Remediation Helps Tech Company Avoid Penalties

Washington, D.C.--(Newsfile Corp. - January 28, 2022) - The Securities and Exchange Commission today announced settled fraud charges without a penalty against HeadSpin, Inc., a private technology company that made significant remedial efforts in the wake of an internal investigation into misconduct by its now former CEO.

"For companies wondering what types of remedial actions and cooperation might be credited by the Commission after a company uncovers fraud, this case offers an excellent example," said Gurbir S. Grewal, Director of the SECs Division of Enforcement. "HeadSpins remediation and cooperation included not just its internal investigation and revised valuation, but also repaying harmed investors and improving its governanceall of which were factors that counseled against the imposition of a penalty in this case."

The SECs complaint, filed in the U.S. District Court for the Northern District of California, alleges that from at least 2018 through 2020, HeadSpin, through its former CEO Manish Lachwani, engaged in a fraudulent scheme to propel the Silicon Valley-based companys valuation to over $1 billion by falsely inflating its key financial metrics and doctoring internal sales records.

According to the complaint, Lachwani controlled all important aspects of HeadSpins financials and sales operations, significantly inflated the value of numerous customer deals, and concealed this inflation by creating fake invoices and altering real invoices to make it appear as though customers had been billed higher amounts. Lachwanis fraud unraveled after the companys Board of Directors conducted an internal investigation which led to the CEOs removal, a revised valuation down to $300 million, and remedial efforts including repaying investors.

HeadSpins remedial actions also included hiring new senior management, expanding its board, and instituting processes and procedures designed to ensure transparency and accuracy of deal reporting and associated revenues.

The SECs complaint alleges that HeadSpin violated the antifraud provisions of the federal securities laws. Without admitting or denying the allegations, HeadSpin agreed to be permanently enjoined from violations of these provisions. The settlement is subject to court approval.

The SECs investigation was conducted by Erin E. Wilk and Ellen Chen, and supervised by Jennifer J. Lee and Monique C. Winkler of the San Francisco Regional Office. The SECs litigation against HeadSpins former CEO is ongoing and is being led by Marc Katz, David Zhou, and Ms. Wilk.

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