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

Today, both the U.S. Department of Justice and the Securities and Exchange Commission charged Manish Lachwani, cofounder of a 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 […]

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Today, both the U.S. Department of Justice and the Securities and Exchange Commission charged Manish Lachwani, cofounder of a 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 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 his company, 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 DOJ’s federal complaint suggests that Lachwani’s alleged scheming dates back to at least November 2019, when the company was fundraising. It says it was then that the success of Palo Alto-based Headspin — which helps apps and devices work in different environments around the world – was being knowingly misrepresented to investors by Lachwani.

More specifically, the 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 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 around the time its Series C round was being announced in February of last year.

Nikesh Arora, a former SoftBank president, 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 it’s investigation is continuing. Meanwhile, the DOJ 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 cofounder Jerry Yang introduced him to Brien Colwell, a former Palantir and Quora engineer 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.

Pictured above, left to right, Headspin founders Lachwani and Colwell.

The DOJ’s federal complaint suggests that Lachwani’s alleged scheming dates back to at least November 2019, when the company was fundraising. It says it was then that the success of Palo Alto-based Headspin — which helps apps and devices work in different environments around the world – was being knowingly misrepresented to investors by Lachwani.

Source: https://techcrunch.com/2021/08/25/the-sec-and-the-doj-just-charged-this-startup-ceo-with-fraud-saying-he-lied-to-tiger-and-others/

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South Korean antitrust regulator fines Google $177M for abusing market dominance – TechCrunch

The Korea Fair Trade Commission (KFTC) said on Tuesday it fined Google $177 million for abusing its market dominance in the Android operating system (OS) market. The U.S. tech company has restricted market competition by prohibiting local smartphone makers like Samsung Electronics and LG Electronics from customizing their Android OS, through Google’s anti-fragmentation agreements (AFA), […]

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The Korea Fair Trade Commission (KFTC) said on Tuesday it fined Google $177 million for abusing its market dominance in the Android operating system (OS) market.

The U.S. tech company has restricted market competition by prohibiting local smartphone makers like Samsung Electronics and LG Electronics from customizing their Android OS, through Google’s anti-fragmentation agreements (AFA), according to the antitrust regulator statement.

Under the AFA, smartphone developers are not allowed to install or develop “Android forks”, modified versions of Android.

The KFTC banned Google LLC, Google Asia Pacific and Google Korea from imposing local smartphone developers to sign the AFA and make changes on details about the existing version. The new measure in South Korea will be applied to not only mobiles devices but also other Android-powered smart devices including watches and TVs.

Android has spurred innovation among Korean mobile operator owners and software developers and that has led to a better user experience for Korean consumers, Google said in its statement. “The KFTC’s decision released today ignores these benefits, and will undermine the advantages enjoyed by consumers. Google intends to appeal the KFTC’s decision,” a spokesperson at Google said.

The commission has been investigating Google over the anti-competition practice in OS market since July 2016, a spokesperson at KFTC said.

Google’s global mobile OS market share excluding China has been increased to 97.7% in 2019 from 38% in 2010, as per KFTC’s announcement.

Google’s AFA has also limited to launch tech companies’ new devices like smart watches and TVs using the operating system (OS) including Samsung’s smart watch in 2013, LG Electronics’ LTE smart speaker in 2018 as well as Amazon’s smart TV in 2018.

South Korea’s watchdog is probing into three other cases including the Play Store app market, billing system and the advertisement market.

Meanwhile, South Korea’s “anti-Google law”, takes effect on 14 September, based on Korea Communications Commission’s press release.

In late August, South Korea passed a bill to curb global tech companies including Google and Apple from imposing their own proprietary in-app payment service and commissions on app developers.

Source: https://techcrunch.com/2021/09/14/south-korean-antitrust-regulator-fines-google-177m-for-abusing-market-dominance/

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Blockchain startup XREX gets $17M to make cross-border trade faster – TechCrunch

A substantial portion of the world’s trade is done in United States dollars, creating problems for businesses in countries with a dollar shortage. Blockchain startup XREX was launched to help cross-border businesses in emerging markets perform faster transactions with products like a payment escrow service and crypto-fiat exchange platform. The Taipei-headquartered company announced today it has […]

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Blockchain startup co-founders Winston Hsiao and Wayne Huang in front of the company's logo

XREX co-founders Winston Hsiao and Wayne Huang

A substantial portion of the world’s trade is done in United States dollars, creating problems for businesses in countries with a dollar shortage. Blockchain startup XREX was launched to help cross-border businesses in emerging markets perform faster transactions with products like a payment escrow service and crypto-fiat exchange platform.

