SEC v. Manish Lachwani, No. 5:21-cv-06554, Northern District of California (Jan. 1, 2021) — Complaint

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MONIQUE C. WINKLER (Cal. Bar No. 213031)
MARC D. KATZ (Cal. Bar No. 189534)
  [email protected]
DAVID ZHOU (NY Bar No. 4926523)
  [email protected]
ERIN E. WILK (Cal. Bar No. 310214)
  [email protected]

Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
44 Montgomery Street, Suite 2800
San Francisco, CA 94104
Telephone: (415) 705-2500
Facsimile:  (415) 705-2501

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
            v.
MANISH LACHWANI,
Defendant.
Case No. ________
COMPLAINT

Plaintiff Securities and Exchange Commission (“the Commission” or “the SEC”) alleges:
SUMMARY OF THE ACTION
1. From at least 2018 through 2020, Manish Lachwani engaged in a fraudulent scheme to
propel the valuation of his Silicon Valley technology start-up, HeadSpin, Inc., to over $1 billion by
falsely inflating the company’s key financial metrics and doctoring its internal sales records.
Lachwani then used HeadSpin’s inflated valuation and financial numbers to deceive investors into
pouring approximately $80 million into the company between 2018 and 2020, and to enrich himself
through the offer and sale of approximately $2.5 million of his personal HeadSpin stock.

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2. HeadSpin made virtually all of its revenue by charging customers fees to use its
hardware and software products.  To create the illusion of strong and consistent growth, Lachwani,
who controlled all important aspects of HeadSpin’s financials and sales operations, falsely inflated
the values of numerous customer deals that, in reality, were much smaller.  He also fraudulently
treated uncommitted deal amounts that he had discussed with customers as if they were guaranteed
future payments.  He concealed this inflation by creating fake invoices and altering real invoices to
make it appear as though customers had been billed higher amounts.
3. Lachwani’s fraudulent actions increased HeadSpin’s revenue-related financial
measures, which, in turn, fueled the company’s valuation upward.  In fall of 2018, ahead of its Series
B fundraising round, HeadSpin was valued at approximately half a billion dollars.  When Lachwani
sold his personal stock in around May 2019, that valuation had climbed about 50 percent to
approximately $750 million.  Less than six months later, in fall of 2019, HeadSpin’s valuation for its
Series C fund raise had jumped to approximately $1.1 billion and entered so-called “unicorn” status.
4. Lachwani knowingly or recklessly provided these lies about HeadSpin’s valuation and
its seeming financial success to prospective investors.  He made numerous false statements that were
designed to convince investors that HeadSpin had hundreds of customers, including many of Silicon
Valley’s biggest and most high-profile companies, signed up to long-term contracts totaling tens of
millions of dollars per year.  Investors invested millions of dollars in HeadSpin based on Lachwani’s
misrepresentations.
5. Lachwani’s fraud unraveled in spring of 2020, following an internal investigation.
Lachwani was forced to resign as CEO, and HeadSpin revised its valuation dramatically downward
from the $1.1 billion claimed during the Series C round to approximately $300 million.
6. By his actions, Lachwani violated the antifraud provisions of the federal securities
laws.  Specifically, Lachwani violated 17(a) of the Securities Act of 1933 (“Securities Act”) [15
U.S.C. § 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15
U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
7. The SEC requests, among other things, that the Court: (i) permanently enjoin
Lachwani from further violating the federal securities laws as alleged in this complaint; (ii)

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permanently enjoin Lachwani from participating in the issuance, purchase, offer, or sale of any
security; (iii) prohibit Lachwani from acting as an officer or director of a publicly traded company;
and (iv) order Lachwani to pay civil monetary penalties.
JURISDICTION AND VENUE
8. The Commission brings this action pursuant to Sections 20(b), 20(d), and 22(a) of the
Securities Act [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and Sections 21(d), 21(e), and 27 of the
Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
9. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1), and
22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)] and Sections 21(d), 21(e), and
27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
10. Lachwani, directly or indirectly, made use of the means and instruments of interstate
commerce or of the mails in connection with the acts, transactions, practices, and courses of business
alleged in this complaint.
11. Venue is proper in this District pursuant to Section 22(a) of the Securities Act [15
U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)].  Acts, transactions,
practices, and courses of business that form the basis for the violations alleged in this complaint
occurred in this District.  Lachwani met with and solicited prospective investors in this District, and
offers and sales of securities took place in this District.
12. Under Civil Local Rule 3-2(e), this civil action should be assigned to the San Jose
Division because a substantial part of the events or omissions that give rise to the claims alleged
herein occurred in Santa Clara County, where HeadSpin’s principal place of business is located.
DEFENDANT
13. Manish Lachwani, age 45, resides in Los Altos, California.  He served as HeadSpin’s
Chief Executive Officer until he stepped down in around May 2020.  Lachwani controlled
HeadSpin’s business functions and operations from its formation in about 2015 through his tenure as
CEO.  Lachwani sold a portion of his own HeadSpin stock during an offering in around May 2019.
During the Commission’s investigation, Lachwani declined to produce any documents concerning the
investigation on the basis of his Fifth Amendment privilege against self-incrimination.

