running Theranos ties to challenge the credibility of any results in an or only a convic- (Holmes founded the company in 2003 alleged co-conspirators. Rule 806 of the tion on some of the government’s and Balwani joined in 2009). In this Federal Rules of Evidence states: charges, the second defendant is well- way, DOJ would have more of the duo’s positioned to seek full or partial dis- lengthy and complex history to present When a hearsay statement — or missal of the government’s case, or to the jury in support of the conspiracy a statement described in Rule negotiate a favorable plea or some other charges. Although the government 801(d)(2)(C), (D), or (E) — has more favorable outcome. This is likely revealed at an April 2020 status confer- been admitted in evidence, the what Balwani will try to accomplish, as ence that it intends to seek a second declarant’s credibility may be his trial is scheduled after Holmes’s. superceding indictment and expand the attacked, and then supported, by time frame of the any evidence that would be Part 2: Case Study back to 2010, at present, no admissible for those purposes if such superceder has been handed up.45 the declarant had testified as a 1. The Government’s Advantages Fifth, the operation of conspiracy witness. The court may admit in Conspiracy Law as Seen law permits the government to seek evidence of the declarant’s in U.S. v. Elizabeth Holmes long sentences following a guilty plea inconsistent statement or con- A textbook case study that illumi- or conviction.46 In line with the duct, regardless of when it nates the prosecutor’s weapon of federal Pinkerton theory of vicarious liability occurred or whether the declar- conspiracy law are the upcoming trials of for a co-conspirator’s conduct, a defen- ant had an opportunity to Elizabeth Holmes and Ramesh “Sunny” dant’s sentence for a conspiracy con- explain or deny it. If the party Balwani. Holmes famously founded viction can be based on the reasonably against whom the statement was Theranos in 2003 as a 19-year-old foreseeable conduct of co-conspirators admitted calls the declarant as a dropout. Balwani, as well as the defendant’s own.47 witness, the party may examine who joined the company in 2009, was the declarant on the statement Holmes’ right-hand man and boyfriend. 4. Opportunities for the Defense as if on cross-examination. As seen above, conspiracy law pro- Background vides the government with some signifi- (Emphasis added). If the govern- In June 2018, the U.S. Attorney’s cant advantages when pursuing a case. ment seeks to use the statements of Office for the Northern District of But all hope is not lost, and there are alleged co-conspirators, then the witness California announced the indictment of some opportunities for defense counsel proffering those statements may be Holmes and Balwani. According to the to combat conspiracy charges. cross-examined as if the original source original 2018 indictment, Holmes and First, the defense can ask for a pre- had testified. This cross-examination Balwani were charged with two conspir- trial hearing to determine the admissi- can be particularly fruitful if the alleged acies: a conspiracy to defraud investors bility of statements that the government co-conspirator statements are offered and a separate conspiracy to defraud intends to introduce against a defendant via recording. In these circumstances, doctors and patients. The charges detail as statements made by alleged co-con- the witness is left trying to explain the an alleged $700 million scheme involv- spirators in furtherance of the alleged alleged co-conspirator’s shortcomings, ing Theranos, a private health care and conspiracy. The defense can request such criminal history, and potentially other life sciences company with the stated a hearing pursuant to Federal Rules of unsavory impeachment material with- mission of revolutionizing medical labo- Evidence 104(a) and 801(d)(2)(E) and out the personal knowledge to minimize ratory testing through innovative meth- United States v. Vinson.48 In the Sixth the conduct. Also, in discovery, defense ods for drawing and testing blood and THE EVOLUTION OF CRIMINAL CONSPIRACY LAW Circuit, a court may choose one of three counsel should request impeachment interpreting the resulting patient data.51 alternatives when a defendant asks for a material for all alleged co-conspirators The government’s case focuses on