Silicon Valley start-up founder sentenced to 18 months for wire fraud and securities fraud

Stock photo: Dreamstime

Manish Lachwani, a tech entrepreneur who founded a Silicon Valley-based software-as-a-service (SaaS) company that got potential investors into supporting, was sentenced to 18 months in prison, following his conviction on wire and securities fraud charges.

The sentence was handed down by Senior United States District Judge Charles R. Breyer.

Lachwani, 47, of Los Altos, California, pleaded guilty on April 23, 2023, 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 his plea agreement, Lachwani founded HeadSpin, Inc. in 2015 and served as its Chief Executive Officer until May 2020. Among other things, HeadSpin 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.

In addition to sentencing Lachwani to prison, Judge Breyer ordered the defendant to serve three years of supervised release to begin after his prison term is completed. 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.



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