The founder and CEO of HeadSpin, a US-based developer of mobile app testing software that counts corporates Dell, Telstra and Alphabet as investors, has been charged with fraud in the state of California.
The US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have charged Manish Lachwani with securities fraud and wire fraud, claiming he falsely inflated the company’s valuation and defrauded investors out of $80m by misleadingly claiming strong and consistent growth in its revenue and customer base.
Founded in 2015, HeadSpin has developed a software platform which allows customers to remotely test their apps on mobile devices across multiple communications networks in different locations around the world.
The SEC’s complaint alleges that Lachwani significantly inflated the value of customer deals and treated potential deal amounts as guaranteed future payments in discussions with customers.
After Headspin’s valuation had grown to over $1bn in a period lasting between at least 2018 to its February 2020 series C round, according to the SEC, the scheme came to light following an internal investigation by the company’s board revealing reporting issues, ultimately revising its valuation from $1.16bn to $300m.
Computing technology provider Dell’s corporate venturing unit, Dell Technologies Capital, had co-led HeadSpin’s $60m series C with Iconiq Capital in February 2020 with participation from Tiger Global Management.
The company’s $20m series B in 2018 had featured internet technology group Alphabet’s GV unit and Telstra Ventures, part of telecommunications company Telstra, as well as Iconiq Capital, EQT Ventures, NextWorld Capital, Battery Ventures, Nexus Venture Partners, Danhua Capital and a number of private investors, a valuation of $500m.
Monique Winkler, associate regional director of the SEC’s San Francisco Regional Office, said: “We allege that Lachwani misled investors into believing that HeadSpin had achieved a unicorn valuation by winning hundreds of lucrative deals, including many with Silicon Valley’s biggest and most high-profile companies.”
“Companies and their executives must tell the truth when speaking about financial metrics that are material to the value of the business.”
