- The founder of startup HeadSpin was just sentenced to 18 months in prison for wire fraud and securities fraud.
- He admitted giving false financial information to investors and defrauding them of more than $100 million.
- Prosecutors said his sentence was a warning to other Silicon Valley executives who “keep faking it until they make it.”
The founder of a hot Silicon Valley startup has been sentenced to prison for a multimillion-dollar fraud scheme — a lesson prosecutors hope will serve as a lesson to other “fake it until you make it” entrepreneurs. thinking.
The Justice Department announced Friday that Manish Lakhwani, the former CEO of app testing company Headspin, was sentenced to 18 months in prison and three years of supervised release for wire fraud and securities fraud. did.
Ratchwani pleaded guilty to the charges in April 2023, admitting that he knowingly provided investors with false information about the company’s financials and customer base.
With these false documents, he defrauded investors out of more than $100 million from 2017 to 2020, according to the Department of Justice.
Lachwani founded a Software-as-a-Service company in 2015 that provides clients with software and tools to test mobile apps.
He served as the company’s CEO until he was fired in 2020 after the board launched an internal investigation into the company’s finances, The Information reported. The company is still operating under new leadership.
Ratchwani’s defense team said in a court filing: “While the court is referring to the ‘fake it ’til you make it’ mentality in Silicon Valley, Headspin has ‘succeeded’ in very real ways. However, Headspin’s investors may still feel disadvantaged.” It’s a very profitable exit. ”
But judges and prosecutors did not ignore the “faking” part of the equation.
“This defendant lied about his company’s revenues and customers in order to raise money from investors, including many in Silicon Valley,” U.S. Attorney Ismail J. Ramsey said in a statement from the Justice Department. I acknowledged that.” “Today’s ruling should send a message to other entrepreneurs who may be tempted to cross the line of fraud and ‘fake it ’til you make it.”
“We are committed to protecting investors, including the capital that powers Silicon Valley’s innovation, from startups that seek to misrepresent their finances and cut corners,” Ramsey said.
Mr. Ratchwani’s misconduct highlights how private startups can protect information from their backers.
Representatives for Lachwani and HeadSpin did not immediately respond to requests for comment from Business Insider.
