Ex-startup CEO pleads guilty to fraud charges
HeadSpin founder admitted duping potential investors
A former Silicon Valley tech startup CEO pleaded guilty to wire and security fraud charges in a San Francisco federal courtroom May 4, federal prosecutors announced.
HeadSpin founder and former CEO Manish Lachwani, 47 of Los Altos, admitted to misleading potential investors to garner financial support for his budding company, according to a news release from Ismail J. Ramsey, the U.S. attorney representing Northern California.
Lachwani started the Sunnyvale-based company, which provides clients with software tools and access to devices used to test their mobile applications, in 2015. From April 2017 to April 2020, he raised more than $100 million from investors, leading to a valuation of about $1.1 billion, prosecutors said.
Lachwani served as the company's CEO from its inception until May 2020. During that period, he provided investors with false and exaggerated metrics and revenue figures to gain their financial support, prosecutors said.
During multiple rounds of fundraising over multiple years, Lachwani claimed the company's annual recurring revenue numbers — the amount of revenue gained through annual subscriptions — were far higher than the actual, real figures.
In the plea agreement, Lachwani admitted to including amounts of money from potential customers that hadn't yet committed to subscribing to the company's services, exaggerating the amounts that customers did agree to pay and retaining the amount of money that previous customers that no longer subscribed to the service had paid before canceling their accounts.
Lachwani also submitted invoices to HeadSpin's bookkeepers that contained different monetary amounts than the invoices issued to customers.
The numbers on the altered invoices were then sent to investors in the form of financial statements.
Lachwani, who is currently out on bond, pleaded guilty to two counts of wire fraud and one count of security fraud.
His sentencing hearing was scheduled for Sept. 27. The maximum penalty for all three counts is 20 years per count in prison and as much as $5.5 million in fines. He could also be ordered to pay restitution and additional fines.
When asked for comment, a spokesperson for HeadSpin issued a statement to Bay Area News Group:
“Today's news confirms that HeadSpin and our board took appropriate steps in 2020 in response to Manish Lachwani's actions.
When these actions came to light, the HeadSpin Board swiftly implemented a series of measures, including replacing him as CEO, strengthening the leadership bench; appointing an external auditor; and implementing strong financial/internal controls and corporate governance practices. Since then, the company has fully cooperated with the DOJ and the SEC.”