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RELATED ENTITY
14. HeadSpin, Inc. is a Delaware corporation with its principal place of business in Palo
Alto, California.  HeadSpin provides customers with hardware and software tools to test their mobile
software applications across the world.  In 2020, after Lachwani’s fraud was uncovered, HeadSpin
reduced its valuation by more than $800 million and returned approximately 70% of principal to
investors in the Series B and C funding rounds.  However, some investors retained their shares in
HeadSpin, and the company remains operational.
FACTUAL ALLEGATIONS
I. HeadSpin Sells Customers Tools for Testing Mobile Apps.
15. Lachwani co-founded HeadSpin in 2015 to provide hardware and software tools that
allow customers to test their mobile software applications, or “apps,” and ensure that their apps work
on different operating systems as well as various internet and cellular data networks.  Prior to
HeadSpin, Lachwani co-founded another start-up technology company that was sold to a major
Silicon Valley company in 2014, and he also served as Chief Technology Officer for a prominent
public company in the mobile gaming industry, among other roles.
16. HeadSpin provided its customers access to mobile devices located all over the world.
Customers were then able to use HeadSpin’s proprietary software to test their apps on these devices
across different networks.  Typically, HeadSpin charged a one-time set-up fee as well as recurring
fees for use of the devices and software.
17. HeadSpin sold its products and services in two ways.  First, HeadSpin entered into
direct agreements with corporate customers.  Second, HeadSpin worked with third-party resellers,
who acted as middlemen to market and sell HeadSpin’s products and services to corporate customers.
18. In some cases, customers, such as the third-party resellers, signed non-binding
agreements with HeadSpin that set forth the products and services they planned to purchase and
sometimes listed the maximum amount they would spend on those items.  However, the customer did
not incur a commitment to pay HeadSpin until it submitted an order and HeadSpin, in response,
charged the customer by sending an invoice.

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II. Lachwani Engaged in a Fraudulent Scheme to Inflate HeadSpin’s Financials in Order to
Drive Up Its Valuation.
19. Beginning at least in about 2018, Lachwani engaged in a fraudulent scheme to inflate
HeadSpin’s financial records in order to achieve high valuations of the company that would attract
investors.
20. Lachwani understood that the amount of the valuation depended, in large part, on a
key financial metric called “annual recurring revenue,” or “ARR,” as well as ARR growth over time.
ARR is a measure of the total revenue expected per year from committed customers with signed
contracts.  The metric is commonly used by software companies like HeadSpin that charge customers
recurring fees to use their products.  A growing ARR shows that a company is successfully signing
up new customers and/or expanding the deals it already has with existing customers.
21. Lachwani inflated HeadSpin’s ARR by falsely increasing the values of several
existing customer deals of all sizes, ranging from big deals with Silicon Valley heavyweights to low
dollar-value deals with smaller companies, and relying on uncommitted amounts from non-binding
agreements with other customers.  He entered the fabricated amounts into the company’s detailed
ARR-tracking Spreadsheet that he alone controlled.  For example, in about 2018, Lachwani sent an
investor a version of the ARR Spreadsheet that claimed a reseller (“Customer 1”) was contributing
approximately $1 million in ARR.  In reality, Customer 1 and Lachwani had signed a non-binding
agreement that, among other things, set a maximum cap of $1.215 million on its purchases over two
years from HeadSpin.  Importantly, Customer 1 was not obligated to pay anything until HeadSpin
sent invoices at a later date.  In the end, Customer 1 only paid HeadSpin approximately $500,000
over two years—far less than the maximum cap.
22. In other instances, Lachwani fabricated or altered invoices to provide post-hoc
justifications to other HeadSpin employees for the inflated ARR amounts.  For example, from 2018
through 2020, Lachwani falsely claimed that a major San Francisco-based ride share company
(“Customer 2”) had agreed to pay HeadSpin about $1.44 million per year.  In truth, Customer 2 made
a single purchase worth $720,000 in 2018, and did not make a long-term commitment.  To bridge the
gap between reality and his false claims, Lachwani concocted a fake invoice covering the remaining

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amount (i.e., $720,000) in 2018, and in 2019 he created two more fake invoices to represent a
supposed renewal of the full $1.44 million.
23. In addition, Lachwani falsely inflated HeadSpin’s actual revenue numbers, which
were also shared with investors, using the same methods that he used to fabricate ARR.  Lachwani
dictated the inflated revenue numbers each quarter to HeadSpin’s bookkeeper, who recorded those
numbers in the company’s financial statements.  He frequently sent the numbers without supporting
documentation (like contracts and invoices) notwithstanding the bookkeeper’s regular requests for
such backup, and he sometimes sent her fake or altered invoices that he had created, including the
three fictional invoices related to Customer 2 and a doctored invoice related to Customer 1.
24. On the strength of its fraudulently inflated ARR and other financial numbers,
HeadSpin achieved impressive valuations leading into its three fundraising rounds.  In advance of the
Series B round in fall of 2018, HeadSpin was valued at approximately $500 million.  When Lachwani
sold his personal HeadSpin stock in around May 2019, HeadSpin had increased its valuation to
approximately $750 million.  Just six months later, at the start of its Series C round, HeadSpin had
again surged in valuation to approximately $1.1 billion.  Lachwani falsely inflated the metrics,
including ARR, in order to lure HeadSpin investors into paying increasingly higher prices for
HeadSpin’s shares.
25. Lachwani was able to carry out his fraudulent scheme for years because he controlled
and managed all the key aspects of HeadSpin’s financials and sales operations, and he kept HeadSpin
employees in those different departments isolated from each other.  For instance, virtually all the
information provided to HeadSpin’s bookkeeper, including the supporting documentation for claimed
revenue amounts, flowed through Lachwani.
26. By virtue of his control over the company, Lachwani knew, or was reckless in not
knowing, that HeadSpin’s ARR and other financial numbers were false and inflated.  He had sole
ownership of the ARR Spreadsheet and used it to personally calculate the company’s quarterly and
yearly ARR.  As Lachwani admitted in a December 2017 email, he intended to “super micro
manage[]” the company’s financials and finance function, and he rebuffed repeated requests from late
2017 into 2020 from HeadSpin’s board to hire a CFO to manage HeadSpin’s day-to-day finances.  At

