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The SEC and the DOJ just charged this startup founder with fraud, saying he lied to Tiger and others

Published August 27, 2021

Today, both the U.S. Department of Justice and the Securities and Exchange Commission charged Manish Lachwani, co-founder of mobile app testing company HeadSpin, with fraud. The SEC says he violated antifraud provisions, and the civil penalties it’s seeking include a permanent injunction, a conduct-based injunction, and to bar him for serving as a corporate executive or board member.

The DOJ, which arrested Lachwani earlier, has accused him of one count of wire fraud and one count of securities fraud, and the associated penalties if he’s found guilty are more harsh, including, for wire fraud, a maximum sentence of 20 years in prison and a fine of $250,000. If he’s found guilty of securities fraud, he faces a maximum sentence of 20 years in prison and a fine of $5,000,000.

Both the the SEC and the DOJ say Lachwani — who led the six-year-old company as CEO until May of last year — defrauded investors out of $80 million by falsely claiming that HeadSpin had “achieved strong and consistent growth in acquiring customers and generating revenue” when he was pitching its Series C round to potential backers.

By the SEC’s telling, his fabrications were designed to help secure the round at a so-called unicorn valuation. That apparent plan worked, too, with Palo Alto-based HeadSpin attracting coverage in Forbes in February of last year after Dell Technologies Capital, Iconiq Capital and Tiger Global provided the company with $60 million in Series C funding at a $1.16 billion valuation. Forbes reported at the time that the valuation was double the valuation investors assigned HeadSpin when it closed its Series B round in October 2018.

The SEC also says that Lachwani was looking to enrich himself, saying he did so “by selling $2.5 million of his HeadSpin shares in a fundraising round during which he made misrepresentations to an existing HeadSpin investor.” (It isn’t clear from its complaint whether the SEC is referring to the Series C or an earlier round.)

The two federal complaints suggest that Lachwani’s alleged scheming to inflate HeadSpin’s valuation dates back to “at least 2018,” and the DOJ says it picked up momentum when the company was fundraising in late 2019.

More specifically, the DOJ complaint alleges that “in materials and presentations to potential investors, Lachwani reported false revenue and overstated key financial metrics of the company … he maintained control over operations, sales, and record-keeping, including invoicing, and he was the final decision-maker on what revenue was booked and included in the company’s financial records.”

In the investigation that led to the DOJ’s charges, the FBI discovered “multiple examples” of Lachwani “instructing employees to include revenue from potential customers that inquired but did not engage HeadSpin, from past customers who no longer did business with HeadSpin, and from existing customers whose business was far less than the reported revenue,” says the department.

How far off were these collective calculations? The complaint says that ultimately, Lachwani “provided investors false information that overstated HeadSpin’s annual recurring revenue … by approximately $51 million to $55 million.”

According to the complaint, Lachwani’s fraud unraveled after the company’s board of directors conducted an internal investigation and revised HeadSpin’s valuation down from $1.1 billion to $300 million. Indeed, in August of last year, The Information reported that the company was planning to lower the value of its Series C stock by nearly 80%.

The outlet reported at the time that Lachwani had already been replaced by another executive. That person, according to LinkedIn, is Rajeev Butani, who joined HeadSpin as its chief sales officer early last year.

Nikesh Arora, a former SoftBank president and the current CEO and chairman of Palo Alto Networks, helped lead the internal review as a then-director on the board of HeadSpin, said The Information.

The SEC says its investigation is continuing. The DOJ similarly notes in its announcement that “a complaint merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.”

Either way, the outlook doesn’t look very promising right now for Lachwani, who, according to Forbes, previously sold a mobile cloud business to Google and wound up co-founding HeadSpin after Yahoo co-founder Jerry Yang introduced him to Brien Colwell, a former Palantir and Quora engineer who was working at the time on a different startup.

Colwell remains with HeadSpin as its CTO. He has not been named in either the SEC or the DOJ’s complaints relating to HeadSpin.

The company itself, which says it has been cooperating with the government’s investigation, was also not charged.

This Week in Apps: TikTok viral hit breaks Spotify records, inauguration boosts news app installs, judge rules against Parler

Published January 23, 2021

Welcome back to This Week in Apps, the weekly TechCrunch series that recaps the latest in mobile OS news, mobile applications and the overall app economy.

The app industry is as hot as ever, with a record 218 billion downloads and $143 billion in global consumer spend in 2020.

Consumers last year also spent 3.5 trillion minutes using apps on Android devices alone. And in the U.S., app usage surged ahead of the time spent watching live TV. Currently, the average American watches 3.7 hours of live TV per day, but now spends four hours per day on their mobile devices.

