Authorities in the US have charged Abraham Shafi, the founder of the now-defunct social media platform IRL, with fraud amounting to $170 million. The Securities and Exchange Commission (SEC) alleges that Shafi misled investors about the company’s growth by making false claims.
Background on IRL
IRL, which aimed to encourage real-life meetups among its users, was initially seen as a potential competitor to Facebook. The company claimed to have around 12 million users. However, it was later revealed that most of these users were bots. This revelation led to the platform’s closure in 2023.
Misuse of Company Funds
In addition to the misleading statements, the SEC accuses Shafi of concealing extensive misuse of company credit cards by himself and his fiancée, Barbara Woortmann. The pair allegedly spent hundreds of thousands of dollars on personal expenses, including clothing, home improvements, and travel.
SEC’s Allegations and Statements
Monique C. Winkler, Director of the SEC’s San Francisco Regional Office, stated: “As we alleged, Shafi took advantage of investors’ appetite for investments in the pre-IPO technology space and fraudulently raised approximately $170 million by lying about IRL’s business practices. Investors in this space should continue to be vigilant.”
Alleged Deception and Hidden Expenditures
The SEC claims that Shafi told investors that IRL’s growth was primarily organic, masking millions of dollars spent on advertisements offering incentives to download the app. These expenses were allegedly hidden in the company’s financial records.
Shafi’s Response and SEC’s Complaint
Shafi has not publicly responded to the charges. However, in a LinkedIn post a year ago, he defended his role amid reports that up to 95% of IRL’s users were bots. The SEC’s complaint, filed in the US District Court for the Northern District of California, seeks to bar Shafi from holding directorship positions in companies.
Conclusion
The SEC’s investigation highlights the importance of transparency and honesty in the tech industry, particularly in the pre-IPO investment space. The outcome of this case will likely serve as a cautionary tale for other tech startups and their investors.
