Co-founder and Ex-CEO of Calif. Start-Up Charged With Securities Fraud And Wire Fraud
- The Department of Justice and the Securities and Exchange Commission allege that Manish Lachwani raised millions in investments and overstated revenue to investors.
Manish Lachwani, co-founder and former CEO of digital experience intelligence platform developer HeadSpin, has been charged with securities fraud and wire fraud. The 45-year-old Indian American was the Palo Alto, California-based company’s CEO from its inception in 2015 until approximately May 2020. He was charged separately by the Department of Justice and the Securities and Exchange Commission.
The SEC complaint, filed in the U.S. District Court for the Northern District of California, alleges that from at least 2018 through 2020, Lachwani “engaged in a fraudulent scheme to propel HeadSpin’s valuation to over $1 billion by falsely inflating the company’s key financial metrics and doctoring its internal sales records.”
Lachwani allegedly controlled all important aspects of HeadSpin’s financials and sales operations. The complaint accuses Lachwani of significantly inflating “the value of numerous customer deals and fraudulently treated potential deal amounts that he had discussed with customers as if they were guaranteed future payments.”
The complaint alleges that Lachwani concealed this inflation by creating fake invoices and altering real invoices to make it appear as though customers had been billed higher amounts. As further alleged, Lachwani enriched himself by selling $2.5 million of his HeadSpin shares in a fundraising round during which he made misrepresentations to an existing HeadSpin investor.
According to the complaint, Lachwani’s fraud unraveled after the company’s board of directors conducted an internal investigation that revealed significant issues with HeadSpin’s reporting of customer deals and revised HeadSpin’s valuation down from $1.1 billion to $300 million.
Additionally, the U.S. Attorney’s Office for the Northern District of California announced criminal charges against Lachwani. If convicted of wire fraud, he faces a maximum sentence of 20 years in prison and a fine of $250,000. If convicted of securities fraud, he faces a maximum sentence of 20 years in prison and a fine of $5,000,000. If convicted of either count, Lachwani is required to pay restitution.