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Start-Up Founder Sentenced to 18 Months in Prison for Fraud

Another start-up founder is going to prison for overstating his company’s performance to investors.

Manish Lachwani, who last year pleaded guilty to three counts of defrauding investors at his software start-up, HeadSpin, was sentenced to one and a half years in prison on Friday. He will also pay a fine of $1 million.

Government prosecutors said Mr. Lachwani, 48, deceived investors by inflating HeadSpin’s revenue nearly fourfold, making false claims about its customers and creating fake invoices to cover it up. His misrepresentations allowed him to raise $117 million in funding from top investment firms, valuing his start-up at $1.1 billion.

When HeadSpin’s board members found out about the behavior in 2020, they pushed Mr. Lachwani to resign and slashed the company’s valuation by two-thirds.

Mr. Lachwani is at least the fourth start-up founder in recent years to face serious consequences after taking Silicon Valley’s culture of hype too far. Other founders currently in prison for fraud include Sam Bankman-Fried of the cryptocurrency exchange FTX and Elizabeth Holmes and Ramesh Balwani of the blood testing start-up Theranos.

Trevor Milton, a founder of the electric vehicle company Nikola, was sentenced to prison in December for fraud. Michael Rothenberg, a venture capital investor who was recently convicted of 12 counts of fraud and money laundering, is set to be sentenced in June. And Changpeng Zhao, who founded the cryptocurrency exchange Binance and pleaded guilty to money laundering last year, is scheduled to be sentenced later this month.

Carlos Watson, the founder of the digital media outlet Ozy Media, and Charlie Javice, founder of the financial aid start-up Frank, have pleaded not guilty to fraud charges and face trials later this year.

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