The Securities and Exchange Commission today charged Manish Lachwani, the former CEO of HeadSpin Inc., a Silicon Valley-based private technology company, with defrauding investors out of $80 million by falsely claiming that the company had achieved strong and consistent growth in acquiring customers and generating revenue.
The SEC's 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. According to the complaint, Lachwani, who allegedly controlled all important aspects of HeadSpin's financials and sales operations, significantly inflated 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.
"We allege that Lachwani misled investors into believing that HeadSpin had achieved a 'unicorn' valuation by winning hundreds of lucrative deals, including many with Silicon Valley's biggest and most high profile companies," said Monique C. Winkler, Associate Regional Director of the SEC's San Francisco Regional Office. "Companies and their executives must tell the truth when speaking about financial metrics that are material to the value of the business."
The SEC's complaint charges Lachwani with violating antifraud provisions of the federal securities laws and seeks penalties, a permanent injunction, a conduct-based injunction, and an officer and director bar.
The U.S. Attorney's Office for the Northern District of California today announced criminal charges against Lachwani.
The SEC's investigation, which is continuing, was conducted by Erin E. Wilk and Ellen Chen, and supervised by Jennifer J. Lee and Ms. Winkler of the San Francisco Regional Office. The SEC's litigation will be led by Marc Katz, David Zhou, and Ms. Wilk.
The SEC appreciates the assistance of the U.S. Attorney's Office for the Northern District of California and Federal Bureau of Investigation.
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