The Taipei-headquartered company announced today it has raised $17 million in pre-Series A funding led by CDIB Capital Group. The oversubscribed round also included participation from SBI Investment (a subsidiary of SBI Holdings), Global Founders Capital, ThreeD Capital, E.Sun Venture Capital, Systex Corporation, MetaPlanet Holdings, AppWorks, BlackMarble, New Economy Ventures and Seraph Group. XREX’s last funding was a $7 million seed round in 2019.

Part of the new round will be use to apply for financial licenses in Singapore, Hong Kong and South Africa, and partner with banks and financial institutions, like payment gateways.

“We specifically wanted to build a regulatory-friendly cap table,” XREX co-founder and chief executive officer Wayne Huang told TechCrunch. “It’s really hard for a startup like us to raise from banks and public companies, but as you can see, this round we deliberately to do that and we were successful.”

Huang sold his previous startup, anti-malware SaaS developer Armorize Technologies, to Proofpoint in 2013. Armorize analyzed source code to find vulnerabilities, and many of its clients were developers in Bangalore and Chennai, so Huang spent a lot of time traveling there.

“We ran into all sorts of cross-border money transfer issues. It seemed almost unstoppable,” Huang said. “Growing up in the U.S. and then in Taiwan, we were not exposed to those issues. So that planted a seed, and then when Satoshi [Nakamoto] published the bitcoin white paper, of course that was a big thing for all cybersecurity experts.”

He began thinking of how blockchain can support financial inclusion in emerging markets like India. The idea came to fruition Huang teamed up with XREX co-founder Winston Hsiao, the founder of BTCEx-TW, one of Taiwan’s first bitcoin exchanges. Hsiao grew up in India and founded Verico International, exporting Taiwan-manufactured semiconductors and electronics to other countries, so he was also familiar with cross-border trade issues.

XREX Crypto Services give merchants, especially those in countries with low U.S. dollar liquidity, tools to conduct trade in digital fiat currencies. “They have to get quick access to the U.S. dollar and be able to pay it out quick enough for them to secure important commodities that they want to import, and that’s the problem we want to solve,” said Huang.

To use the platform, merchants and their customers sign up for XREX’s wallet, which includes a commercial escrow service called Bitcheck. Huang said it is similar to having a standby letter of credit from a commercial bank, because buyers can use it to guarantee they will be able to make payments. Bitcheck uses digital currencies like USDT and USDC, stablecoins that are pegged to the U.S. dollar.

Merchants pay stablecoin to suppliers and XREX escrows the funds until the supplier provides proof of shipment, at which point it moves the payment to them. XREX’s crypto-fiat exchange allows users to convert USDT and USDC to U.S. dollars, which they can also withdraw and deposit through the platform.

Part of XREX’s funding will be used to expand its fiat currency platform, though Huang said it doesn’t plan to add too many cryptocurrencies “because we’re not built for crypto traders, we’re built for businesses and brand really matters to them. Brand and compliance, so whatever the U.S. Comptroller of the Currency says is a good stablecoin is what they’re going to use.”

Some of XREX’s partners include compliance and anti-money laundering providers like CipherTrace, Sum&Substance and TRISA. Part of XREX’s funding will be used to expand its security and compliance features, including Public Profiles, which are mandatory for customers, and user Reputation Index to increase transparency.

In a statement about the funding, CDIB Capital Innovation Fund head Ryan Kuo said, “CDIB was an early investor in XREX. After witnessing the company’s fast revenue growth and their commitment to compliance, we were determined to double our investment and lead this strategic round.”

The Taipei-headquartered company announced today it has raised $17 million in pre-Series A funding led by CDIB Capital Group. The oversubscribed round also included participation from SBI Investment (a subsidiary of SBI Holdings), Global Founders Capital, ThreeD Capital, E.Sun Venture Capital, Systex Corporation, MetaPlanet Holdings, AppWorks, BlackMarble, New Economy Ventures and Seraph Group. XREX’s last funding was a $7 million seed round in 2019.

