Bulletins

Headspin co-founder charged with defrauding investors

The DOJ alleges that Headspin's former CEO overstated annual recurring revenue by over $50 million.

Headspin co-founder charged with defrauding investors
Photo by Vladimir Solomianyi on Unsplash

Headspin co-founder and former CEO Manish Lachwani was arrested Wednesday after the Department of Justice charged the app-testing startup's former CEO with securities fraud and wire fraud.

According to the complaint, Lachwani overstated the company's annual recurring revenue by over $50 million to raise money from investors over a five-year period. The complaint alleges that in Headspin's Series B deck, one slide said that the company's first quarter revenue was over $6 million, with a net income of $1.7 million. A financial audit found that the revenue was actually $1.3 million and that Headspin had suffered a loss of $274,250 that quarter instead.

The startup was once valued at over $1.1 billion after its Series C deal, which was led by ICONIQ and Dell Technologies, the complaint said. But Headspin has since had to return money to its backers and recapitalize its investor base, lowering its valuation to around $300 million. Lachwani is facing one count of securities fraud and one count of wire fraud, both of which carry a maximum sentence of 20 years in prison.

Biz Carson

Biz Carson ( @bizcarson) is a San Francisco-based reporter at Protocol, covering Silicon Valley with a focus on startups and venture capital. Previously, she reported for Forbes and was co-editor of Forbes Next Billion-Dollar Startups list. Before that, she worked for Business Insider, Gigaom, and Wired and started her career as a newspaper designer for Gannett.

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