The co-founder and former chief executive officer of a Silicon Valley startup has been arrested on charges of securities and wire fraud, the Department of Justice said Thursday.
Federal Bureau of Investigation agents arrested Manish Lachwani, former CEO and co-founder of Headspin, on charges in relation to his years of fundraising for his mobile app.
Lachwami, 45, is charged with defrauding investors as much as $80 million by falsely reporting the startup's revenue and other key financial metrics.
The startup's unaudited financial records were examined by an auditing firm in May last year.
Based on the review, Headspin''s cumulative revenues through the first six months of 2020 totaled only around $26.3 million -- instead of the $95.3 million originally disclosed by the company.
After the audit disclosure, Lachwani quit his post as Headspin chief executive and the startup returned $95 million to investors.
Before he co-founded Headspin in 2015, the India native Lachwani made a name for himself by developing the first software for Amazon's Kindle tablet.
Lachwami went on to help create Appurify, a mobile testing platform that Google acquired in 2014, cbslocal.com said.
The U.S. Department of Justice accused Lachwami of one count of wire fraud and one count of securities fraud. He faces a maximum sentence of 20 years imprisonment and a fine of $250,000 if convicted of associated crimes.
The U.S. Securities and Exchange Commission (SEC) has also filed a related civil lawsuit against Lachwami.
According to SEC, Lachwani had intended to enrich himself by selling $2.5 million of his company shares in a funding round during which the former CEO made misrepresentations to an existing HeadSpin investor.
The DOJ complaint suggests Lachwani's alleged fraud dates back to at least November 2019.
The SEC added that Lachwami's scheming were intended to help raise the fundraising round at a so-called unicorn valuation.
A legal counsel for Lachwani could not immediately be reached for comment.
HeadSpin said it has cooperated with the federal government's inquiry and will continue doing so.
After the overstated company revenue was revealed, HeadSpin was forced to slash its valuation to around $300 million, according to court documents.