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the same time, he knew, or was reckless in not knowing, about HeadSpin’s relationships with
customers because he personally interacted and negotiated with many of them, and he directly
supervised the small staff of sales people who managed customer deals.
III. Lachwani Lied to Series B Investors About HeadSpin’s Financials and Customers.
27. From August 2018 through October 2018, Lachwani made numerous false and
misleading representations about HeadSpin’s ARR, financials, and customer growth in connection
with the offer and sale of HeadSpin’s preferred stock in the Series B round.  In promoting the Series
B offering, Lachwani knowingly or recklessly provided investors with the false impression that
HeadSpin was experiencing substantial growth in both its expected revenues and its number of
customers.  He personally met and communicated those misrepresentations to prospective investors
through emails, telephone calls, and in-person due diligence meetings.  Lachwani also directed his
employees to include false information in written investor materials provided to investors, including
pitch decks, financial spreadsheets, and other promotional materials.  The Series B offering
succeeded in raising approximately $20 million from about 26 investors.
28. Lachwani repeatedly knowingly or recklessly misrepresented HeadSpin’s ARR and
ARR growth to Series B investors by sending them ARR numbers that he had falsely inflated.  He
sent emails to investors in which he touted the inflated overall ARR for the company as well as the
grossly overstated ARRs for certain high-profile customers.  Lachwani also provided a 2018 Pitch
Deck to Series B investors that, among other things, listed falsely inflated “revenue commitment”
amounts and growth percentages for specific big-name customers, including Customer 1 and
Customer 2.  In addition, Lachwani provided certain large investors with versions of the detailed
ARR Spreadsheet, which also contained inflated ARR numbers for Customer 1, Customer 2, and
others.
29. Lachwani sent those false ARR numbers even though he knew, or was reckless in not
knowing, that HeadSpin’s ARR would be a focus of prospective investors, who would use it to
evaluate the extent to which the company’s products were gaining traction with customers.  Lachwani
also knew, or was reckless in not knowing, that ARR, which is a widely used metric in the software-
subscription industry, was supposed to be calculated based on signed contracts with committed

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customers.  In fact, he told investors that HeadSpin’s ARR reflected signed customer agreements
with customers who had already been sent HeadSpin’s products and were able to use them.  Those
representations were false and misleading.
30. Lachwani made additional misrepresentations to Series B investors beyond the ARR
numbers.  Lachwani knowingly or recklessly sent financial statements to investors that contained
false and inflated revenues.  He also promoted the inflated valuation.  For instance, in an August
2018 email to an investor, Lachwani touted that the company was “raising $10m @ $500m
valuation.”
31. Relatedly, Lachwani also knew, or was reckless in not knowing, that Series B
investors would be impressed by HeadSpin’s purported roster of customers, which included some of
the largest and most recognizable technology companies in the world.  But Lachwani knowingly or
recklessly included numerous companies on the list even though those companies had terminated
their relationships with HeadSpin or had declined to make a purchase after trying HeadSpin’s
products.  For example, the 2018 Pitch Deck that Lachwani shared with Series B investors falsely
asserted that HeadSpin had experienced “No Customer Loss and Triple Digit Growth.”  In reality,
HeadSpin had lost customers that decided to stop using HeadSpin’s services.  The 2018 Pitch Deck
also included logos for at least 50 major companies, a number of which were not active HeadSpin
customers.  For instance, the deck included the logo of a highly successful Silicon Valley-based
computer and cellphone manufacturer (“Customer 3”) even though Customer 3’s sole purchase
expired more than a year earlier and was not renewed.
IV. Lachwani Made More False Statements When He Sold $2.5 Million of His Own Stock.
32. A few months after the close of the Series B round, in around May 2019, Lachwani
conducted a secondary offering in which he sold approximately $2.5 million of his personal
HeadSpin stock to one of the company’s existing investors (“Investor 1”).  Lachwani had already
made numerous misrepresentations to Investor 1 in connection with the Series B funding round.  He
made additional false and misleading statements to Investor 1 before it purchased his stock.
33. In particular, Investor 1 noticed in around May 2019 that HeadSpin’s financial
statements included tens of millions of dollars of “unbilled revenue,” meaning that HeadSpin had not

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yet sent its customers invoices to charge them.  Investor 1 asked Lachwani to explain why HeadSpin
was not billing its customers.  In response, Lachwani told Investor 1 that HeadSpin often allowed
customers to use the product several months before submitting a bill.  But Lachwani knowingly or
recklessly omitted that he had falsely inflated the revenue commitments of many HeadSpin customers
and dumped the inflated revenue into the “unbilled revenue” category.
34. In an effort to reduce the total “unbilled” amount and avoid additional questions from
investors, Lachwani again doctored invoices.  In around June 2019, Lachwani took several real
invoices that had been sent to a reseller (“Customer 4”) and altered them to increase the billed
amounts by hundreds of thousands of dollars.  Then, Lachwani emailed these altered invoices to
HeadSpin’s bookkeeper, who reduced the “unbilled” amount accordingly.
V. Lachwani’s Misrepresentations Catapulted HeadSpin to a $1.1 Billion Valuation During
the Series C Funding Round.
35. Less than a year after its successful Series B fund raise, HeadSpin conducted a Series
C fundraising round between August 2019 and February 2020 to offer and sell an additional $60
million of its preferred stock.  Lachwani’s scheme to fraudulently inflate HeadSpin’s ARR and other
financials had continued throughout 2019, and by the start of the Series C round, Lachwani
knowingly or recklessly told investors that HeadSpin would reach approximately $80 million of ARR
by year end.  The company’s impressive (but false) financials fueled a valuation of approximately
$1.1 billion, a milestone that earned the startup “unicorn” status – a status touted by Lachwani and
noticed by investors.  Ultimately, 29 investors purchased HeadSpin stock at prices based on that
inflated valuation.
36. As with the Series B round, Lachwani knowingly or recklessly made numerous
misrepresentations to Series C investors about ARR, revenue, and customer growth.  He continued to
knowingly or recklessly claim falsely inflated ARRs for many customers, including Customer 1 and
Customer 2, in an updated version of the ARR Spreadsheet that he sent to Series C investors.  In fact,
he increased the claimed ARRs for certain existing customers.  For example, according to the 2019
ARR Spreadsheet, a reseller, Customer 4, had ARR of over $10 million.  However, HeadSpin only
received approximately $1.4 million total in payments from Customer 4 between 2018 and 2019.  He

