SEC’s Fraud Case Against Silicon Valley-based Headspin, Inc.’s Former CEO, Manish Lachwani Is Ongoing
Securities and Exchange Commission v. HeadSpin, Inc., No. 5:22-cv-00576 (N.D. Cal.) filed January 28, 2022
Washington, DC (STL.News) The Securities and Exchange Commission announced settled fraud charges without a penalty against HeadSpin, Inc., a private technology company that made significant remedial efforts in the wake of an internal investigation into misconduct by its now-former CEO.
The SEC’s complaint, filed in the U.S. District Court for the Northern District of California, alleges that from at least 2018 through 2020, HeadSpin, through its former CEO Manish Lachwani, engaged in a fraudulent scheme to propel the Silicon Valley-based company’s valuation to over $1 billion by falsely inflating its key financial metrics and doctoring internal sales records.
According to the complaint, Lachwani controlled all important aspects of HeadSpin’s financials and sales operations, significantly inflated the value of numerous customer deals, and concealed this inflation by creating fake invoices and altering real invoices to make it appear as though customers had been billed higher amounts. Lachwani’s fraud unraveled after the company’s Board of Directors conducted an internal investigation which led to the CEO’s removal, a revised valuation down to $300 million, and remedial efforts including repaying investors.
HeadSpin’s remedial actions also included hiring new senior management, expanding its board, and instituting processes and procedures designed to ensure transparency and accuracy of deal reporting and associated revenues.
The SEC’s complaint alleges that HeadSpin violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Without admitting or denying the allegations, HeadSpin agreed to be permanently enjoined from violations of these provisions. The settlement is subject to court approval.
The SEC’s investigation was conducted by Erin E. Wilk and Ellen Chen, and supervised by Jennifer J. Lee and Monique C. Winkler of the San Francisco Regional Office. The SEC’s litigation against HeadSpin’s former CEO is ongoing and is being led by Marc Katz, David Zhou, and Ms. Wilk.