Dickinson Wright Securities Enforcement Practice Chair Jacob Frenkel joins Yahoo Finance Live to discuss the verdict in the Elizabeth Holmes trial, factors that will influence the sentencing for the former Theranos CEO, and what the trial means for enforcing securities fraud.

Video Transcript

- In our hour here, we want to start with the high profile of corporate fraud trial in the case of Theranos' founder, Elizabeth Holmes, delivering four guilty verdicts in the way that the jury weighed on that one. Three counts criminal wire fraud and one count of conspiracy to commit wire fraud. Coming down yesterday, a stoic Holmes sitting there, staring forward as the verdicts were read.

Importantly, the Jury, unanimously found her guilty of illegally fleecing investors out of millions of dollars through her company. However, the jury was deadlocked on three counts of wire fraud. And she was found not guilty on four counts of defrauding patients. And for more on that, I want to bring on Jacob Frenkel here of Dickinson Wright securities enforcement practice chair who joins us.

And Mr Frenkel, I mean, when we look at it, obviously you are just telling us, it's a little interesting to see kind of the attention paid to a private company. But of course, it's the highest profile, I think ruling when it comes to a corporate fraud that we've seen in a long time. So what do you make of the ruling?

JACOB FRENKEL: I think the jury's verdict was probably the best possible verdict for the government. And the reason I say that is because the conviction was on the fraud counts, the total well over $100 million, which really sets up the judge to impose a high sentence.

By the jury being hung on certain charges, and also we're turning a not guilty verdict on other charges, it really shows that the jury took a time and effort to distinguish between the charges. So while there's always you know, either sides hope for a unanimous verdict in favor of that side. I think a verdict like this actually really is the best possible verdict for the government.

- What kind of sentencing are we talking about for Elizabeth Holmes. Every one of these charges carry with it about 20 years in jail. There's debates about whether, in fact, they could be served concurrently. Whether it is 20, whether it could be closer to 60. I mean, what are you-- what do you draw from this as we await the sentencing?

JACOB FRENKEL: Akiko, that's great-- that's a great question because we really never know what's in the judge's mind. But we also have a judge who's heard all of the evidence. The convictions are on the counts that under the federal sentencing guidelines, would suggest a maximum sentence would be imposed, typically in white-collar cases. I mean, Bernie Madoff is the outlier exception

You know, we do not see sentences stacked upon each other, which is called running consecutive. So they're more likely to run concurrent on the counts. But I could easily see the judge impose a double-digit sentence here because we not only have the facts, the counts on which the jury returned, a verdict of guilty. But also, the message that the judge potentially will want to send in a case like this.

Because even though the charge was wire fraud, essentially what you have is securities fraud. Defrauding investors in an amount that totaled well over $100 million. And doing it in the context of a company that's not yet publicly traded. So I think there are nuances to this case, that would weigh in favor of the judge imposing a fairly high sentence.

- It's a double digit-- double digits years to watch, obviously. An appeals process could drag out, and it could have a bit of a back and forth over, I guess what the final amount of time served will be. But when it comes to, I guess, historical precedent. Maybe Americans have out there for justice being served, maybe fears that some of it could get whittled down, Particularly, what we've seen as you said in the White collar criminal space. I mean, talk to me about how the appeals process you see going, what could shape up there?

JACOB FRENKEL: Yeah, the judge tried this case very carefully. I mean it's unlikely that an appeal would result in changing the sentence. I think one of the unanswered questions is whether the judge is going to remand Elizabeth Holmes into custody, either pending sentencing or after imposing sentence pending appeal, which is well within the discretion of the judge.

The judge was very careful in trying this case. So it's not terribly likely we're going to see any reversible error. Certainly, Elizabeth Holmes' lawyer is going to be jumping up and down, arguing for the appeal and putting their best foot forward. But the fact is, Elizabeth Holmes testified. That was a Gambit. And ultimately, the jury made its decision in large part based on whether it did or did not believe Elizabeth Holmes.

So I think the appeal is going to be tough sledding for the defense. And I think we're likely to see a sentence-- a real sentence imposed on her you know, at the end of the sentencing process. The other thing to keep in mind is that although she was acquitted on a number of counts and the jury was hung on a number of counts, the judge under the federal sentencing guidelines can consider all of the facts in imposing sentence.

And I think there, they will also build in the element, not just of her having defrauded investors. But her conduct vis-a-vis the patients as well.

- Jacob, there is an argument to be made here that what Elizabeth Holmes did, specifically with Theranos, isn't necessarily something that is unique, especially among these tech startups who are trying to raise a lot of money. Sort of inflating the claims until the facts actually catch up to those claims.

We heard from the DOJ several months ago saying they really want to crack down on white collar crimes. There are some policy changes that were announced back in November. How much of this you think could be a catalyst for tougher enforcement?

JACOB FRENKEL: I don't know about a lot about catalyst. But certainly, a confidence builder, I think had the government lost, there would have been a lot of head scratching as to you know, the theory around building some of these cases. But I do think there really is, and you hit it on the head with your introductions in that question Akiko, in terms of a message to Silicon Valley, to startups-- to companies that really do not fall within the act of regular scrutiny of for example the SEC.

On the other hand, there is a focus on-- in this case, misleading investors. Materially false and misleading statements that are being used for the purpose of inducing investors to invest. I think we've seen for a long time, a lot of Whether it be lackadaisical, lack of care, inadequate diligence when we're talking about companies, whether the unicorns privately held companies that are raising money that may not be subject to the same scrutiny.

The fact is, criminal laws apply. Securities laws apply. And I do think, you know, the US government will feel much-- I don't want say more confident. But we'll have a sense of reassurance that bringing these cases, regardless of whether it's a high profile defendant or not. When there is fraud, and it involves misleading investors, inducing investors to invest, that is-- we're going to see criminal prosecutions in the coming weeks, months, and years.