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also added inflated ARRs for new customers, including, for instance, a major credit card company
that signed a non-binding agreement with HeadSpin in 2019.  Separately, the financial statements that
Lachwani provided to Series C investors contained similarly inflated revenue numbers.
37. Lachwani also continued to knowingly or recklessly make misrepresentations about
HeadSpin’s retention of customers.  In around September 2019, he sent a prospective investor a
version of the 2019 ARR Spreadsheet and knowingly or recklessly misrepresented that HeadSpin had
only lost two customers and that “[e]very other deal has expanded or stayed the same.”  He made
those claims even though he knew, or was reckless in not knowing, that many listed customers –
including Customer 1, Customer 2, and Customer 4 – had paid HeadSpin far less than the amounts
claimed in the ARR Spreadsheet.  As another example, Lachwani reviewed a draft investment
memorandum put together by Investor 1 in anticipation of the Series C round.  He knowingly or
recklessly confirmed the accuracy of the memorandum even though it incorrectly identified Customer
3, which had ended its relationship with HeadSpin in 2017, as part of the company’s “impressive
customer base.”
38. The grossly overstated ARR, revenues, and customer lists were important to investors
who participated in HeadSpin’s three offerings between 2018 and 2020 because those metrics were
directly related to the future growth and success of HeadSpin’s business and, thus, the likelihood that
investors would obtain a return on their investments in the company.
VI. Lachwani’s Fraud Unraveled When His ARR Inflation Came to Light.
39. In March 2020, the company’s Board of Directors was alerted to concerns about the
accuracy of the financial and customer information provided to investors and discovered, through an
investigation, significant issues with HeadSpin’s reporting of customer deals.  HeadSpin then
determined, based on a subsequent review of its financial information, that HeadSpin’s ARR at the
end of 2019 was closer to $10 million, as opposed to the $80 million represented to investors.
40. In May 2020, HeadSpin forced Lachwani to resign, and Lachwani also returned
approximately $2 million to Investor 1, which had purchased some of his personal HeadSpin stock in
May 2019.

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41. HeadSpin revised its valuation from approximately $1.1 billion down to
approximately $300 million.  The company also returned approximately 70% of principal to investors
in the Series B and C funding rounds.  The company further offered to return the remaining funds in
the form of promissory notes with one percent interest.  Approximately 31 investors chose to retain
their HeadSpin stock instead of exchanging for promissory notes.
FIRST CLAIM FOR RELIEF
(Violations of Section 10(b) of the Exchange Act and Rule 10b-5)
42. The Commission re-alleges and incorporates by reference paragraphs 1 through 41.
43. Defendant, by engaging in the conduct described above, directly or indirectly, in
connection with the purchase or sale of securities, by use of means or instrumentalities of interstate
commerce, or of the mails, with scienter:
a. Employed devices, schemes, or artifices to defraud;
b. Made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading; and
c. Engaged in acts, practices, or courses of business which operated or would
operate as a fraud or deceit upon other persons, including purchasers of
securities.
44. By reason of the foregoing, Defendant violated, and unless restrained and enjoined
will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5
thereunder [17 C.F.R. § 240.10b-5].
SECOND CLAIM FOR RELIEF
(Violations of Section 17(a) of the Securities Act)
45. The Commission re-alleges and incorporates by reference paragraphs 1 through 41.
46. Defendant, by engaging in the conduct described above, directly or indirectly, in the
offer or sale of securities, by use of the means of instruments of transportation or communication in
interstate commerce or by use of the mails,
a. with scienter, employed devices, schemes, or artifices to defraud;

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b. obtained money or property by means of untrue statements of material fact or
by omitting to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading; and
c. engaged in transactions, practices, or courses of business which operated or
would operate as a fraud or deceit upon purchasers.
47. By reason of the foregoing, Defendant violated, and unless restrained and enjoined
will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court:
I.
Enter an order permanently enjoining Defendant from directly or indirectly violating Section
10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder,
and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
II.
Enter an order permanently enjoining Defendant from directly or indirectly, including, but not
limited to, through any entity owned or controlled by Defendant, participating in the issuance,
purchase, offer, or sale of any security.
III.
Enter an order requiring Defendant to pay civil penalties pursuant to Section 20(d) of the
Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)].
IV.
Enter an order prohibiting Defendant from serving as an officer or director of any issuer
having a class of securities registered with the Commission pursuant to Section 12 of the Exchange
Act [15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act
[15 U.S.C. § 78o(d)], pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section
21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)].

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V.
Retain jurisdiction of this action in accordance with the principles of equity and the Federal
Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that
may be entered, or to entertain any suitable application or motion for additional relief within the
jurisdiction of this Court.
VI.
Grant such other and further relief as this Court may determine to be just and necessary.

Dated:  August 25, 2021           Respectfully submitted,

/s/ Erin E. Wilk
Erin E. Wilk
Marc D. Katz
David Zhou
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION

COMPLAINT 1  
 

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MONIQUE C. WINKLER (Cal. Bar No. 213031) 
MARC D. KATZ (Cal. Bar No. 189534) 
  [email protected] 
DAVID ZHOU (NY Bar No. 4926523) 
  [email protected] 
ERIN E. WILK (Cal. Bar No. 310214) 
  [email protected] 
 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
44 Montgomery Street, Suite 2800 
San Francisco, CA 94104 
Telephone: (415) 705-2500 
Facsimile:  (415) 705-2501 
 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN JOSE DIVISION 

SECURITIES AND EXCHANGE COMMISSION, 

Plaintiff, 

 v. 

MANISH LACHWANI,  

Defendant. 

