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Former CEO of Tech Startup Sentenced in Fraud Case

  • The founder of the startup HeadSpin has just been sentenced to 18 months in prison for electronic and securities fraud.
  • He admitted to giving false financial information to investors, defrauding them of more than $100 million.
  • Prosecutors said his conviction was a warning to other Silicon Valley executives who “fake it until you make it.”

The founder of a bustling Silicon Valley startup has been sentenced to prison for a multimillion-dollar fraud scheme — and prosecutors want it to serve as a lesson to other entrepreneurs in the “fake it till you make it” genre. that you succeed.”

Manish Lachwani, former CEO of app testing company HeadSpin, was sentenced Friday to 18 months in prison, plus three years of supervised release, for wire fraud and securities fraud, the Justice Department said.

Lachwani pleaded guilty to the charges in April 2023, admitting that he knowingly gave investors false information about the company’s finances and customer base.

These false documents helped him deceive investors into making more than $100 million between 2017 and 2020, according to the DOJ.

Lachwani founded the company Software-as-a-Service – which provides clients with software and tools for testing mobile applications – in 2015.

He served as CEO until his ouster in 2020 after the board launched an internal investigation into the company’s finances, The Information reported. The company still operates under new management.

Lachwani’s defense argued in a court filing that “the Court referenced a ‘fake it till you make it’ mentality in Silicon Valley; HeadSpin has, in a very real way, ‘made it’ and HeadSpin investors can still see a very profitable exit.”

But the judge and prosecutors didn’t let the “pretend” part of the equation slide.

“This defendant admitted to lying about his company’s revenue and customers to attract funding from investors, including numerous Silicon Valley investors,” U.S. Attorney Ismail J. Ramsey said in the DOJ statement. “Today’s sentence should send a message to other entrepreneurs who may be tempted to cross the line into fraud and ‘fake it until they make it’.”

“This office is committed to protecting investors, including those whose capital fuels the engines of innovation in Silicon Valley, from start-ups that misrepresent their finances and attempt to cut corners,” Ramsey said.

Lachwani’s fraudulent behavior highlights how private startups can hide information from their backers.

Representatives for Lachwani and HeadSpin did not immediately respond to a request for comment from Business Insider.

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