Apps aren’t just a way to pass idle hours — they’re also a big business. In 2019, mobile-first companies had a combined $544 billion valuation, 6.5x higher than those without a mobile focus. In 2020, investors poured $73 billion in capital into mobile companies — a figure that’s up 27% year-over-year.

This week, we’re looking into how President Biden’s inauguration impacted news apps, the latest in the Parler lawsuit, and how TikTok’s app continues to shape culture, among other things.

Weekly News

Platforms: Apple

Apple stops signing iOS 12.5, making iOS 12.5.1 the only versions of iOS available to older devices.
A report claims Apple’s iOS 15 update will cut support for devices with an A9 chip, like the iPhone 6, iPhone 6s Plus and the original iPhone SE.
New analysis estimates Apple’s upcoming iOS privacy changes will cause a roughly 7% revenue hit for Facebook in Q2. The revenue hit will continue in following quarters and will be “material.”

Platforms: Google

Google adds “trending” icons to the Play Store. New arrow icons appeared in the Top Charts tab, which indicate whether an app’s downloads are trending up or down, in terms of popularity. This could provide an early signal about those that may still be rising in the charts or beginning to fall out of favor, despite their current high position.
Google appears to be working on a Restricted Networking mode for Android 12. The mode, discovered by XDA Developers digging in the Android Open Source Project, would disable network access for all third-party apps.

Gaming

Goama (or Go Games) introduced a way for developers to integrate social games into their apps, which was showcased at CES. The company focuses on Asia and Latin America and has more than 15 partners, including GCash and Rappi, for digital payments and communications.

Goama lets developers integrate a social gaming platform into their apps

Fortnite maker Epic Games is getting into movies. The animated feature film Gilgamesh will use Epic’s Unreal Engine technology to tell the story of the king-turned-deity. The movie is not an in-house project, but rather is financed through Epic’s $100M MegaGrants fund.

Augmented Reality

Patents around Apple’s AR and VR efforts describe how a system could be identified in a way that’s similar to FaceID, then either permitted or denied the ability to change their appearance in the game.
Pinterest launches AR try-on for eyeshadow in its mobile app using Lens technology and ModiFace data. The app already offered AR try-on for lipsticks.

Pinterest launches an AR-powered try-on experience for eyeshadow

Entertainment

The CW app became the No. 1 app on the App Store this week, topping TikTok, Instagram and YouTube, thanks to CW’s season premieres of Batwoman, All American, Riverdale and Nancy Drew.
Users of podcasting app Anchor, owned by Spotify, say the app isn’t bringing them any sponsorship opportunities, as promised, beyond those from Spotify and Anchor itself.
YouTube launches hashtag landing pages on the web and in its mobile app. The pages are accessible when you click hashtags on YouTube, not via search, and weirdly rank the “best” videos through some inscrutable algorithm.

YouTube launches hashtag landing pages to all users

Apple’s Podcasts app adds a new editorial feature, Apple Podcasts Spotlight, meant to increase podcast listening by showcasing the best podcasts as selected by Apple editors.

E-commerce

WeChat facilitated 1.6 trillion yuan (close to $250 billion) in annual transactions through its “mini programs” in 2020. The figure is more than double that of 2019.

WeChat advances e-commerce goals with $250B in transactions

Fintech

Douyin, the Chinese version of TikTok, launched an e-wallet, Douyin Pay. The wallet will supplement the existing payment options, Alipay and WeChat Pay, and will help to support the Douyin app’s growing e-commerce business.
Neobank Monzo founder Tom Blomfield left the startup, saying he struggled during the pandemic. “I think [for] a lot of people in the world…going through a pandemic, going through lockdown and the isolation involved in that has an impact on people’s mental health,” he told TechCrunch.

Monzo founder Tom Blomfield is departing the challenger bank and says he’s ‘struggled’ during the pandemic

New estimates indicate about 50% of the iPhone user base (or 507 million users) now use Apple Pay.
Samsung’s newest phones drop support for MST, which emulates a mag stripe at terminals that don’t support NFC.

Social

Indian messaging app, StickerChat, owned by Hike, is shutting down. Founder Kavin Bharti Mittal said India will never have a homegrown messenger unless it bars Western companies from its market. Hike pivoted this month to virtual social apps, Vibe and Rush, which it believes have more potential.
Instagram head Adam Mosseri, in a Verge podcast, said he’s not happy with Reels so far, and how he feels most people probably don’t understand the difference between Instagram video and IGTV. He says the social network needs to simplify and consolidate ideas.
Facebook and Instagram improve their accessibility features. The apps’ AI-generated image captions now offer far more details about who or what is in the photos, thanks to improvements in image recognition systems.
TikTok launches a Q&A feature that lets creators respond to fan questions using text or videos. The feature, rolled out to select creators with more than 10,000 followers, makes it easier to see all the questions in one place.