Case No. ________ 

COMPLAINT 

 

Plaintiff Securities and Exchange Commission (“the Commission” or “the SEC”) alleges: 

SUMMARY OF THE ACTION 

1. From at least 2018 through 2020, Manish Lachwani engaged in a fraudulent scheme to 

propel the valuation of his Silicon Valley technology start-up, HeadSpin, Inc., to over $1 billion by 

falsely inflating the company’s key financial metrics and doctoring its internal sales records.  

Lachwani then used HeadSpin’s inflated valuation and financial numbers to deceive investors into 

pouring approximately $80 million into the company between 2018 and 2020, and to enrich himself 

through the offer and sale of approximately $2.5 million of his personal HeadSpin stock.  

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COMPLAINT 2  
 

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2. HeadSpin made virtually all of its revenue by charging customers fees to use its 

hardware and software products.  To create the illusion of strong and consistent growth, Lachwani, 

who controlled all important aspects of HeadSpin’s financials and sales operations, falsely inflated 

the values of numerous customer deals that, in reality, were much smaller.  He also fraudulently 

treated uncommitted deal amounts that he had discussed with customers as if they were guaranteed 

future payments.  He concealed this inflation by creating fake invoices and altering real invoices to 

make it appear as though customers had been billed higher amounts.    

3. Lachwani’s fraudulent actions increased HeadSpin’s revenue-related financial 

measures, which, in turn, fueled the company’s valuation upward.  In fall of 2018, ahead of its Series 

B fundraising round, HeadSpin was valued at approximately half a billion dollars.  When Lachwani 

sold his personal stock in around May 2019, that valuation had climbed about 50 percent to 

approximately $750 million.  Less than six months later, in fall of 2019, HeadSpin’s valuation for its 

Series C fund raise had jumped to approximately $1.1 billion and entered so-called “unicorn” status. 

4. Lachwani knowingly or recklessly provided these lies about HeadSpin’s valuation and 

its seeming financial success to prospective investors.  He made numerous false statements that were 

designed to convince investors that HeadSpin had hundreds of customers, including many of Silicon 

Valley’s biggest and most high-profile companies, signed up to long-term contracts totaling tens of 

millions of dollars per year.  Investors invested millions of dollars in HeadSpin based on Lachwani’s 

misrepresentations.  

5. Lachwani’s fraud unraveled in spring of 2020, following an internal investigation.  

Lachwani was forced to resign as CEO, and HeadSpin revised its valuation dramatically downward 

from the $1.1 billion claimed during the Series C round to approximately $300 million. 

6. By his actions, Lachwani violated the antifraud provisions of the federal securities 

laws.  Specifically, Lachwani violated 17(a) of the Securities Act of 1933 (“Securities Act”) [15 

U.S.C. § 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 

U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

7. The SEC requests, among other things, that the Court: (i) permanently enjoin 

Lachwani from further violating the federal securities laws as alleged in this complaint; (ii) 

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COMPLAINT 3  
 

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permanently enjoin Lachwani from participating in the issuance, purchase, offer, or sale of any 

security; (iii) prohibit Lachwani from acting as an officer or director of a publicly traded company; 

and (iv) order Lachwani to pay civil monetary penalties. 

JURISDICTION AND VENUE 

8. The Commission brings this action pursuant to Sections 20(b), 20(d), and 22(a) of the 

Securities Act [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and Sections 21(d), 21(e), and 27 of the 

Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].   

9. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1), and 

22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)] and Sections 21(d), 21(e), and 

27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. 

10. Lachwani, directly or indirectly, made use of the means and instruments of interstate 

commerce or of the mails in connection with the acts, transactions, practices, and courses of business 

alleged in this complaint.  

11. Venue is proper in this District pursuant to Section 22(a) of the Securities Act [15 

U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)].  Acts, transactions, 

practices, and courses of business that form the basis for the violations alleged in this complaint 

occurred in this District.  Lachwani met with and solicited prospective investors in this District, and 

offers and sales of securities took place in this District.  

12. Under Civil Local Rule 3-2(e), this civil action should be assigned to the San Jose 

Division because a substantial part of the events or omissions that give rise to the claims alleged 

herein occurred in Santa Clara County, where HeadSpin’s principal place of business is located.    

DEFENDANT 

13. Manish Lachwani, age 45, resides in Los Altos, California.  He served as HeadSpin’s 

Chief Executive Officer until he stepped down in around May 2020.  Lachwani controlled 

HeadSpin’s business functions and operations from its formation in about 2015 through his tenure as 

CEO.  Lachwani sold a portion of his own HeadSpin stock during an offering in around May 2019.  

During the Commission’s investigation, Lachwani declined to produce any documents concerning the 

investigation on the basis of his Fifth Amendment privilege against self-incrimination. 

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COMPLAINT 4  
 

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RELATED ENTITY 

14. HeadSpin, Inc. is a Delaware corporation with its principal place of business in Palo 

Alto, California.  HeadSpin provides customers with hardware and software tools to test their mobile 

software applications across the world.  In 2020, after Lachwani’s fraud was uncovered, HeadSpin 

reduced its valuation by more than $800 million and returned approximately 70% of principal to 

investors in the Series B and C funding rounds.  However, some investors retained their shares in 

HeadSpin, and the company remains operational.  

FACTUAL ALLEGATIONS 

I. HeadSpin Sells Customers Tools for Testing Mobile Apps.   

15. Lachwani co-founded HeadSpin in 2015 to provide hardware and software tools that 

allow customers to test their mobile software applications, or “apps,” and ensure that their apps work 

on different operating systems as well as various internet and cellular data networks.  Prior to 

HeadSpin, Lachwani co-founded another start-up technology company that was sold to a major 

Silicon Valley company in 2014, and he also served as Chief Technology Officer for a prominent 

public company in the mobile gaming industry, among other roles. 

