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Former CEO of buzzy tech startup hit with prison time for fraud

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Former CEO of buzzy tech startup hit with prison time for fraud
  • The founder of startup HeadSpin just got an 18-month prison sentence for wire and securities fraud.
  • He admitted he gave investors wrong financial information, defrauding them out of over $100 million.

The founder of a buzzy Silicon Valley startup was sentenced to prison over a multimillion-dollar fraud scheme — and prosecutors want it to be a lesson to other "fake it til you make it" entrepreneurs.

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

Lachwani pleaded guilty to the charges in April 2023, admitting that he had knowingly given investors wrong information on the company's financials and customer base.

Those false documents helped him dupe investors out of more than $100 million between 2017 and 2020, according to the DOJ.

Lachwani founded the software-as-a-service company — which gives clients software and tools to test out mobile apps — in 2015.

He served as its CEO until he was ousted in 2020 after the board launched an internal investigation into company financials, The Information reported. The company is still operating under new leadership.

Lachwani's defense argued in a court filing that "The Court has referenced a 'fake-it-till-you-make-it' mentality in Silicon Valley; HeadSpin has in a very real way 'made it' and HeadSpin's investors may still see a highly profitable exit."

But the judge and prosecutors would not let the "fake it" part of the equation slide.

"This defendant admitted he lied about his company's revenue and customers to attract funding from investors, including many in Silicon Valley," US prosecuting attorney Ismail J. Ramsey said in the DOJ's statement. "Today's sentencing should send a message to other entrepreneurs who may be tempted to cross the line into fraud and to 'fake it until they make it.'"

"This Office is committed to protecting investors—including those whose capital powers the engines of innovation in Silicon Valley—from start-ups that misrepresent their finances and try to cut corners," Ramsey said.

Lachwani's fraudulent behavior highlights how private startups can keep information from their backers.

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