hearing regarding the admissibility of a so that the declarant can be impeached alleged lies Holmes and Balwani told co-conspirator’s statement: (1) conduct pursuant to Rule 806 through the testify- investors and others to promote a “mini-hearing” outside the presence of ing witness, even if the testifying witness Theranos’ proprietary blood analyzer. the jury during which the court hears is a law enforcement agent. The defendants claimed the analyzer was the government’s proof that (a) the con- Third, as noted earlier, defendants able to perform a full range of clinical spiracy existed, (b) the defendant and charged with a conspiracy may be able tests using only a small drop of blood the declarant were members of the con- to have their trials severed and be tried taken from a finger stick, as opposed to spiracy, and (c) the statement was made separately, which, although rare, hap- the traditional venous arm-draw. The in furtherance of the conspiracy to pened with the trials of Holmes and defendants also represented that the determine the admissibility of the prof- Balwani. In the Ninth Circuit, for analyzer could produce results that were fered statements; (2) require the govern- example, there is a strong preference for more accurate and reliable than those ment to meet its initial burden of pro- joint trials, and severance will only be yielded by conventional blood-drawing ducing non-hearsay evidence before the granted where a joint trial would be methods. Theranos’ blood analyzer was

38 NACDL.ORG THE CHAMPION considered potentially revolutionary world, Holmes ruled supreme. She was inferences that Balwani, by way of this and stood to disrupt the blood testing the public face of the company, the main surveillance of the employees’ emails, market, which largely relied upon more fundraiser and the key contact for knew and understood that there were painful arm-draws and lengthier waiting investors. By contrast, in the “tiled” world, significant deficiencies with Theranos’ periods for blood test results. Balwani was alleged to be closely involved blood-testing machines. The indictment alleges that Holmes in overseeing the lab, where, based on the Second, given that Holmes and and Balwani knew that the analyzer had allegation that Theranos’ blood testing Balwani were romantically involved serious accuracy and reliability prob- machine never worked as advertised, the but not married, the government will lems but concealed that information and core of the fraud existed. The government likely seek to admit into evidence lied about it. According to DOJ, Holmes will likely seek to admit into evidence under the co-conspirator hearsay and Balwani defrauded potential statements made by each defendant and exception their off-duty statements — investors by using direct communica- will probably aim to marry them together without the hindrance for the govern- tions, marketing materials, statements to as the two sides of the same coin of fraud. ment of the marital privilege. However, the media, and financial statements to The defendants will likely try to dis- to admit them under the co-conspira- transmit their alleged misstatements. tance themselves from one another by tor hearsay exception, the government employing the standard executives’ will need to prove that such statements Charges defense of “I was too busy to know about were “in furtherance of the conspiracy” In the original indictment, Holmes the operation of the business at a granu- and not just idle domestic chit-chat.57 and Balwani were charged with 18 lar level.” Holmes may seek to distance Another major source of statements U.S.C. § 1349, conspiracy to commit herself from Balwani’s oversight of the are the pair’s SEC depositions, Holmes’ wire fraud against Theranos investors; lab, claiming she was too occupied with taken in July 2017, and Balwani’s a month six substantive counts of wire fraud raising capital and interacting with later. Although during her deposition, under 18 U.S.C. § 1343 relating to spe- investors to know about the problems Holmes uttered the words “I don’t know” cific investors; 18 U.S.C. § 1349, conspir- the company experienced with the blood more than 600 times, she made other key acy to commit wire fraud against doc- testing machines. Although this “dis- admissions, such as that Theranos tech- tors and patients; and three substantive tancing” argument may have more reso- nology