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Silicon Valley-based Indian-American tech entrepreneur who has pleaded guilty to wire and securities fraud charges was sentenced to 18 months in prison, and three years of supervised release after completion of his prison, announced United States Attorney office in California on April 19.
According to the press release Manish Lachwani, 47, of Los Altos, California who founded Silicon Valley-based HeadSpin in 2015 and served as its CEO until May 2020, was arrested and charged in 2021 with defrauding investors by overstating the startup’s revenue and other key financial metrics. His company Raised More than $100 Million.
Lachwani pleaded guilty on April 23, last year to two counts of wire fraud, and one count of securities fraud. He had been charged in a superseding indictment in August 2022 with wire fraud, securities fraud, and money laundering.
According to the press release HeadSpin to raise funds provided clients with software tools and access to remote devices to test mobile applications. Between April 2017 and April 2020, HeadSpin raised more than $100 million from investors. But Lachwani admitted that, to obtain that financing, he provided potential investors with information about the company’s business, customers, revenue, and finances that he knew was inaccurate.
For example, Lachwani admitted he sent potential investors financial information that he knew overstated HeadSpin’s revenue and annual recurring revenue (ARR), which is a measure of a company’s subscription revenue rate at a particular point in time, annualized to show revenue the company would expect to make, at that rate, over the course of a full year. Specifically, he admitted he knew the revenue and ARR figures he provided to investors were overstated because they included amounts from potential customers that had not agreed to pay subscription fees to HeadSpin, amounts that were more than real customers had agreed to pay, and amounts from customers that had stopped using and paying for HeadSpin’s services.
Lachwani also admitted that he knowingly sent HeadSpin’s accountant false information about customer contracts that was incorporated into HeadSpin’s financial statements, as well as invoices that he knew had been altered to show amounts that had not actually been invoiced to clients.
“This defendant admitted he lied about his company’s revenue and customers to attract funding from investors, including many in Silicon Valley,” said United States Attorney Ismail J. Ramsey. “Today’s sentencing should send a message to other entrepreneurs who may be tempted to cross the line into fraud and to ‘fake it until they make it.’ This Office is committed to protecting investors—including those whose capital powers the engines of innovation in Silicon Valley—from start-ups that misrepresent their finances and try to cut corners.”
In addition to sentencing Lachwani to prison, Judge Breyer also ordered Lachwani to pay a $1 million fine and scheduled a hearing for July 31, 2024, to address the issue of restitution.
