Business is full of big talkers, especially in the technology sector. When people who deal in mobile apps and other products whose entire existence is located online, it is harder for potential investors to tell when the proprietors of these products talk about how big these products will become. Investors should do their due diligence by asking to see financial records, though; no matter how cool a product is, the decision to invest in it should be based, at least in part, on boring old balance sheets. When the investors ask to see the balance sheets and the big talkers show them fake ones, that is when the real trouble begins. If you are in a financial bind because your company invested in a venture that turned out to be a sham, contact a San Diego business dispute lawyer.
Selling a Unicorn
From 2015 until 2020, Manish Lachwani, the CEO of the mobile development testing company HeadSpin, talked a big game about the business deals his company had secured and would secure in the near future. It appears, though, that in talking up the market-dominating potential of HeadSpin, he may have played fast and loose with the truth. He claimed that HeadSpin was in the process of closing deals with some of the business giants of Silicon Valley. The valuation Lachwani claimed for the company grew and grew, until sometime in 2018 it appeared to morph into a unicorn, a privately traded company valued at more than $1 billion. Lachwani even showed the investors falsified sales records, thus persuading investors to contribute about $80 million to the company, $2.5 million of which Lachwani allegedly pocketed.
In March 2020, a HeadSpin employee exposed Lachwani’s falsehoods by producing the company’s real financial records. In the first quarter of 2020, HeadSpin suffered a net loss of $15.9 million, not a net profit of $3.7 million, as Lachwani had claimed. Lachwani is now facing charges for wire fraud and securities fraud. If convicted, he could face a sentence of up to 20 years in prison and a fine of up to $5.25 million.
Financial Crime in the Business Sector
Securities fraud is a widespread problem. The Justice Department began keeping data on financial crime separately from other crimes in 2011, and the rate of financial crime convictions steadily declined since then, but then it saw an uptick in 2020. When someone is convicted of a financial crime, the court sometimes orders them to pay restitution to the parties harmed by their actions. Even if Lachwani is not ordered to pay restitution (or is not convicted), the investors he allegedly defrauded have the right to seek damages by filing a civil lawsuit.
Contact Foldenauer Law Group About Picking Up the Pieces After Being Defrauded
A California business dispute lawyer can help you recover from your financial losses after an investment you tried to make turned out to be based on lies. Contact Foldenauer Law Group, APLC in San Diego, California to discuss your case.