was never deployed in the battle- wire fraud counts under 18 U.S.C. nance with a jury now that the trials field or used in medevac helicopters, as she § 1343 relating to specific patients and have been severed, the defense will still had allegedly claimed to investors.58 related advertising. not be able to get around Rule However, under the current superseding In February 2020, the court granted 801(d)(2)(E). When charged with a con- indictment, the government will be hard- the defendants’ motion to dismiss cer- spiracy, under Rule 801(d)(2)(E), any pressed to admit these as co-conspirator tain counts of the indictment, dismiss- “statement” made by Holmes or Balwani statements because the depositions did ing the § 1349 conspiracy to commit during and “in furtherance of” the con- not occur “during … the conspiracy”; wire fraud against doctors and patients spiracy will come into evidence against they took place in 2017, and the sole and the three related substantive counts the other even if the defendant had no remaining conspiracy count is alleged to of wire fraud relating to specific patients knowledge of or participation in the co- have ended in “approximately 2015.”59 and related advertising. conspirator’s statement.54 Rule 801(a) Hence, the government may just seek to defines “statement” broadly as “a per- admit statements from the SEC deposi- The Government’s Conspiracy Law son’s oral assertion, written assertion, or tions against each defendant individually Advantages Against Holmes and Balwani nonverbal conduct, if the person intend- under Federal Rule of Evidence The conspiracy law advantages for ed it as an assertion.” This includes any- 801(d)(2)(A) as party admissions, as DOJ in this trial are classic. thing written by the defendant, such as opposed to co-conspirator statements, and First, under Federal Rule of emails and notes. Hence, any emails or ask for an appropriate limiting instruction. Evidence 801(d)(2)(E)’s co-conspirator texts Balwani wrote about his knowledge exception to the rule against hearsay, of the problems with the blood analyzer 2. How Holmes and Balwani DOJ will likely seek to admit each defen- will be admissible against Holmes — Can Turn the Conspiracy dant’s statements into evidence against even if she never saw them or did not Tables on DOJ and ‘Put the other defendant. As described above, know about them at the time. the Government on Trial’ this rule of evidence defines certain co- Balwani in turn may try to claim he Given all the government’s built-in conspirator statements as not hearsay did not understand the significance of legal and evidentiary advantages that THE EVOLUTION OF CRIMINAL CONSPIRACY LAW and allows the government to admit into the blood testing machines’ failures, in accompany conspiracy charges, what evidence such statements against co- an attempt to cast doubt on whether he can the defense do to fight back? The conspirators if the statement “was made had the requisite to commit a strategy of putting the government on by the party’s co-conspirator during and crime. After all, Balwani did not have a trial is one way to try to turn the con- in furtherance of the conspiracy.”52 medical or laboratory background, but spiracy tables on DOJ. It is a time-hon- This evidentiary advantage will be rather only a background in IT and soft- ored defense strategy that aims to shift key for the prosecution because Holmes ware.55 Although at first blush, this “lack the focus of the trial away from the and Balwani are alleged to have been of comprehension” defense may appear defendants and onto the government’s somewhat compartmentalized in their to be a fruitful avenue for Balwani to failings. This strategy at its core tries to roles in the alleged fraud. Theranos has pursue, the jury will undoubtedly learn make the narrative of the trial about been described as having two worlds: a that Balwani instituted keystroke sur- errors made by the government in inves- “carpeted” world of the executive suite, veillance on Theranos employees, moni- tigating the case. It seeks to expose gov- which was Holmes’ domain, and a “tiled” toring their emails and activities on ernment missteps and highlight internal world of the lab, where Balwani and oth- Theranos computers.56 The government government inconsistencies or doubts ers were in charge.53 In the “carpeted” may ask the jury to draw reasonable about the evidence.