Source: https://techcrunch.com/2021/08/22/blockchain-startup-xrex-gets-17m-to-make-cross-border-trade-faster/

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The DL on CockroachDB – TechCrunch

As college students at Berkeley, Spencer Kimball and Peter Mattis created a successful open-source graphics program, GIMP, which got the attention of Google. The duo ultimately joined Google, and even personally got kudos from Sergey Brin and Larry Page. Kimball and Mattis quickly rose to prominence within the company, and then chose to leave it […]

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As college students at Berkeley, Spencer Kimball and Peter Mattis created a successful open-source graphics program, GIMP, which got the attention of Google. The duo ultimately joined Google, and even personally got kudos from Sergey Brin and Larry Page. Kimball and Mattis quickly rose to prominence within the company, and then chose to leave it all behind to start what would eventually become CockroachDB. Years later, Cockroach Labs has over 250 employees and has received investments from the likes of Benchmark, GV, Index Ventures and Redpoint totaling more than $350 million, according to Crunchbase. The company is now on route to what some think is an “inevitable IPO.”

The story of CockroachDB, from its origin to its future, was told in a four-part series in our latest EC-1:

I’m biased, but it’s a must-read that gets into tensions that any startup founder can relate to: from navigating heavyweight competitors, to growing past free tiers, to maintaining your users’ attention. It’s the eighth EC-1 we’ve published to date, which my colleague and TC Managing Editor Danny Crichton estimates puts us at 90,000 words all about startup beginnings, product development, marketing and more.

In the rest of this newsletter, we’ll get into that WeWork book, bite-sized entrepreneurship and some SPACs. Follow me on Twitter @nmasc_. Or don’t, it’s your choice!

The Cult of We

Adam Neumann (WeWork) at TechCrunch Disrupt NY 2017. Image Credits: TechCrunch

This week on Equity, Alex and I interviewed Eliot Brown, who wrote “The Cult of We” along with Maureen Farrell. Our conversation riffed on some of the book’s eyebrow-raising details and anecdotes, but mainly focused on what WeWork’s rise and fall did to the state of startups and tech journalism more broadly.

Here’s what to know: Not much has changed. Jokes aside, Brown shared his notes on how the current boom in startup financings has a worrisome air of frenzy and fluff. He also chatted about how sometimes the most illuminating question can be a simple one: What makes you a tech company?

More money, more problems?

TikTok what again?

tiktok glitch

Image Credits: TechCrunch

TikTok kept popping up throughout the week. Index Ventures, for example, noted how the firm’s TikTok account has amassed an impressive following and is a channel to talk to the younger generations. Nothing like some short-form videos to stay hip and relatable while raising $3 billion in one go.

Here’s what to know: While TikTok has certainly changed the world, I worry when I see the allure of bite-sized content get edtech’d. Bite-sized content can be a nifty way to spread content, but it isn’t one-size-fits-all. Duolingo, which priced its IPO this week, still struggles to show meaningful learning outcomes and optimizes more for motivation than comprehension. This tension is a key note for companies like Numerade and Sololearn, which both raised this week, to not overly TikTok learning materials.

Other edtech content for your eyes:

So, SPACs

hands signing check 1

Image Credits: Bryce Durbin / TechCrunch

It’s been awhile since I’ve used that acronym in Startups Weekly. That said, special purpose acquisition vehicles are still very much a thing and are still very much worth paying attention to.

Here’s what to know: Lucid Motors’ SPAC merger was just approved. Reporter Aria Alamalhodaei writes that the move came after executives extended the deadline to vote to merge by one day after not enough investors showed up. “The issue is unusual but could become more common as more companies eschew the traditional IPO path to public markets and instead merge with SPACs,” she writes.

Also special:

Around TC

If you haven’t already, please fill out TC’s ongoing growth marketing survey. We’re using these recommendations of top-tier growth marketers around the world to shape our editorial coverage and to build out TechCrunch Experts.

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N

  • Technical design “How engineers fought the CAP theorem in the global war on latency” (2,400 words/10 minutes)
  • Source: https://techcrunch.com/2021/07/24/an-inevitable-ipo-full-of-cockroaches-and-developers/

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