16. HeadSpin provided its customers access to mobile devices located all over the world.  

Customers were then able to use HeadSpin’s proprietary software to test their apps on these devices 

across different networks.  Typically, HeadSpin charged a one-time set-up fee as well as recurring 

fees for use of the devices and software.  

17. HeadSpin sold its products and services in two ways.  First, HeadSpin entered into 

direct agreements with corporate customers.  Second, HeadSpin worked with third-party resellers, 

who acted as middlemen to market and sell HeadSpin’s products and services to corporate customers.   

18. In some cases, customers, such as the third-party resellers, signed non-binding 

agreements with HeadSpin that set forth the products and services they planned to purchase and 

sometimes listed the maximum amount they would spend on those items.  However, the customer did 

not incur a commitment to pay HeadSpin until it submitted an order and HeadSpin, in response, 

charged the customer by sending an invoice. 

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II. Lachwani Engaged in a Fraudulent Scheme to Inflate HeadSpin’s Financials in Order to 

Drive Up Its Valuation. 

19. Beginning at least in about 2018, Lachwani engaged in a fraudulent scheme to inflate 

HeadSpin’s financial records in order to achieve high valuations of the company that would attract 

investors.   

20. Lachwani understood that the amount of the valuation depended, in large part, on a 

key financial metric called “annual recurring revenue,” or “ARR,” as well as ARR growth over time.  

ARR is a measure of the total revenue expected per year from committed customers with signed 

contracts.  The metric is commonly used by software companies like HeadSpin that charge customers 

recurring fees to use their products.  A growing ARR shows that a company is successfully signing 

up new customers and/or expanding the deals it already has with existing customers.   

21. Lachwani inflated HeadSpin’s ARR by falsely increasing the values of several 

existing customer deals of all sizes, ranging from big deals with Silicon Valley heavyweights to low 

dollar-value deals with smaller companies, and relying on uncommitted amounts from non-binding 

agreements with other customers.  He entered the fabricated amounts into the company’s detailed 

ARR-tracking Spreadsheet that he alone controlled.  For example, in about 2018, Lachwani sent an 

investor a version of the ARR Spreadsheet that claimed a reseller (“Customer 1”) was contributing 

approximately $1 million in ARR.  In reality, Customer 1 and Lachwani had signed a non-binding 

agreement that, among other things, set a maximum cap of $1.215 million on its purchases over two 

years from HeadSpin.  Importantly, Customer 1 was not obligated to pay anything until HeadSpin 

sent invoices at a later date.  In the end, Customer 1 only paid HeadSpin approximately $500,000 

over two years—far less than the maximum cap.      

22. In other instances, Lachwani fabricated or altered invoices to provide post-hoc 

justifications to other HeadSpin employees for the inflated ARR amounts.  For example, from 2018 

through 2020, Lachwani falsely claimed that a major San Francisco-based ride share company 

(“Customer 2”) had agreed to pay HeadSpin about $1.44 million per year.  In truth, Customer 2 made 

a single purchase worth $720,000 in 2018, and did not make a long-term commitment.  To bridge the 

gap between reality and his false claims, Lachwani concocted a fake invoice covering the remaining 

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COMPLAINT 6  
 

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amount (i.e., $720,000) in 2018, and in 2019 he created two more fake invoices to represent a 

supposed renewal of the full $1.44 million. 

23. In addition, Lachwani falsely inflated HeadSpin’s actual revenue numbers, which 

were also shared with investors, using the same methods that he used to fabricate ARR.  Lachwani 

dictated the inflated revenue numbers each quarter to HeadSpin’s bookkeeper, who recorded those 

numbers in the company’s financial statements.  He frequently sent the numbers without supporting 

documentation (like contracts and invoices) notwithstanding the bookkeeper’s regular requests for 

such backup, and he sometimes sent her fake or altered invoices that he had created, including the 

three fictional invoices related to Customer 2 and a doctored invoice related to Customer 1.       

24. On the strength of its fraudulently inflated ARR and other financial numbers, 

HeadSpin achieved impressive valuations leading into its three fundraising rounds.  In advance of the 

Series B round in fall of 2018, HeadSpin was valued at approximately $500 million.  When Lachwani 

sold his personal HeadSpin stock in around May 2019, HeadSpin had increased its valuation to 

approximately $750 million.  Just six months later, at the start of its Series C round, HeadSpin had 

again surged in valuation to approximately $1.1 billion.  Lachwani falsely inflated the metrics, 

including ARR, in order to lure HeadSpin investors into paying increasingly higher prices for 

HeadSpin’s shares. 

25. Lachwani was able to carry out his fraudulent scheme for years because he controlled 

and managed all the key aspects of HeadSpin’s financials and sales operations, and he kept HeadSpin 

employees in those different departments isolated from each other.  For instance, virtually all the 

information provided to HeadSpin’s bookkeeper, including the supporting documentation for claimed 

revenue amounts, flowed through Lachwani.   

26. By virtue of his control over the company, Lachwani knew, or was reckless in not 

knowing, that HeadSpin’s ARR and other financial numbers were false and inflated.  He had sole 

ownership of the ARR Spreadsheet and used it to personally calculate the company’s quarterly and 

yearly ARR.  As Lachwani admitted in a December 2017 email, he intended to “super micro 

manage[]” the company’s financials and finance function, and he rebuffed repeated requests from late 

2017 into 2020 from HeadSpin’s board to hire a CFO to manage HeadSpin’s day-to-day finances.  At 

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the same time, he knew, or was reckless in not knowing, about HeadSpin’s relationships with 

customers because he personally interacted and negotiated with many of them, and he directly 

supervised the small staff of sales people who managed customer deals.  

