IRL Founder Abraham Shafi Charged in $170 Million Fraud Scheme

IRL Founder Abraham Shafi Charged in $170 Million Fraud Scheme

Edited by: TJVNews.com

Abraham Shafi, the founder of the pandemic-era unicorn IRL (In Real Life), has been charged with fraud by federal regulators, accused of deceiving investors about the platform’s user base and misusing company funds for personal expenses, according to a report in The New York Post.  The Securities and Exchange Commission (SEC) filed the complaint on Wednesday in the US District Court for the Northern District of California, alleging a scheme that swindled investors out of approximately $170 million.

According to the SEC, Shafi, the 37-year-old CEO of Get Together Inc., the parent company of IRL, falsely claimed that the social media platform had 12 million users worldwide to attract investment. As was reported by The Post, in reality, Shafi had spent $6 million on an advertising campaign that offered incentives to download the app, artificially inflating user numbers. The SEC’s complaint asserts that Shafi concealed these marketing expenditures by significantly understating them in offering documents and routing payments through third parties to obscure their true nature.

Monique C. Winkler, head of the SEC’s San Francisco office, stated that Shafi exploited investors’ eagerness to invest in pre-IPO technology companies, raising $170 million under false pretenses. “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,” Winkler said, as was indicated in The Post report.

IRL was once valued at over $1 billion and seen as a potential competitor to Facebook. However, the report in The Post said that in 2023, the platform was shuttered after investors discovered that nearly all of the 20 million users it claimed to have were fake.

The revelation of fraudulent activities led to significant backlash from investors. Notably, SoftBank, one of IRL’s major backers, sued Shafi, demanding the return of its $150 million investment and seeking damages. The Post report noted that in response, Shafi counter-sued, arguing that SoftBank’s claims were based on inaccurate data and accused the bank of trying to deflect attention from its unsuccessful investment in WeWork, the troubled co-working company.

The SEC’s complaint provides a detailed account of Shafi’s alleged deceitful practices. It highlights how he manipulated financial documents and marketing expenditures to present a false image of IRL’s success and growth potential. The case underscores the vulnerabilities in the pre-IPO tech investment landscape, where investor enthusiasm can sometimes overshadow thorough due diligence.

Further compounding the fraud, the SEC’s complaint details how Shafi and his fiancée, Barbara Woortmann, used IRL company credits for personal expenses. As per the information provided in The Post report, the couple allegedly spent millions on furniture, clothing, high-end groceries, and luxurious stays in Hawaiian hotels. This misuse of company funds highlights the extent of Shafi’s deception and the personal gains he reaped from the fraudulent scheme.

The SEC is not only seeking repayment of the defrauded funds but also seeks to bar Shafi from holding any directorship positions in the future.

The case against Shafi is part of a larger crackdown by the SEC on fraudulent activities in the tech sector. Earlier this week, the SEC charged BitClout founder Nader Al-Naji with fraud and the unregistered offering of securities, The Post report said. Al-Naji, who allegedly operated under the pseudonym “DiamondHands,” is accused of raising $257 million in cryptocurrency while evading regulatory scrutiny.

The SEC’s actions against Shafi and Al-Naji underscore the agency’s commitment to protecting investors and maintaining integrity in the financial markets. By pursuing these high-profile cases, the SEC aims to deter similar fraudulent activities and ensure that tech entrepreneurs adhere to legal and ethical standards.

The Post reached out to Abraham Shafi for comment, but as of now, he has not responded. The legal proceedings against him will likely unfold over the coming months, with significant implications for his future in the tech industry.