40 NACDL.ORG THE CHAMPION Holmes and Balwani appear to be The government’s arguments did Second, the defense has highlighted weaponizing this strategy. In November not gain traction with the court, and in alleged irregularities in how CMS and 2019, the defense won a motion to compel, November 2019, the district court FDA performed their regulatory func- which essentially expanded the govern- ordered DOJ to produce documents tions prior to the demise of Theranos. ment’s disclosure obligations to regulatory from FDA and CMS as part of its Rule 16 The defense has argued that “[e]vidence agencies beyond the traditional DOJ pros- discovery obligations.68 The order came of bias or procedural irregularities in ecution team.60 By way of background, the one day after a hearing at which Holmes’ the regulatory inspections that set in defense sought a wide range of documents attorneys accused FDA of destroying motion the collapse of Theranos go to from the U.S. Food and Drug documents, including emails of the for- the heart of the government’s case.”73 In Administration (“FDA”), the Centers for mer director of FDA’s diagnostic regula- support, Holmes’ attorneys have cited Medicare and Medicaid Services (“CMS”), tory division, in violation of preserva- reports of interviews of CMS and FDA and other federal and state regulators. tion orders.69 The motion to compel was employees who admitted that certain Among other documents, they sought all heavily litigated, with five hearings aspects of their regulatory activities of FDA’s and CMS’s internal and external between April 2019 and January 2020.70 regarding Theranos were “unusual.” communications about Theranos, and all Given Theranos’ regulatory problems The defense cited FDA employees who the agencies’ communications with Wall with FDA and CMS, why has the defense stated that the 2015 inspection of THE EVOLUTION OF CRIMINAL CONSPIRACY LAW Street Journal investigative reporter John focused on these documents, and what in Theranos was unusual in that compli- Carreyrou. The defense argued that they them could be helpful to the defense? This ance officers and subject matter experts were entitled to these documents as poten- hard-fought battle over the regulators’ were sent to the inspection. CMS tially exculpatory Brady material and files appears to be part of a defense strate- employees interviewed in the investiga- under Federal Rule of gy to put the government on trial. Three tion stated that it was unusual that CMS 16(a)(1)(E) as items “material to preparing viable defense themes stand out. central office personnel attended the the defense.” They also claimed that DOJ First, the defense appears to be try- Theranos inspection.74 Although these “cherry-picked” certain FDA and CMS ing to show that there were internal gov- “irregularities” standing on their own documents to make its case, and the ernment disagreements and inconsisten- may not directly cast doubt on the defense needed a complete set of docu- cies about the federal regulatory strength of the government’s evidence, ments to mount a defense.61 approach to Theranos. As noted above, enough deviations from standard pro- But what is the significance of FDA the superseding indictment alleges that tocol could cause the jury to question and CMS to the case? Regarding FDA, the the defendants represented to investors the integrity of the government’s superseding indictment alleges that the that Theranos did not need FDA motives and whether Theranos was defendants represented to investors that approval for its blood analyzer, but in treated fairly. Theranos did not need FDA approval for reality, the FDA had required the Third, the defense appears to be try- its blood analyzer (but rather was apply- approval. The defense has focused on ing to craft a narrative that FDA and CMS ing for approval on a voluntary basis), but one FDA employee who allegedly con- engaged in something akin to a “govern- in reality, FDA had required Theranos to ceded that it was “debatable” whether ment/press conspiracy” with Wall Street apply for approval.62 According to media Theranos’ blood analyzer