Silicon Valley Start-Up Founder Manish Lachwani Sentenced To 18 Months For Wire Fraud And Securities Fraud

Silicon Valley Start-Up Founder Sentenced to 18 Months in Prison for Wire Fraud and Securities Fraud

SAN FRANCISCO – In a stark reminder that the tech industry is not above the law, Manish Lachwani, a 47-year-old tech entrepreneur from Los Altos, California, was sentenced to 18 months in prison for his role in a wire fraud and securities fraud scheme that duped potential investors into supporting his Silicon Valley-based software-as-a-service (SaaS) company, HeadSpin, Inc.

Lachwani, who founded HeadSpin in 2015 and served as its Chief Executive Officer until May 2020, pleaded guilty on April 23, 2023, to two counts of wire fraud, in violation of 18 U.S.C. § 1343, and one count of securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff and 17 C.F.R. § 240.10b-5. He had been charged in a superseding indictment in August 2022 with wire fraud, securities fraud, and money laundering.

According to his plea agreement, Lachwani provided potential investors with information about the company’s business, customers, revenue, and finances that he knew was inaccurate in order to obtain financing. He admitted to sending financial information that overstated HeadSpin’s revenue and annual recurring revenue (ARR), a measure of a company’s subscription revenue rate at a particular point in time, annualized to show revenue the company would expect to make over the course of a full year. He also admitted to sending HeadSpin’s accountant false information about customer contracts that was incorporated into HeadSpin’s financial statements, as well as invoices that he knew had been altered to show amounts that had not actually been invoiced to clients.

“This defendant admitted he lied about his company’s revenue and customers to attract funding from investors, including many in Silicon Valley,” said United States Attorney Ismail J. Ramsey. “Today’s sentencing should send a message to other entrepreneurs who may be tempted to cross the line into fraud and to ‘fake it until they make it.’ This Office is committed to protecting investors—including those whose capital powers the engines of innovation in Silicon Valley—from start-ups that misrepresent their finances and try to cut corners.”

The case is being prosecuted by the Corporate and Securities Fraud Section of the United States Attorney’s Office. Assistant U.S. Attorneys Lloyd Farnham and Noah Stern are prosecuting the case with assistance from Aarian Beiti. The prosecution is the result of an investigation by the FBI. The U.S. Attorney’s Office and the FBI thank the San Francisco Regional Office of the Securities and Exchange Commission for its assistance in the investigation.

Lachwani was sentenced to 18 months in prison, followed by three years of supervised release to begin after his prison term is completed. He was also ordered to pay a $1 million fine and scheduled a hearing for July 31, 2024, to address the issue of restitution.

The sentencing is a stark reminder that the tech industry is not immune to the consequences of white-collar crime. As the case demonstrates, the federal government is committed to holding accountable those who engage in wire fraud and securities fraud, and will continue to pursue those who attempt to defraud and disrupt the fair capital market system.