- General
- August 1, 2024
- 3 minutes read
SEC Sues IRL Founder Shafi For Securities Fraud
The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Abraham Shafi, the founder of IRL, a now-shuttered…
The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Abraham Shafi, the founder of IRL, a now-shuttered social media app once valued at $1 billion by investors. The SEC accused Shafi of defrauding investors by portraying IRL as an organic viral app despite spending millions of dollars on marketing and incentives to drive its growth. He’s also accused of failing to disclose to investors hundreds of thousands of dollars of personal expenses charged to corporate credit cards.
- IRL raised over $200 million from investors, mainly Japanese technology conglomerate SoftBank. The company shut down in June 2023 after its board of directors found that 95% of its purported 20 million users were “automated or from bots,” i.e., fake.
Shortly after the shutdown, SoftBank sued Shafi for operating a “sophisticated, years-long” fraud, claiming it was duped into investing in IRL with fake metrics. Shafi filed a counter lawsuit claiming he was made a “scapegoat” by SoftBank, which relied on deficient data to conclude IRL was riddled with fake profiles and shuttered the company to recover its remaining cash.
IRL was founded in 2017 as a social calendar app. It positioned itself as a viral social media app whose user base multiplied during the isolative pandemic. Yet, there was a problem; most of its users were fake. For the minor percentage of real users, Shafi allegedly hid millions of dollars in marketing expenses needed to acquire them. He positioned IRL as a viral app and fraudulently raised $170 million from investors, the SEC alleged.
Shafi, a resident of Hawaii, is accused of violating federal securities laws. The SEC is seeking monetary penalties and a ban from serving as a company officer and director for an undeclared period. The agency also filed a complaint against Shafi’s fiancée, Barbara Woortmann, claiming she charged personal expenses to IRL credit cards, which Shafi then hid from investors. It’s seeking disgorgement of those expenses against her.