actually need- Journal investigative reporter John reports, Theranos submitted various ed FDA approval. Holmes’ attorneys Carreyrou, with the ultimate objective of applications to FDA, receiving approval have also claimed that they are aware of destroying Theranos and putting the on only one rarely used herpes test.63 The at least one other FDA employee who defendants behind bars. As has been wide- other agency, CMS, has oversight authori- “took a different position” on whether ly reported, Carreyrou developed several ty over clinical laboratories, and Theranos FDA regulatory approval was needed.71 former Theranos employees as whistle- is alleged to have sent CMS results derived In the possible treasure trove of addi- blower sources that led him to expose the from commercially available Siemens tional FDA documents the court has alleged fraud. The defense has argued and blood testing machines, not from the ordered be produced, the defense may may attempt to show at trial that Theranos machines. Additionally, CMS find more FDA dissenters.72 The defense Carreyrou unduly influenced the different performed a surprise on-site inspection will likely comb through the documents, federal agencies that regulated and inves- and Theranos personnel are alleged to looking for internal government incon- tigated Theranos to the point that the fed- have intentionally taken inspectors to cer- sistencies and government regulators’ eral government developed an animus tain labs, but not the key fingerstick lab. doubts about whether the Theranos against the company. Holmes’ attorneys After the on-site inspection, CMS revoked blood analyzer really needed FDA appear to be trying to make Carreyrou the the lab’s charter.64 approval. DOJ’s worst nightmare is the “bogeyman” and have argued that he was The government fought the effort to defense calling as witnesses a parade of “eager to break a story … and was exerting obtain these FDA and CMS documents, FDA bureaucrats, each with a different influence on the regulatory process in a claiming that “Defendants’ speculative point of view as to how (or if) Theranos way that appears to have warped the agen- bias theory regarding FDA and CMS is should have been regulated. Showing cies’ focus on the company and possibly too far afield from the subject matter of internal government disagreement and biased the agencies’ findings against it.”75 the government’s case in chief.”65 inconsistencies about the federal regula- In support of this theory, the defense cited Additionally, DOJ pointed out that the tory approach to Theranos may help the a report of an interview with an FDA government had already produced defense plant the seed in the mind of the inspector who inspected Theranos in approximately 300,000 pages of CMS jury that if the government bureaucrats 2015. The inspector allegedly stated that and FDA documents (out of a total of 20 cannot agree whether the blood analyzer the details of the complaint that led to the million pages of overall materials).66 At should have been regulated, then the inspection were the same as what oral argument, the prosecutor argued defendants’ statements to investors that Carreyrou had reported in the Wall Street that the case is “not about the FDA,” but Theranos did not need FDA approval Journal, and that she probably had read rather is a wire fraud case.67 were not a crime. the article before the inspection.76

NACDL.ORG APRIL 2020 41 Although this strategy is far from a sure conspiracy); 18 U.S.C. § 1956(h) (money Raj Rajaratnam Is Released From Prison Two winner, it could inject reasonable doubt in laundering conspiracy); 18 U.S.C. § 2332a(a) Years Early, Bloomberg.com (Sept. 6, 2019), the jury’s mind and find resonance with a & b(a) (terrorism and WMD conspiracies); 21 https://www.bloomberg.com/news/ Silicon Valley jury that may be disinclined U.S.C. § 846 (drug trafficking conspiracy). articles/2019-09-06/galleon-s-rajaratnam to trust the government. 