PALO ALTO, Calif. (KRON) – Manish Lachwani, co-founder and former CEO of technology company Headspin, was arrested today on charges of securities fraud and wire fraud, according to the U.S. Department of Justice.
According to a federal complaint, from November 2019 to the end of January 2020, Lachwani allegedly reported false revenue, overstated key financial metrics of the company and instructed employees to include revenue from potential customers that inquired but ultimately did not use Headspin, from past customers who no longer did business with Headspin, and from existing customers whose business was far less than the reported revenue.
Among other information, Lachwani allegedly provided investors false information that overstated Headspin’s annual recurring revenue by approximately $51 to $55 million.
In a May 2020 audit, Headspin’s revenues from the first half of 2020 totaled only approximately $26.3 million, instead of the $95.3 million originally reported by the company.
The review also calculated the cumulative net loss from Headspin’s inception through the first half of 2020, totaling approximately $15.9 million, instead of the $3.7 million net income originally reported by the company.
After the company discovered the overstated revenue and recapitalized the company’s investors, the valuation of the company dropped to approximately $300 million, from a high of $1.1 billion in late 2019.
Lachwani is charged in the complaint with one count of wire fraud and one count of securities fraud. If convicted of wire fraud, he faces a maximum sentence of 20 years in prison and a fine of $250,000. If convicted of securities fraud, he faces a maximum sentence of 20 years in prison and a fine of $5,000,000.
Founded in 2015, Headspin provides a remote service that allows customers to access mobile devices around the world and remotely test their applications across different communications networks and in different locations. Headspin earns revenue by selling subscriptions to its services, according to the complaint.
Lachwani acted as Headspin’s CEO from its inception until approximately May 2020.