Tech CEO Off to Jail for Cooking the Books

The wave of tech fraudsters landing in the slammer rolls on. Elizabeth Holmes of Theranos infamy, crypto hustler Sam Bankman-Fried … and now Manish Lachwani, the ex-CEO of HeadSpin, an analytics startup he co-founded.

Lachwani inflated his company’s worth and misled venture capitalists (VCs) hungry to invest in the firm by controlling all financial decisions. An internal or third-party audit might’ve uncovered Lachwani’s crimes — like creating invoices and altering real ones — but the CEO kept company teams and its accountant in the dark on money coming in and going out.

“Lachwani was able to carry out his fraudulent scheme for years because he controlled and managed all the key aspects of HeadSpin’s financials and sales operations, and he kept HeadSpin employees in those different departments isolated from each other,” according to the Securities and Exchange Commission complaint against him. “For instance, virtually all the information provided to HeadSpin’s bookkeeper, including the supporting documentation for claimed revenue amounts, flowed through Lachwani.”

CEO Lies Were Enough to Make Your Head Spin!

HeadSpin was founded in 2015 in Palo Alto, California. It launched a subscription platform that “enables manual and automated app testing with a wide range of devices” such as phones and laptops, according to the company’s website.

From April 2017 to April 2020, Lachwani spearheaded an aggressive push to raise capital. “Lachwani admitted he sent potential investors financial information that he knew overstated HeadSpin’s revenue and annual recurring revenue (ARR),” according to the U.S. Attorney’s Office for Northern California. [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 instructed employees to include revenue from potential customers who hadn’t yet paid a dime to HeadSpin’s financial records. Investors were led to believe the company’s revenues were approximately $95 million in early 2020 when in reality they were only $26M. Among the VCs that invested in HeadSpin were Tiger Global, Google Ventures and Dell Technology Ventures.

18 Months to Think About What He Did Wrong

Lachwani pled guility to two counts of wire fraud and one count of securities fraud last spring. He was also charged with money laundering in a separate indictment in California.

And last week, the judge sentenced Lachwani to 18 months in prison, followed by three years of supervised release. Lachwani will also pay a $1 million fine and restitution, with the amount to be determined at a court date in June.