The federal Securities and Exchange Commission (SEC) has charged the former chief of a Silicon Valley technology company with cheating investors out of $80 million by inflating data regarding customer acquisition and revenue, according to a press release.
A complaint federal prosecutors filed in U.S. District Court for the Northern District of California alleged that from at least 2018 through 2020, Manish 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,” the release stated.
The government alleged Lachwani “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,” according to the release
Lachwani’s scheme, according to the release, included creating fake invoices and altering real invoices to indicate they had been for higher amounts than they actually should have reflected.
At one point, the release stated, Lachwani sold $2.5 million in HeadSpin shares at prices inflated by his fraud.
The scheme collapsed after HeadSpin’s directors conducted an investigation that revealed the bogus customer records and resulted in a revision of the company’s valuation to $300 million from $1.1 billion, according to the release.
“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,” Monique C. Winkler, associate regional director of the SEC’s San Francisco Regional Office, said in the release. “Companies and their executives must tell the truth when speaking about financial metrics that are material to the value of the business.”
According to the website for Palo Alto, California-based HeadSpin, the company was founded “to address the need for a global testing, performance monitoring, and QoE management platform to help organizations assure optimal digital experiences across mobile and web delivery channels.”
The site further stated: “The HeadSpin platform is an industry first, providing a powerful, easy-to-use solution that enables development, QA, product, and operations teams to accelerate release cycles, build for complex real-world user environments, and know whenever any component of the system degrades or breaks — whether at the code, device, or network layer — anywhere in the world.”