An Indian-origin former CEO of a technology company has been arrested in the US and charged with defrauding investors to the tune of $80 million by overstating the startup's revenue and other key financial metrics.
Manish Lachwani, 45, co-founder and former CEO of Headspin, was arrested on Wednesday on charges stemming from his years of fundraising for his mobile app, according to the Department of Justice (DoJ).
The federal complaint states that from 2015 to March 2020, Headspin, a mobile app testing platform, raised more than USD 100 million from investors.
The charges stem from a period of fundraising starting no later than November 1, 2019, when Lachwani allegedly “reported false revenue and overstated key financial metrics of the company.
“Among other information, Lachwani provided investors false information that overstated Headspin’s annual recurring revenue (ARR) – a key metric for evaluating the success of companies that provide “software as a service” – by approximately $51 to $55 million,” a DOJ statement reads.
Lachwani also reportedly, on multiple occasions, instructed employees to “include revenue from potential customers that inquired but did not engage Headspin, from past customers who no longer did business with Headspin, and from existing customers whose business was far less than the reported revenue,” according to the complaint.
The company’s unaudited financial statements were reviewed by an auditing firm in May 2020.
According to the complaint, the review concluded that Headspin’s cumulative revenues from inception through the first half of 2020 totalled 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, totalling approximately $15.9 million, instead of the $3.7 million net income originally reported by the company.
Before he co-founded Headspin, Lachwani made a name for himself when he developed the first operating system for Amazon’s tablet, the Kindle. He went on to help create Appurify, a mobile testing platform that Google bought in 2014, cbslocal.com reported.
Lachwani faces one charge of wire fraud and one for securities fraud, and both charges carry a maximum penalty of 20 years. A date for his first hearing had not been set.
