Indian-origin pleads guilty to securities fraud for overstating revenue to investors

San Francisco [US], April 30 (ANI): An Indian-origin, former CEO of a Silicon Valley-based HeadSpin, has pleaded guilty in federal court in San Francisco to wire fraud and securities fraud charges for overstated revenue metrics to potential investors to lure investments into his company, according to the statement released by US State attorney office.
Manish Lachwani, 47, founded the company, HeadSpin, in 2015 pleaded guilty in San Francisco federal court on Thursday for his scheme to dupe potential investors into supporting his company, according to a statement
Between April 2017 and April 2020, HeadSpin raised more than USD 100 million from investors over multiple rounds of fundraising, leading to a valuation of approximately USD 1.1 billion. According to his plea agreement, Lachwani admitted that he disseminated false and overstated revenue metrics to potential investors to lure investments into his company.
"The plea agreement provides several details of the fraud. Lachwani acknowledged that while HeadSpin was raising money, he provided prospective investors with information about the company's business, customers, revenue, and finances," the statement read.
"Further, because HeadSpin was a software-as-a-service company, Lachwani knew that annual recurring revenue, known as "ARR," was significant to investors and their decisions about whether to invest in HeadSpin," the statement added.
According to the plea agreement, Lachwani admitted that he provided prospective investors with inflated ARR numbers and overstated revenue numbers. With respect to these metrics, Lachwani included amounts from potential customers that had not agreed to pay subscription fees to HeadSpin, amounts that were more than real customers had agreed to pay, and amounts from customers that had stopped using and paying for HeadSpin's services.
Lachwani maintained and controlled an ARR spreadsheet that contained this false information and which he shared with potential investors. In 2018, in connection with a round of fundraising, Lachwani sent a slide deck to investors that stated HeadSpin's ARR was more than USD 33 million as of the second quarter of 2018, though Lachwani knew the company's ARR was far less.
Lachwani is currently released on bond, according to the official statement.
The next hearing for Lachwani is scheduled for September 27, 2023, at 10:00 am.
The maximum statutory penalty for each count of wire fraud is 20 years in prison and a fine of USD 250,000. The maximum statutory penalty for securities fraud is 20 years in prison and a fine of USD 5 million, plus restitution if appropriate.
The case is being prosecuted by the Corporate and Securities Fraud Section of the US Attorney's Office for the Northern District of California. Assistant U.S. Attorneys Lloyd Farnham, Noah Stern, and Ross Weingarten are prosecuting the case with the assistance of Elizabeth Kim and Pat Mahoney, as per the statement. (ANI)