Lying to Investors? Co-Founder of Startup 'HeadSpin' Gets 18-Month Prison Sentence for Fraud (sfgate.com) 28
The co-founder of Silicon Valley-based software testing startup HeadSpin was sentenced Friday to 18 months in prison and a $1 million fine, reports SFGate — for defrauding investors.
Lachwani pleaded guilty to two counts of wire fraud and a count of securities fraud in April 2023, after federal prosecutors accused him of, for years, lying to investors about HeadSpin's finances to raise more money. HeadSpin, founded in 2015, grew to a $1.1 billion valuation by 2020 with over $115 million in funding from investors including Google Ventures and Iconiq Capital... He had personally altered invoices, lied to the company accountant and sent slide decks with fraudulent information to investors, [according to the government's 2021 criminal complaint]...
Breyer, per the New York Times, rejected Lachwani's lawyer's argument that because HeadSpin investors didn't end up losing money, he should receive a light sentence. The judge, who often oversees tech industry cases, reportedly said: "If you win, there are no serious consequences — that simply can't be the law." Still, the sentencing was far lighter than it could have been. The government's prosecuting attorneys had asked for a five-year prison term.
The New York Times reported in December that HeadSpin's financial statements had "often arrived months late, if at all, investors said in legal declarations," while the company's financial department "consisted of one external accountant who worked mostly from home using QuickBooks." And the comnpany also had no human resources department or organizational chart... After Manish Lachwani founded the Silicon Valley software start-up HeadSpin in 2015, he inflated the company's revenue numbers by nearly fourfold and falsely claimed that firms including Apple and American Express were customers. He showed a profit where there were losses. He used HeadSpin's cash to make risky trades on tech stocks. And he created fake invoices to cover it all up.
What was especially breathtaking was how easily Mr. Lachwani, now 48, pulled all that off... [HeadSpin] had no chief financial officer, had no human resources department and was never audited. Mr. Lachwani used that lack of oversight to paint a rosier picture of HeadSpin's growth. Even though its main investors knew the start-up's financials were not accurate, according to Mr. Lachwani's lawyers, they chose to invest anyway, eventually propelling HeadSpin to a $1.1 billion valuation in 2020. When the investors pushed Mr. Lachwani to add a chief financial officer and share more details about the company's finances, he simply brushed them off. These details emerged this month in filings in U.S. District Court for the Northern District of California after Mr. Lachwani had pleaded guilty to three counts of fraud in April...
The absence of controls at HeadSpin is part of an increasingly noticeable pattern at Silicon Valley start-ups that have run into trouble. Over the past decade, investors in tech start-ups were so eager to back hot companies that many often overlooked reckless behavior and gave up key controls like board seats, all in the service of fast growth and disruption. Then when founders took the ethos of "fake it till you make it" too far, their investors were often unaware or helpless...
Now, amid a start-up shakeout, more frauds have started coming to light. The founder of the college aid company Frank has been charged, the internet connectivity start-up Cloudbrink has been sued, and the social media app IRL has been investigated and sued. Last month, Mike Rothenberg, a Silicon Valley investor, was found guilty on 21 counts of fraud and money laundering. On Monday, Trevor Milton, founder of the electric vehicle company Nikola, was sentenced to four years in prison for lying about Nikola's technological capabilities.
The Times points out that similarly, FTX only had a three-person board "with barely any influence over the company, tracked its finances on QuickBooks and used a small, little-known accounting firm." And that Theranos had no financial audits for six years.
Breyer, per the New York Times, rejected Lachwani's lawyer's argument that because HeadSpin investors didn't end up losing money, he should receive a light sentence. The judge, who often oversees tech industry cases, reportedly said: "If you win, there are no serious consequences — that simply can't be the law." Still, the sentencing was far lighter than it could have been. The government's prosecuting attorneys had asked for a five-year prison term.
The New York Times reported in December that HeadSpin's financial statements had "often arrived months late, if at all, investors said in legal declarations," while the company's financial department "consisted of one external accountant who worked mostly from home using QuickBooks." And the comnpany also had no human resources department or organizational chart... After Manish Lachwani founded the Silicon Valley software start-up HeadSpin in 2015, he inflated the company's revenue numbers by nearly fourfold and falsely claimed that firms including Apple and American Express were customers. He showed a profit where there were losses. He used HeadSpin's cash to make risky trades on tech stocks. And he created fake invoices to cover it all up.
What was especially breathtaking was how easily Mr. Lachwani, now 48, pulled all that off... [HeadSpin] had no chief financial officer, had no human resources department and was never audited. Mr. Lachwani used that lack of oversight to paint a rosier picture of HeadSpin's growth. Even though its main investors knew the start-up's financials were not accurate, according to Mr. Lachwani's lawyers, they chose to invest anyway, eventually propelling HeadSpin to a $1.1 billion valuation in 2020. When the investors pushed Mr. Lachwani to add a chief financial officer and share more details about the company's finances, he simply brushed them off. These details emerged this month in filings in U.S. District Court for the Northern District of California after Mr. Lachwani had pleaded guilty to three counts of fraud in April...
