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.