9. See, e.g., United States v. Tuohey, 867 -free-from-prison-after-almost-eight-years F.2d 534, 537 (9th Cir. 1989) (“The overt act (reporting that Rajaratnam was released Conclusion need not be criminal itself.”). two years early, in 2019, under the First 10. See, e.g., United States v. Mason, 479 Step Act, to home confinement due to his Should Holmes and Balwani pro- F. App’x 397, 398 (2d Cir. 2012). age and health). ceed to trial, expect the government’s 11. See, e.g., Whitfield v. United States, 23. See Bruce Ragsdale, The Chicago presentation of evidence to be a text- 543 U.S. 209, 219 (2005) (citing 18 U.S.C. Seven: 1960s Radicalism in the Federal book exposition of the many advan- 1956(h)); United States v. Shabani, 513 U.S. Courts, Federal Judicial Center, at 4 (2008). tages it enjoys when it brings conspir- 10, 13-14 (1994) (citing 21 U.S.C. 846). 24. Id. at 15. acy charges. The defense will undoubt- 12. 18 U.S.C. § 371; 18 U.S.C. § 1956(h); 25. Id. edly fight back vigorously and likely 18 U.S.C. §§ 1347, 1349. 26. Skilling was convicted of the will try to “flip the conspiracy script” 13. Pinkerton v. United States, 328 U.S. conspiracy and other substantive counts, by putting the government on trial 640 (1946). but later had his conviction reversed by the and asking the jury to see the case 14. See Smith v. United States, 568 U.S. Supreme Court based on its narrowing of as a “government/press conspiracy” 106, 111 (2013) (“Since conspiracy is a the statute. Skilling v. against the company and the defen- continuing offense, a defendant who has United States, 561 U.S. 358, 358 (2010). dants. At the end of the day, the trials joined a conspiracy continues to violate the 27. See, e.g., United States v. Roy, 783 of these two Theranos executives are law through every moment of [the F.3d 418, 419 (2d Cir. 2015) (per curiam) expected to provide an excellent lens conspiracy’s] existence, and he becomes (no proof of overt act requirement); see also through which to examine the advan- responsible for the acts of his co- 18 U.S.C. § 1349 (“Any person who tages and disadvantages to both the conspirators in pursuit of their common or conspires to commit any offense under government and the defense of prose- plot.” (citations and internal quotation this chapter shall be subject to the same cuting and defending federal conspira- marks omitted; alteration in original)). penalties as those prescribed for the cy charges in a white collar case. 15. United States v. Bostick, 791 F.3d 127, offense, the commission of which was the © 2020, National Association of 143 (D.C. Cir. 2015) (“To withdraw from a object of the attempt or conspiracy.”). Criminal Defense Lawyers. All rights conspiracy, an individual must come clean 28. Harrison v. United States, 7 F.2d 259, reserved. to the authorities or communicate his or 263 (2d Cir. 1925). her abandonment ‘in a manner reasonably 29. United States v. Reynolds, 919 F.2d Notes calculated to reach co-conspirators.’”). 435, 439 (7th Cir. 1990). 1. Krulewitch v. United States, 336 U.S. 16. See Smith, 568 U.S. at 111. 30. See, e.g., United States v. Acevedo- 440, 445 (1949) (Jackson, J., concurring). 17. United States v. Reed, 575 F.3d 900, 924 Hernandez, 898 F.3d 150, 161 (1st Cir. 2018). 2. United States v. Jimenez Recio, 537 (9th Cir. 2009) (“Once a conspiracy is 31. See, e.g., Salinas v. United States, 522 U.S.270, 274 (2003). established, only a slight connection to the U.S. 52, 65 (1997) (“It is elementary that a 3. United States v. Felix, 503 U.S. 378, conspiracy is necessary to support conspiracy may exist and be punished 389-90 (1992). conviction. The term slight connection means whether … the substantive crime ensues, for 4. See Charles Doyle, Cong. Research that a defendant need not have known all the the conspiracy is a distinct evil, dangerous to Serv., R41223, Federal Conspiracy Law: A conspirators, participated in the conspiracy the public, and so punishable in itself.”). Brief Overview, 1 (Jan. 20, 2016), from its beginning, participated in all its 32. See United States v. Zacarias https://fas.org/sgp/crs/misc/R41223.pdf. enterprises, or known all its details.”). Moussaoui, E.D. Va. No. 01-455-A, July 2002 5. Iannelli v. United States, 420 U.S. 770, 18. Kotteakos v. United States, 