Former Unicorn Startup CEO Charged with Fraud, Obstruction by DOJ
Ex-CEO of IRL Charged with Fraud and Obstruction
Abraham Shafi, the former CEO of IRL, a previously thriving social media startup, has been charged with fraud and obstruction. The Department of Justice claims Shafi misled investors and deleted critical files by restoring his phone to an earlier backup. The investigation into these allegations has led to serious legal implications for the once-successful entrepreneur.
Charges Against IRL’s Ex-CEO
The Department of Justice reports that Shafi, a Hawaii resident, misled venture capital investors about the user growth of his event-based social media app, IRL. He stated the growth was organic, resulting from users inviting friends to join the platform. However, authorities claim the startup was spending about $200,000 a month on ads to inflate user numbers, a fact hidden from potential investors.
IRL’s Funding History
In 2021, IRL secured $170 million in a Series C funding led by the SoftBank Vision Fund 2. This took IRL’s valuation to $1.17 billion, earning it the status of a unicorn startup. Now, Shafi is facing obstruction of justice, securities fraud, and wire fraud felony charges, as well as civil charges from the Securities & Exchange Commission.
Alleged Misrepresentation of User Acquisition
Shafi allegedly claimed that IRL’s user acquisition strategy was different from other social media apps. He maintained that user growth was organic and not incentivized. However, the indictment alleges that Shafi concealed IRL’s ad spending by invoicing the expenses to a third party firm.
SoftBank’s Lawsuit Against Shafi
Following the allegations, SoftBank has sued Shafi for $150 million. In return, Shafi and the other IRL founders have filed lawsuits against their former venture capital investors and board members. Shafi has consistently denied any wrongdoing.
The Battle of Perspectives
A Delaware Chancery Court memorandum highlights the conflicting views of the venture capitalists and the IRL founders. According to the document, the founders allege that the VCs panicked due to fear of reputational damage in Silicon Valley following the SEC’s investigation.
Allegations of Personal Expense Misuse
The SEC and the DOJ also claim that Shafi funded his personal expenses using IRL’s resources. Court documents state that Shafi used IRL business credit cards to pay for various personal luxury items and services. However, Shafi has maintained in legal filings that he never hid the practice of using the same credit card for business and personal expenses.
The Aftermath and Current Status
Following Shafi’s suspension, IRL’s user numbers plummeted. By June, the board voted to dissolve the company and distributed $40 million in cash to investors. The lawsuits are ongoing, with no resolution in sight.
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