Founder behind social media app IRL charged with fraud

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Whereas enterprise capitalists and the remainder of the technorati are off on vacation or attending the Paris Olympics, the U.S. Securities and Alternate Fee and its employees attorneys are retaining busy this summer season. 

For the second time this week — and no less than the fourth time previously a number of months — the SEC has charged a venture-backed founder on allegations of fraud. 

The SEC stated Wednesday it has charged Abraham Shafi, the founder and former CEO of the social media startup often called IRL, for allegedly defrauding buyers. The company says Shafi made false and deceptive statements concerning the firm’s development and hid that he and his fiancée, Barbara Woortmann, extensively used firm bank cards to pay for private bills.

IRL was positioned as a viral social media app that took off through the pandemic, however there was one small drawback: Its hundreds of thousands of customers have been faux. IRL, which began as a social calendar app and was constructing out a messaging-based social community to turn out to be the “WeChat of the West, shut down in June 2023 after an inside investigation by the corporate’s board discovered that 95% of the app’s customers have been “automated or from bots.” 

Earlier than IRL’s demise, Shafi had managed to boost $200 million in enterprise capital. The startup’s final spherical — a Collection C increase of $170 million led by Softbank’s Imaginative and prescient Fund 2 — pushed IRL into unicorn standing with a $1.17 billion valuation. Issues and considerations emerged not lengthy after. 

The SEC stated in its criticism Wednesday that Shafi portrayed IRL as a viral social media platform that had organically attracted its purported 12 million customers. As a substitute, IRL spent hundreds of thousands of {dollars} on advertisements that provided incentives to obtain the IRL app, in line with the SEC.

The SEC alleges Shafi then hid these bills. The criticism additionally alleges that Shafi didn’t confide in buyers that he and Woortmann charged a whole lot of 1000’s of {dollars} on the corporate’s bank cards on clothes, residence furnishings and journey.

“As we alleged, Shafi took benefit of buyers’ urge for food for investments within the pre-IPO know-how house and fraudulently raised roughly $170 million by mendacity about IRL’s enterprise practices,” stated Monique C. Winkler, Director of the SEC’s San Francisco Regional Workplace. “Traders on this house ought to proceed to be vigilant.”

Earlier this week, the SEC charged BitClout founder Nader Al-Naji with fraud and unregistered providing of securities, claiming he used his pseudonymous on-line identification “DiamondHands” to keep away from regulatory scrutiny whereas he raised over $257 million in cryptocurrency. BitClout, a buzzy crypto startup, was backed by high-profile VCs comparable to a16z, Sequoia, Chamath Palihapitiya’s Social Capital, Coinbase Ventures and Winklevoss Capital. 

In June, the SEC charged Ilit Raz, CEO and founding father of the now-shuttered AI recruitment startup Joonko, with defrauding buyers of no less than $21 million. The company alleged Raz made false and deceptive statements concerning the amount and high quality of Joonko’s prospects, the variety of candidates on its platform and the startup’s income.

The company has additionally gone after enterprise corporations in current months. In Might, the SEC charged Robert Scott Murray and his agency Trillium Capital LLC with a fraudulent scheme to govern the inventory worth of Getty Photos Holdings Inc. by asserting a phony provide by Trillium to buy Getty Photos. 

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