SEC.gov | SEC Charges Former CEO of Technology Company With $80 Million Fraud

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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SEC.gov | SEC Charges Hedge Fund Trader in Lucrative Front-Running Scheme

The Securities and Exchange Commission today announced fraud charges against Sean Wygovsky, a trader at a major Canada-based asset management firm, in connection with a long-running and lucrative front-running scheme that Wygovsky perpetrated in the accounts of his close family members, netting more than $3.6 million in illicit gains. 

According to the SEC’s complaint, from approximately January 2015 through at least April 2021, Wygovsky repeatedly traded in his family members’ accounts held at brokerage firms in the United States ahead of large trades that were executed on the same days in the accounts of his employer’s advisory clients. On over 600 occasions, Wygovsky allegedly bought or sold a stock for one his relatives’ accounts either before the client accounts began executing a large order for the same stock on the same side of the market, or during the time period when tranches of such a large order were being executed.  Then, typically before the client accounts completed their executions, Wygovsky allegedly closed out the just-established positions in his relatives’ accounts, nearly always at a profit.

“As alleged in our complaint, Wygovsky abused his position and his employer’s trust by front-running the very securities transactions that he was tasked with executing for his employer’s advisory clients,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Thanks to the SEC’s development and use of sophisticated data analytics tools, Wygovsky’s alleged scheme was uncovered and his efforts to evade detection by using family members’ accounts failed.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Wygovsky. 

The SEC’s complaint, filed in federal court in New York, charges Wygovsky with violating the antifraud provisions of the federal securities laws and seeks disgorgement of ill-gotten gains plus interest, penalties, and injunctive relief. 

The SEC’s investigation, which is continuing, has been conducted by Ann Marie Preissler, John D. Marino, John Rymas, and Simona Suh of the Market Abuse Unit and Melissa Coppola of the New York Regional Office.  The case has been supervised by Mr. Sansone.  The SEC’s litigation will be led by Ms. Preissler and Ms. Suh.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

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