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Feds Charge Co-Founder Of Palo Alto-Based Start Up With Fraud

PALO ALTO (CBS SF) -- The FBI arrested the co-founder and former CEO of a startup Wednesday on charges of securities and wire fraud, according to the Department of Justice.

Agents arrested 45-year-old Manish Lachwani, co-founder and former CEO of Headspin, on charges stemming from his years of fundraising for his mobile app.

The federal complaint states that from 2015 to March 2020, Headspin, a mobile app testing platform, raised more than $100 million from investors. The charges stem from a period of fundraising starting no later than Nov. 1, 2019, when Lachwani allegedly "reported false revenue and overstated key financial metrics of the company," according to the charges.

Screen Shot 2021-08-25 at 10.40.38 AM
Manish Lachwani discussing the app he developed, Appurify, at the Velocity 2013 conference

"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.

An audit in 2020 found that Headspin under-reported its cumulative net losses from its inception through the first half of 2020, stating the company lost only $3.7 million when records showed it lost t approximately $15.9 million. Following the revelation of the audit, Lachwani stepped down as CEO and the company returned $95 million to investors.

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 which Google bought in 2014.

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 by press time.

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