328 Superseding Indictment, https://www.fjc 778 (1975), quoting Callanan v. United U.S. 750 (1946). .gov/sites/default/files/2014/TRVAE026.pdf. States, 364 U.S. 587, 593-94 (1961); see also 19. See generally United States v. 33. See Bill Mears, Terrorist Zacarias United States v. Jimenez Recio, 537 U.S. 270, Bernard J. Ebbers, S.D.N.Y. No. 1:02-cr-01144- Moussaoui’s appeal of life sentence denied, 275 (2003) (explaining that conspiracies VEC-3, Third Superseding Indictment, CNN.com (Jan. 4, 2010), https://www.cnn pose a threat “because the combination in Dkt. No. 167. .com/2010/CRIME/01/04/us.moussaoui crime makes more likely the commission of 20. See United States v. Ebbers, 458 F.3d .conviction/index.html. THE EVOLUTION OF CRIMINAL CONSPIRACY LAW [other] crimes and because it decreases the 110 (2d Cir. 2006). 34. FED. R. EVID. 801(d)(2)(E) (a probability that the individuals involved 21. See generally Press Release, FBI New statement is not hearsay if “offered against will depart from their path of criminality.” York Field Office, Manhattan U.S. Attorney an opposing party and . . . made by the (internal quotation marks omitted)). Files Additional Charges Against Raj party’s co[-]conspirator during and in 6. See Charles Doyle, Cong. Research Rajarathnam and Danielle Chiesi (Feb. furtherance of the conspiracy”). Serv., R41223, Federal Conspiracy Law: A 9, 2010), https://archives.fbi.gov/archives/ 35. See Sean Lavin, Grace Manning & Brief Overview, 3-4 (Jan. 20, 2016), newyork/press-releases/2010/nyfo0 Alyse Ullery, Federal Criminal Conspiracy, 56 https://fas.org/sgp/crs/misc/R41223.pdf. 20910a.htm. AM. CRIM. L. REV. 905, 922 & nn. 108-11 (2019) 7. See H.R. Rep. No. 80-304, at 28-29 22. See Jonathan Stempel, Rajaratnam (citing, inter alia, Bourjaily v. United States, (1947) (discussing history of criminal fails to cut U.S. insider trading conviction, 483 U.S. 171, 175-76 (1980)). conspiracy law 18 U.S.C. § 371). sentence, Reuters.com (June 1, 2018), 36. Id. at 180-81. 8. See, e.g., 18 U.S.C. § 241 (civil rights https://www.reuters.com/article/usa 37. Id. conspiracy); 18 U.S.C. §§ 1114 & 1117 -crime-rajaratnam/rajaratnam-fails-to-cut 38. See FED. R. CRIM. P. 8(b) (joinder of (conspiracy to kill U.S. officers and -us-insider-trading-conviction-sentence defendants); United States v. Williams, 553 employees); 18 U.S.C. § 1349 (fraud -idUSL2N1T3103; Bob Van Voris, Galleon’s F.3d 1073, 1078-79 (7th Cir. 2009).

42 NACDL.ORG THE CHAMPION 39. See Kotteakos v. United States, 328 Holmes, et al., https://www.justice.gov/ https://abcnews.go.com/Business/theranos U.S. 750, 774 (1946). usao-ndca/us-v-elizabeth-holmes-et-al -ceo-elizabeth-holmes-600-times-broadcast 40. See Lavin, Manning, & Ullery, supra (Updated Nov. 19, 2019). -deposition/story?id=60576630. note 35 at 928 n.147 (collecting cases). 52. FED. R. EVID. 801(d)(2)(E). 59. Superseding Indictment, DE 39 ¶ 20. 41. Order Re Severance of Trials, DE 362. 53. The Inventor: Out for Blood in Silicon 60. Order Granting Motion to Compel, 42. Order Re Severance of Trials, DE 362. Valley, HBO documentary, 2019. DE 174. 43. See Fiswick v. United States, 329 U.S. 54. See, e.g., United States v. Daane, 221 61. Holmes’ Motion to Compel, DE 67 at 1. 211, 216 (1946) (under Section 371, “the F. App’x 508, 511 (9th Cir. 2007) 62. Superseding Indictment, DE 39 ¶ statute of limitations, unless suspended, (spreadsheets completed by co- 12(F). runs from the last overt act during the conspirator admissible against defendant 63. The Inventor: Out for Blood in Silicon existence of the conspiracy”). without evidence that defendant had Valley, HBO documentary, 2019. 44. See, e.g., United States v. Licciardi, 30 knowledge of the spreadsheets). 64. Id. F.3d 1127, 1133 (9th Cir. 1994). 55. , BAD BLOOD: SECRETS 65. United States’ Opposition to 45. Dorothy Atkins, Ex-Theranos CEO’s AND LIES IN A SILICON VALLEY STARTUP 73 (2018) Defendant’s Motion to Compel, DE 79 Criminal Trial Delayed Until October, Law360, (print version). at 10-11. (Apr. 16, 2020), https://www.law360.com/ 56. Id. at 296; The Inventor: Out for Blood 66. Id. at 3. whitecollar/articles/1263926/ex-theranos-ceo in Silicon Valley, HBO documentary, 2019. 