III. Lachwani Lied to Series B Investors About HeadSpin’s Financials and Customers.  

27. From August 2018 through October 2018, Lachwani made numerous false and 

misleading representations about HeadSpin’s ARR, financials, and customer growth in connection 

with the offer and sale of HeadSpin’s preferred stock in the Series B round.  In promoting the Series 

B offering, Lachwani knowingly or recklessly provided investors with the false impression that 

HeadSpin was experiencing substantial growth in both its expected revenues and its number of 

customers.  He personally met and communicated those misrepresentations to prospective investors 

through emails, telephone calls, and in-person due diligence meetings.  Lachwani also directed his 

employees to include false information in written investor materials provided to investors, including 

pitch decks, financial spreadsheets, and other promotional materials.  The Series B offering 

succeeded in raising approximately $20 million from about 26 investors. 

28. Lachwani repeatedly knowingly or recklessly misrepresented HeadSpin’s ARR and 

ARR growth to Series B investors by sending them ARR numbers that he had falsely inflated.  He 

sent emails to investors in which he touted the inflated overall ARR for the company as well as the 

grossly overstated ARRs for certain high-profile customers.  Lachwani also provided a 2018 Pitch 

Deck to Series B investors that, among other things, listed falsely inflated “revenue commitment” 

amounts and growth percentages for specific big-name customers, including Customer 1 and 

Customer 2.  In addition, Lachwani provided certain large investors with versions of the detailed 

ARR Spreadsheet, which also contained inflated ARR numbers for Customer 1, Customer 2, and 

others.   

29. Lachwani sent those false ARR numbers even though he knew, or was reckless in not 

knowing, that HeadSpin’s ARR would be a focus of prospective investors, who would use it to 

evaluate the extent to which the company’s products were gaining traction with customers.  Lachwani 

also knew, or was reckless in not knowing, that ARR, which is a widely used metric in the software-

subscription industry, was supposed to be calculated based on signed contracts with committed 

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customers.  In fact, he told investors that HeadSpin’s ARR reflected signed customer agreements 

with customers who had already been sent HeadSpin’s products and were able to use them.  Those 

representations were false and misleading. 

30. Lachwani made additional misrepresentations to Series B investors beyond the ARR 

numbers.  Lachwani knowingly or recklessly sent financial statements to investors that contained 

false and inflated revenues.  He also promoted the inflated valuation.  For instance, in an August 

2018 email to an investor, Lachwani touted that the company was “raising $10m @ $500m 

valuation.” 

31. Relatedly, Lachwani also knew, or was reckless in not knowing, that Series B 

investors would be impressed by HeadSpin’s purported roster of customers, which included some of 

the largest and most recognizable technology companies in the world.  But Lachwani knowingly or 

recklessly included numerous companies on the list even though those companies had terminated 

their relationships with HeadSpin or had declined to make a purchase after trying HeadSpin’s 

products.  For example, the 2018 Pitch Deck that Lachwani shared with Series B investors falsely 

asserted that HeadSpin had experienced “No Customer Loss and Triple Digit Growth.”  In reality, 

HeadSpin had lost customers that decided to stop using HeadSpin’s services.  The 2018 Pitch Deck 

also included logos for at least 50 major companies, a number of which were not active HeadSpin 

customers.  For instance, the deck included the logo of a highly successful Silicon Valley-based 

computer and cellphone manufacturer (“Customer 3”) even though Customer 3’s sole purchase 

expired more than a year earlier and was not renewed.  

IV. Lachwani Made More False Statements When He Sold $2.5 Million of His Own Stock. 

32. A few months after the close of the Series B round, in around May 2019, Lachwani 

conducted a secondary offering in which he sold approximately $2.5 million of his personal 

HeadSpin stock to one of the company’s existing investors (“Investor 1”).  Lachwani had already 

made numerous misrepresentations to Investor 1 in connection with the Series B funding round.  He 

made additional false and misleading statements to Investor 1 before it purchased his stock.  

33. In particular, Investor 1 noticed in around May 2019 that HeadSpin’s financial 

statements included tens of millions of dollars of “unbilled revenue,” meaning that HeadSpin had not 

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yet sent its customers invoices to charge them.  Investor 1 asked Lachwani to explain why HeadSpin 

was not billing its customers.  In response, Lachwani told Investor 1 that HeadSpin often allowed 

customers to use the product several months before submitting a bill.  But Lachwani knowingly or 

recklessly omitted that he had falsely inflated the revenue commitments of many HeadSpin customers 

and dumped the inflated revenue into the “unbilled revenue” category.  

34. In an effort to reduce the total “unbilled” amount and avoid additional questions from 

investors, Lachwani again doctored invoices.  In around June 2019, Lachwani took several real 

invoices that had been sent to a reseller (“Customer 4”) and altered them to increase the billed 

amounts by hundreds of thousands of dollars.  Then, Lachwani emailed these altered invoices to 

HeadSpin’s bookkeeper, who reduced the “unbilled” amount accordingly. 

V. Lachwani’s Misrepresentations Catapulted HeadSpin to a $1.1 Billion Valuation During 

the Series C Funding Round. 

35. Less than a year after its successful Series B fund raise, HeadSpin conducted a Series 

C fundraising round between August 2019 and February 2020 to offer and sell an additional $60 

million of its preferred stock.  Lachwani’s scheme to fraudulently inflate HeadSpin’s ARR and other 

financials had continued throughout 2019, and by the start of the Series C round, Lachwani 

knowingly or recklessly told investors that HeadSpin would reach approximately $80 million of ARR 

by year end.  The company’s impressive (but false) financials fueled a valuation of approximately 

$1.1 billion, a milestone that earned the startup “unicorn” status – a status touted by Lachwani and 

noticed by investors.  Ultimately, 29 investors purchased HeadSpin stock at prices based on that 

inflated valuation. 