TikTok’s new Q&A feature lets creators respond to fan questions using text or video

Health & Fitness

Health and fitness app spending jumped 70% last year in Europe to record $544 million, a Sensor Tower report says. The year-over-year increase is far larger than 2019, when growth was just 37.2%. COVID-19 played a large role in this shift as people turned to fitness apps instead of gyms to stay in shape.

Government & Policy

Biden’s inauguration boosted installs of U.S. news apps up to 170%, Sensor Tower reported. CNN was the biggest mover, climbing 530 positions to reach No. 41 on the App Store, and up 170% in terms of downloads. News Break was the second highest, climbing 13 positions to No. 65. Right-wing outlet Newsmax climbed 43 spots to reach No. 108. In 2020, the top news apps were: News Break (23.7 million installs); SmartNews (9 million); CNN (5 million); and Fox News (4 million). This month, however, News Break saw 1.2 million installs, followed by Newsmax with about 863,000 installs, the report said.
Ireland’s Data Protection Commission (DPC) sent a draft decision to fellow EU Data Protection Authorities over the WhatsApp-Facebook data sharing policy. This means a decision on the matter is coming closer to a resolution in terms of what standards of transparency is required by WhatsApp.

WhatsApp-Facebook data-sharing transparency under review by EU DPAs after Ireland sends draft decision

German app developer Florian Mueller of FOSS Patents filed a complaint with the EU, U.S. DOJ and other antitrust watchdogs around the world over Apple and Google’s rejection of his COVID-related mobile game. Both stores had policies to only approve official COVID-19 apps from health authorities. Mueller renamed the game Viral Days and removed references to the novel coronavirus to get the app approved. However, he still feels the stores’ rules are holding back innovation.

Productivity

Basecamp’s Hey, which famously fought back against Apple’s App Store rules over IAP last year, has launched a business-focused platform, Hey for Work, expected to be public in Q1. The app has more App Store ratings than rival Superhuman, a report found. Currently, Hey has a 4.7-star rating across 3.3K reviews; Superhuman has 3.9 rating across only 274 reviews.

Trends

Baby boomers are increasingly using apps. Baby boomers/Gen Xers in the U.S. spent 30% more time year-over-year in their most used apps, App Annie reports. That’s a larger increase than either Millennials or Gen Z, at 18% and 16%, respectively.

Funding and M&A

Curtsy, a clothing resale app for Gen Z women, raised an $11 million Series A led by Index Ventures. The app tackles some of the problems with online resale by sending shipping supplies and labels to sellers, and by making the marketplace accessible to new and casual sellers.
Storytelling platform Wattpad acquired by South Korea’s Naver for $600 million. The reading apps whose stories have turned into book and Netflix hits will be incorporated into Naver’s publishing platform Webtoon.

Wattpad, the storytelling platform, is selling to South Korea’s Naver for $600 million

On-demand delivery app Glovo partnered with Swiss-based real estate firm, Stoneweg, which is investing €100 million in building and refurbishing real estate in key markets to build out Glovo’s network of “dark stores.”
Pocket Casts app is up for sale. The podcast app was acquired nearly three years ago by a public radio consortium of top podcast producers (NPR, WNYC Studios, WBEZ Chicago and This American Life). The owners have now agreed to sell the app, which posted a net loss in 2020. (NPR’s share of the loss was over $800,000.)
Travel app Maps.me raised $50 million in a round led by Alameda Research. The funding will go toward the launch of a multi-currency wallet. Cryptocurrency lender Genesis Capital and institutional cryptocurrency firm CMS Holdings also participated in the round, Coindesk reported.
Bangalore-based hyperlocal delivery app Dunzo raised $40 million in a round that included investment from Google, Lightbox, Evolvence, Hana Financial Investment, LGT Lightstone Aspada and Alteria.
London-based food delivery app Deliveroo raised $180 million in new funding from existing investors, led by Durable Capital Partners and Fidelity Management, valuing the business at more than $7 billion.
Dating Group acquired Swiss startup Once, a dating app that sends one match per day, for $18 million.

‘Slow dating’ app Once is acquired by Dating Group for $18M as it seeks to expand its portfolio

Downloads

Bodyguard

Image Credits: Bodyguard

A French content moderation app called Bodyguard, detailed here by TechCrunch, has brought its service to the English-speaking market. The app allows you to choose the level of content moderation you want to see on top social networks, like Twitter, YouTube, Instagram and Twitch. You can choose to hide toxic content across a range of categories, like insults, body shaming, moral harassment, sexual harassment, racism and homophobia and indicate whether the content is a low or high priority to block.