67. Jody Godoy, Feds Say ‘Concise’ -s-criminal-trial-delayed-until-october?nl_pk= 57. See, e.g., United States v. Moran, 493 F. Charges Against Ex-Theranos Exec Suffice, c7a0ebe4-3379-4521-88ac-ab8873481643 3d 1002, 1010 (9th Cir. 2007) (statements Law360 (Jan. 14, 2020), https:// &utm_source=newsletter&utm_medium= made for “personal objectives” outside the www.law360.com/articles/1234389/ email&utm_campaign=whitecollar. conspiracy or as part of “idle conversation” feds-say-concise-charges-against-ex 46. See generally Lavin, Manning & are not admissible under the co-conspirator -theranos-exec-suffice. Ullery, supra note 35 at 928-930 and hearsay exception); United States v. 68. Order Granting Motion to Compel, accompanying notes. Maliszewski, 161 F.3d 992 (D.C. Cir. 1998) DE 174; Godoy, supra note 67. 47. See U.S. Sentencing Guidelines (court held that certain statements that were 69. Hailey Konnath, Feds Ordered To Manual § 1B1.3(a)(1)(A), (B), cmt. N.4 (U.S. offered under Rule 801(d)(2)(E) were not Hand Over Docs To Ex-Theranos CEO, Law360 Sentencing Comm’n 2018), https://www. shown to have been made in furtherance of (Nov. 6, 2019), https://www.law360.com/ ussc.gov/sites/default/files/pdf/guidelines the conspiracy, but amounted to nothing articles/1217700/feds-ordered-to-hand -manual/2018/GLMFull.pdf; see also United more than idle chatter between a husband -over-docs-to-ex-theranos-ceo. States v. Childress, 58 F.3d 693, 723 and wife); United States v. Santos, 20 F.3d 280 70. Dorothy Atkins, FDA Slams Theranos (D.C. Cir. 1995). (7th Cir. 1994) (mere idle chatter, narrative Execs’ ‘Unprecedented’ Doc Bid, Law360 (Jan. 48. 606 F.2d 149 (6th Cir. 1979). statements of past events, and superfluous 13, 2020), https://www.law360.com/articles/ 49. Id. at 152-53. casual conversations are not statements in 1233818. 50. United States v. Doe, 655 F.2d 920, furtherance of a conspiracy). 71. See supra note 61 at 19. 926 (9th Cir. 1980) (explaining that district 58. Superseding Indictment, Docket 72. Id. courts should grant severance only where Entry (“DE”) 39 ¶ 12(E); Taylor Dunn, Victoria 73. Holmes’ Reply in Support of Motion joinder is “so manifestly prejudicial that it Thompson, & Ashley Louszko, to Compel, DE 81, at 8. outweighs the dominant concern with Ex-Theranos CEO Elizabeth Holmes says ‘I don’t 74. Id. at 7. judicial economy”). know’ 600-plus times in never-before-broadcast 75. See supra note 61 at 16. 51. Press Release, DOJ, U.S. v. Elizabeth deposition tapes, ABC News (Jan. 23, 2019), 76. See supra note 73 at 7. n

About the Authors Sarah M. Hall is Senior Counsel in Thomp- John R. Mitchell is a Partner in Thompson Brian K. Steinwascher is an Associate son Hine’s White Col- Hine’s White Collar in Thompson Hine’s lar Criminal Practice, Criminal Practice, Business Litigation Internal Investiga- Internal Investiga- group in New York. tions & Government tions & Government His primary practice Enforcement group Enforcement group in focuses on health in Washington D.C. Cleveland. His crimi- care fraud, including THE EVOLUTION OF CRIMINAL CONSPIRACY LAW She represents cor- nal practice consists defending False porations and indi- of traditional white Claims Act (FCA) viduals in govern- collar criminal mat- cases. He has sub- ment investigations and prosecutions of NACDL MEMBER ters, internal corpo- stantial experience conducting internal alleged violations of the anti-fraud, pro- rate investigations, environmental crimes, investigations and defending clients’ inter- curement, FCPA, health care, securities, grand jury investigations and related ests in white collar crime and complex and criminal tax laws. administrative proceedings. commercial matters.

Sarah Hall John Mitchell Brian Steinwascher Thompson Hine Thompson Hine Thompson Hine Washington, DC Cleveland, Ohio New York, NY 202-263-4192 216-566-5847 212-908-3916 WEBSITE www.thompsonhine.com WEBSITE www.thompsonhine.com WEBSITE www.thompsonhine.com TWITTER @ThompsonHine TWITTER @ThompsonHine TWITTER @ThompsonHine

44 NACDL.ORG THE CHAMPION