36. As with the Series B round, Lachwani knowingly or recklessly made numerous 

misrepresentations to Series C investors about ARR, revenue, and customer growth.  He continued to 

knowingly or recklessly claim falsely inflated ARRs for many customers, including Customer 1 and 

Customer 2, in an updated version of the ARR Spreadsheet that he sent to Series C investors.  In fact, 

he increased the claimed ARRs for certain existing customers.  For example, according to the 2019 

ARR Spreadsheet, a reseller, Customer 4, had ARR of over $10 million.  However, HeadSpin only 

received approximately $1.4 million total in payments from Customer 4 between 2018 and 2019.  He 

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also added inflated ARRs for new customers, including, for instance, a major credit card company 

that signed a non-binding agreement with HeadSpin in 2019.  Separately, the financial statements that 

Lachwani provided to Series C investors contained similarly inflated revenue numbers. 

37. Lachwani also continued to knowingly or recklessly make misrepresentations about 

HeadSpin’s retention of customers.  In around September 2019, he sent a prospective investor a 

version of the 2019 ARR Spreadsheet and knowingly or recklessly misrepresented that HeadSpin had 

only lost two customers and that “[e]very other deal has expanded or stayed the same.”  He made 

those claims even though he knew, or was reckless in not knowing, that many listed customers – 

including Customer 1, Customer 2, and Customer 4 – had paid HeadSpin far less than the amounts 

claimed in the ARR Spreadsheet.  As another example, Lachwani reviewed a draft investment 

memorandum put together by Investor 1 in anticipation of the Series C round.  He knowingly or 

recklessly confirmed the accuracy of the memorandum even though it incorrectly identified Customer 

3, which had ended its relationship with HeadSpin in 2017, as part of the company’s “impressive 

customer base.” 

38. The grossly overstated ARR, revenues, and customer lists were important to investors 

who participated in HeadSpin’s three offerings between 2018 and 2020 because those metrics were 

directly related to the future growth and success of HeadSpin’s business and, thus, the likelihood that 

investors would obtain a return on their investments in the company. 

VI. Lachwani’s Fraud Unraveled When His ARR Inflation Came to Light. 

39. In March 2020, the company’s Board of Directors was alerted to concerns about the 

accuracy of the financial and customer information provided to investors and discovered, through an 

investigation, significant issues with HeadSpin’s reporting of customer deals.  HeadSpin then 

determined, based on a subsequent review of its financial information, that HeadSpin’s ARR at the 

end of 2019 was closer to $10 million, as opposed to the $80 million represented to investors.  

40. In May 2020, HeadSpin forced Lachwani to resign, and Lachwani also returned 

approximately $2 million to Investor 1, which had purchased some of his personal HeadSpin stock in 

May 2019. 

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41. HeadSpin revised its valuation from approximately $1.1 billion down to 

approximately $300 million.  The company also returned approximately 70% of principal to investors 

in the Series B and C funding rounds.  The company further offered to return the remaining funds in 

the form of promissory notes with one percent interest.  Approximately 31 investors chose to retain 

their HeadSpin stock instead of exchanging for promissory notes. 

FIRST CLAIM FOR RELIEF 

(Violations of Section 10(b) of the Exchange Act and Rule 10b-5) 

42. The Commission re-alleges and incorporates by reference paragraphs 1 through 41. 

43. Defendant, by engaging in the conduct described above, directly or indirectly, in 

connection with the purchase or sale of securities, by use of means or instrumentalities of interstate 

commerce, or of the mails, with scienter: 

a. Employed devices, schemes, or artifices to defraud; 

b. Made untrue statements of material facts or omitted to state material facts 

necessary in order to make the statements made, in the light of the 

circumstances under which they were made, not misleading; and 

c. Engaged in acts, practices, or courses of business which operated or would 

operate as a fraud or deceit upon other persons, including purchasers of 

securities. 

44. By reason of the foregoing, Defendant violated, and unless restrained and enjoined 

will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 

thereunder [17 C.F.R. § 240.10b-5]. 

SECOND CLAIM FOR RELIEF 

(Violations of Section 17(a) of the Securities Act) 

45. The Commission re-alleges and incorporates by reference paragraphs 1 through 41. 

46. Defendant, by engaging in the conduct described above, directly or indirectly, in the 

offer or sale of securities, by use of the means of instruments of transportation or communication in 

interstate commerce or by use of the mails, 

a. with scienter, employed devices, schemes, or artifices to defraud; 

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b. obtained money or property by means of untrue statements of material fact or 

by omitting to state a material fact necessary in order to make the statements 

made, in light of the circumstances under which they were made, not 

misleading; and 

c. engaged in transactions, practices, or courses of business which operated or 

would operate as a fraud or deceit upon purchasers. 

47. By reason of the foregoing, Defendant violated, and unless restrained and enjoined 

will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]. 

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that the Court:   

I. 

Enter an order permanently enjoining Defendant from directly or indirectly violating Section 

10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder, 

and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].  

II. 

Enter an order permanently enjoining Defendant from directly or indirectly, including, but not 

limited to, through any entity owned or controlled by Defendant, participating in the issuance, 

purchase, offer, or sale of any security. 

III. 

Enter an order requiring Defendant to pay civil penalties pursuant to Section 20(d) of the 

Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]. 

IV. 

Enter an order prohibiting Defendant from serving as an officer or director of any issuer 

having a class of securities registered with the Commission pursuant to Section 12 of the Exchange 

Act [15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act 

[15 U.S.C. § 78o(d)], pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 

21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)]. 

Case 5:21-cv-06554   Document 1   Filed 08/25/21   Page 12 of 13



 

COMPLAINT 13  
 

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V. 

Retain jurisdiction of this action in accordance with the principles of equity and the Federal 

Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that 

may be entered, or to entertain any suitable application or motion for additional relief within the 

jurisdiction of this Court. 

VI. 

Grant such other and further relief as this Court may determine to be just and necessary. 

 

Dated: August 25, 2021           Respectfully submitted, 

 
/s/ Erin E. Wilk       
Erin E. Wilk 
Marc D. Katz 
David Zhou 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 

Case 5:21-cv-06554   Document 1   Filed 08/25/21   Page 13 of 13