Bodyguard is a mobile app that hides toxic content on social platforms

Beeper

Image Credits: Beeper

Pebble’s founder and current YC Partner Eric Migicovsky has launched a new app, Beeper, that aims to centralize in one interface 15 different chat apps, including iMessage. The app relies on an open-source federated, encrypted messaging protocol called Matrix that uses “bridges” to connect to the various networks to move the messages. However, iMessage support is more wonky, as the company actually ships you an old iPhone to make the connection to the network. But this system allows you to access Beeper on non-Apple devices, the company says. The app is slowly onboarding new users due to initial demand. The app works across MacOS, Windows, Linux‍, iOS and Android and charges $10/mo for the service.

Pebble founder launches Beeper, a universal chat app that works with iMessage and others

The DOJ has approved Mastercard’s acquisition of Finicity

Published November 16, 2020

Federal regulators have approved Mastercard’s acquisition of Salt Lake City-based startup Finicity, which provides open-banking APIs. The deal is expected to go for $825 million.

“We were notified that the Department of Justice completed its review of our planned acquisition of Finicity and has cleared it to move forward,” Mastercard wrote in a statement. “We are pleased to have reached this milestone.”

Finicity allows users to be able to decide how their financial information is shared and who can make money decisions on their behalf through open APIs. The buy will allow Mastercard to offer consumers and businesses more choice in these transactions, without requiring them to do heavy lifting themselves.

Finicity, according to Crunchbase, has raised nearly $80 million in known venture capital as a private company. When closed, it will be one of the largest fintech acquisitions at nearly $1 billion in 2020.

The DOJ approval comes just two weeks after the body filed an antitrust lawsuit challenging Visa’s proposed $5.3 billion buy of Plaid. Plaid, which empowers a large chunk of financial services through its data network, including Venmo and Acorns, is being accused of making Visa a monopoly in online debt services.

DOJ files antitrust lawsuit challenging Visa’s $5.3 billion acquisition of Plaid

Plaid has denied these claims, saying that “Visa intends to defend the transaction vigorously.” The feds are also looking into Intuit’s $7 billion proposed buy of Credit Karma, which was first announced in February 2020.

The approval of the Mastercard-Finicity transaction could be a shot in the arm for fintech startup valuations. After both the Plaid and Credit Karma deals came under increasing regulatory scrutiny, it was an open questions whether big-dollar M&A was going to be an option for fintech unicorns.

If the path was closed due to regulatory concerns, fintech startups would have to either pursue earlier, smaller sales themselves, or wait for an eventual IPO. If that was the case, venture capitalists might shun putting as much capital to work in the sector. However, the Finicity approval makes it clear that not all fintech M&A worth $500 million or more is going to encounter oversight headaches. That should be welcome news for late-stage fintech valuations.

4 takeaways from fintech VC in Q3 2020

DoJ charges Autonomy founder with fraud over $11BN sale to HP

Published November 30, 2018

U.K. entrepreneur turned billionaire investor Mike Lynch has been charged with fraud in the U.S. over the 2011 sale of his enterprise software company.

Lynch sold Autonomy, the big data company he founded back in 1996, to computer giant HP for around $11 billion some seven years ago.

But within a year around three-quarters of the value of the business had been written off, with HP accusing Autonomy’s management of accounting misrepresentations and disclosure failures.

Lynch has always rejected the allegations, and after HP sought to sue him in U.K. courts he countersued in 2015.

Meanwhile, the U.K.’s own Serious Fraud Office dropped an investigation into the Autonomy sale in 2015 — finding “insufficient evidence for a realistic prospect of conviction.”

But now the DoJ has filed charges in a San Francisco court, accusing Lynch and other senior Autonomy executives of making false statements that inflated the value of the company.

They face 14 counts of conspiracy and fraud, according to Reuters — a charge that carries a maximum penalty of 20 years in prison.

We’ve reached out to Lynch’s fund, Invoke Capital, for comment on the latest development.

The BBC has obtained a statement from his lawyers, Chris Morvillo of Clifford Chance and Reid Weingarten of Steptoe & Johnson, which describes the indictment as “a travesty of justice,”

The statement also claims Lynch is being made a scapegoat for HP’s failures, framing the allegations as a business dispute over the application of U.K. accounting standards.

Two years ago we interviewed Lynch onstage at TechCrunch Disrupt London and he mocked the morass of allegations still swirling around the acquisition as “spin and bullshit.”

Following the latest developments, the BBC reports that Lynch has stepped down as a scientific adviser to the U.K. government.

“Dr. Lynch has decided to resign his membership of the CST [Council for Science and Technology] with immediate effect. We appreciate the valuable contribution he has made to the CST in recent years,” a government spokesperson told it.

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