The absence of controls at HeadSpin is part of an increasingly noticeable pattern at Silicon Valley start-ups that have run into trouble. Over the past decade, investors in tech start-ups were so eager to back hot companies that many often overlooked reckless behavior and gave up key controls like board seats, all in the service of fast growth and disruption. Then when founders took the ethos of "fake it till you make it" too far, their investors were often unaware or helpless...
Now, amid a start-up shakeout, more frauds have started coming to light. The founder of the college aid company Frank has been charged, the internet connectivity start-up Cloudbrink has been sued, and the social media app IRL has been investigated and sued. Last month, Mike Rothenberg, a Silicon Valley investor, was found guilty on 21 counts of fraud and money laundering. On Monday, Trevor Milton, founder of the electric vehicle company Nikola, was sentenced to four years in prison for lying about Nikola's technological capabilities.
The Times points out that similarly, FTX only had a three-person board "with barely any influence over the company, tracked its finances on QuickBooks and used a small, little-known accounting firm." And that Theranos had no financial audits for six years.
Only to investors, right? (Score:5, Funny)
Lying to customers is still a-ok, I hope?
Or are you gonna do time now every time you lie to people that give you money?
Re: (Score:2)
Lying to customers is still a-ok, I hope?
Unless the lie is materially fraudulent, yeah. I guarantee you've done it yourself multiple times, though to you it's only bad when other people do it.
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Why does capitalism force us into bad choices like having to lie to make a living?
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I don't know what capitalism has to do with anything. People lie all the time out of habit, but usually in a way that's immaterial. I suppose in one way it could apply is if a salesman tries to give you an impression that something is worth more than it actually is, but that's just part of negotiating, and as the buyer you ultimately pay whatever you feel it's worth to you. Even if you're not in sales, you do this all the time. For example, everybody embellishes their own work history and skills when they a
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"you do this all the time. For example, everybody embellishes their own work history and skills when they apply for a job with the expectation that the buyer -- namely those hiring you -- are supposed to realistically be able to judge whether you're even qualified for the job, and if so, how much your labor is worth to them."
What if I don't do this, though? What if I choose to try not to lie as much as possible, and thus don't get hired, or get easily made the fall guy and fired if things go bad on a projec
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Have you ever signed up for cable or even some streaming? They quote one price and tell you all the amazing things it includes. But the bill is higher and includes special fees for some of the things that were touted to be included in the advertised price.
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Thousands of years ago, how many monks were there having made a vow of satya following the teachings of Mahavir?
Why has the opportunity to reject lying in whatever form it takes decreased as capitalism has ascended? Can you see the perspective where capitalism has just enclosed everything and made us dependent on centralized production to such a degree that we are now largely unable to survive as we once did without capitalism, and that that is a worrisome thing that I personally want to do something about
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That's not capitalism, it's simply human nature. Want a communist example? Allow me to use a joke:
The communist economy was a planned economy. Every kolkhoz, every "people owned enterprise" (read: state-run company) had to produce a certain amount of certain goods. What mattered was fulfilling, or preferably over-fulfilling, that plan. At least if you wanted to climb the corporate ladder. So here's what usually happened:
The leader of a worker brigade noticed that his brigade fulfilled their plan only by 80%
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Lying only becomes wire fraud when you piss off the wrong people, and they have nothing better to charge you with.
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Technically speaking the crime of fraud has three elements: (1) A materially false statement; (2) an intent to deceive the recipient; (3) a reliance upon the false statement by the recipient.
So, if you want to lie to people and want to avoid being charged with fraud, it's actually quite simple. You lie by omission. You distract. You prevaricate (dance around the facts). You encourage people to jump on the bandwagon; you lead them to spurious conclusions. It's so easy to lie without making any materially
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Technically speaking the crime of fraud has three elements: (1) A materially false statement; (2) an intent to deceive the recipient; (3) a reliance upon the false statement by the recipient.
So... advertising is fraud.
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If lying to customers was not ok, Elon would already be in jail.
How many times has he promised FSD over the years?
Hmmm (Score:3)
"consisted of one external accountant who worked mostly from home using QuickBooks. And the company also had no human resources department or organizational chart"
Not a problem
"inflated the company's revenue numbers by nearly fourfold and falsely claimed that firms including Apple and American Express were customers. He showed a profit where there were losses. He used HeadSpin's cash to make risky trades on tech stocks. And he created fake invoices to cover it all up"
Big problem
note to self (Score:2)
Don't trust a company with "spin" in their name.
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Especially Spin Master... all their products are cheap junk.
I'll take "WTF is HeadSpin for 600, Alex" (Score:2)
The explanation on the company's own website was way shittier. "HeadSpin is a global company that offers a platform for testing, monitoring, and managing digital experiences across mobile and web channels." Yeah, "digital experiences".
The ones that don't do time (Score:2)
...are just better at not getting caught.
No audits? Say it isn't so! (Score:1)
moral compass is different in India (Score:1)
The usual (Score:2)
Upon sentencing, Lachwani turned his head all the way around and told the judge "Your mother sews socks that smell!"
Fake till you make it (Score:2)
Invest in my new tech startup please! (Score:1)