Lately, I’ve been thinking about Alan Eisenman, a Theranos investor and human cowboy boot. He’s rich, the kind of character Matthew McConaughey will play in about 15 years; on the stand, the hair was almost as white as the shirt, which was unbuttoned at the top. (No tie, of course.) He seemed like someone it would be fun to drink whiskey with, as long as he could talk.
In court, his sense of complaint was palpable: this man feels he has been made a mistake. “I think it was business fraud,” Eisenman said. “I think I was lied to and exploited.”[ads1];
It is easy to laugh at these investors, who commit a huge social sin: to demand a role (investor) they seem to be unqualified for (due to inability to do proper due diligence). It is a specific type of investor I constantly notice popping up again and again: the high net worth of an individual or family.
Now, during the period when Elizabeth Holmes was alleged by the government to have committed wire fraud, startups were one of the fastest growing sectors in the economy. At the same time, there was an explosion of family offices managing money for what one witness (and Theranos investor, worth $ 6 million) called “high-quality families.”
Most of these family offices had no business whatsoever in investing in the start-up of health care, and Eisenman and his family are no exception. They did not know what data to ask for and could not interpret the data they received. Holmes’ defense strategy is thus to paint these investors as naive who failed to do their due diligence.
Eisenman invested about $ 1.2 million in Theranos in 2006, following a five-minute phone call with Holmes. For a while, he received quarterly updates about Theranos, even though those meetings ended in 2010, and Holmes seemed to be tired of Eisenman harassing her for information. In an email, she even told him she wanted to buy him out and let him earn 5x on the investment. Eisenman did not take her up on it.
In fact, Eisenman had several opportunities to sell his Theranos shares, including those that would give him $ 20 million north of a $ 1.2 million investment. Each time, he declined and said he did not have enough information.
Amazingly, after all this, Eisenman invested in Theranos again – for $ 100,000 in 2013, which forms the basis of one of the government’s counts of electronic fraud. At this time, former Theranos auditor Danise Yam testified that Theranos had a dispute with its auditor, and that there had been no audited accounts since 2009. This is what the children call a “red flag”.
But Eisenman did not come cold to Theranos. He had a social connection – he was friends with the Holmes family’s financial adviser, who had also invested. In addition, his wife’s father, who had also invested, was friendly with Frist, who sat on the board.
Social heuristics seem to have played a heavy role in the family’s office investments; Henry Kissinger’s lawyer alone, Daniel Mosley, introduced Holmes to a number of investors: the Walton family, the DeVos family and the Cox family, among others. Mosley’s network invested $ 384 million, over half of the $ 730 million funding round.
Eisenman’s direct testimony went largely smoothly, but the cross – examination was unusually difficult. Judge Edward Davila repeatedly explained to Eisenman that the lawyers were allowed to ask the questions, and Eisenman’s job was to answer them. Eisenman was so uncooperative that he often demanded evidence to refresh his memory, even when the evidence in question was right in front of him, pulled up on the court monitors.
A particularly memorable exchange involved Kevin Downey, lawyer for Elizabeth Holmes, who asked Eisenman for an email from 2015. In the email, Sunny Balwani referred to a conversation he and Eisenman had in 2013 about Eisenman selling his shares. Eisenman was of the opinion that the email from 2015 misrepresented his conversation with Balwani in 2013. Downey asked if Eisenman had told Balwani that, at least three and maybe as many as five times. Eisenman somehow failed to answer this question, and seemed confused about what had happened in 2013 and what had happened in 2015.
Upon direct investigation, we had been shown several emails from Holmes and Balwani asking Eisenman to stop harassing them. Before we left court last week, Eisenman spoke to prosecutors to tell them about his travel plans. They advised him not to talk to them again. Less than 15 hours later, he sent an e-mail to a member of the prosecution team to ask how his testimony had gone. The agent in question called him to tell him not to talk to the government.
The next day, Eisenman sent an e-mail to the government again, telling them his travel plans, and got another scandalous phone call. Eisenman said he did not think the email was a big deal – he was just discussing his itinerary. That he had been told at least three times not to talk to the government seemed to have no bearing on him. Downey asked if it was up to him if the communication violated court rules.
“I’m a smart guy,” Eisenman said.
In 2010, Holmes sent the following email to Eisenman: “Alan. Your continued daily calls and emails after we have already told you several times that we have no further information we can disclose beyond what we have already shared with David [a fellow investor] is outrageous to us. “Eisenman went on to contact board members, including Bill Frist, the former senator, who was friendly with Eisenman’s father-in-law.
The juxtaposition of Eisenman’s behavior this weekend – refusing to listen, continuing to send unsolicited emails – with the emails we saw in court was striking.
Strange as his appearance was – almost a perfect demonstration of how the rich are used to the world bowing to their whims – and as flawed as his due diligence was, it does not make him any less a victim if he was lied to. It can be easier to make sacrifices for family offices, partly because they invest based on the family’s social life. And they can explain why Eisenman, when confronted with the investment contract he signed, said: “This is what we call the boilerplate, as you know as a lawyer.”
Eisenman’s next remark was that what was more important than the contract was the conversations he had with the principals. The paperwork is not the important part for him. He enjoys the social activity of being an investor. He’s not just angry at the money, although he’s probably angry at the money too. He is angry that he has been embarrassed – and his reputation has been shattered.
Which explains why he is so offended: here he is, out before God and all, and shows that he is a mark. And an annoying one, for that.