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 Real Estate CEO With Defrauding Investors

The Securities and Exchange Commission today announced securities fraud charges against recidivist Michael Shustek, the CEO of several Las Vegas real estate investment trusts (REITs), and his wholly owned investment advisory firm, Vestin Mortgage LLC.

The complaint alleges that since at least 2012, Shustek fraudulently enriched himself and one of the REITs he controlled, The Parking REIT, at the expense of two publicly traded REITs that he earlier had founded, Vestin Realty Mortgage I (VRTA) and Vestin Realty Mortgage II (VRTB). According to the complaint, Shustek drained $29 million from VRTA and VRTB in order to funnel the money into The Parking REIT and later directed VRTA and VRTB to enter into a series of money-losing transactions in which the same six buildings were repeatedly re-sold, all to benefit himself and The Parking REIT. The complaint also alleges that Shustek deceived the boards of directors of VRTA and VRTB—and violated his fiduciary duties to those companies—in two separate securities transactions to get the companies to pay him almost $10 million. Finally, the complaint alleges that Shustek repeatedly misled investors by causing VRTA and VRTB to make false and misleading statements in their public filings, which hid his self-dealing.

"REIT executives have a responsibility to be forthright with investors about how their money is being spent," said Erin E. Schneider, Director of the SEC's San Francisco Regional Office. "As we allege in our complaint, Shustek deceived the REITs' boards of directors and shareholders to hide his repeated misuse of their assets to benefit himself."

The SEC's complaint, which was filed in the District of Nevada, charges Shustek and Vestin Mortgage with violating the antifraud provisions of the Securities Act, Exchange Act, and Advisers Act, and seeks disgorgement plus pre-judgment interest, penalties, permanent injunctions, and industry, penny stock, and officer and director bars against Shustek.

The SEC’s investigation was conducted by Ruth Hawley and supervised by Jeremy Pendrey and Monique C. Winkler, and the litigation will be conducted by Ms. Hawley, Marc Katz, and David Zhou, and supervised by Susan LaMarca, all of the San Francisco Regional Office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

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SEC.gov | SEC Awards More Than $3 Million to Whistleblowers in Two Enforcement Actions

The Securities and Exchange Commission today announced awards totaling more than $3 million to two whistleblowers in separate enforcement proceedings.

In the first order, the SEC awarded approximately $3.2 million to a whistleblower who alerted SEC staff to violations, identified key issues for staff to focus on, and provided subject matter expertise to the staff that conserved SEC resources.

In the second order, the SEC awarded a whistleblower more than $100,000 for significant information and ongoing assistance.  The whistleblower’s information and cooperation helped the SEC detect and stop an ongoing fraud preying on investors.

“These whistleblowers provided new, important information that aided the SEC in learning about and understanding the violative conduct,” said Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower.  “The continuing assistance and cooperation offered by whistleblowers can prove critical to the successful resolution of an enforcement action.”

The SEC has awarded approximately $816 million to 153 individuals since issuing its first award in 2012.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.  No money has been taken or withheld from harmed investors to pay whistleblower awards.   Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.

As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose any information that could reveal a whistleblower's identity.

For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.

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