IRL App Founder Faces Fraud Charges from SEC

Founder Behind Social Media App IRL Charged with Fraud

As many enjoy summer holidays or the Paris Olympics, the U.S. Securities and Exchange Commission (SEC) is hard at work. For the second time this week, and the fourth in recent months, the SEC has charged a venture-backed founder with fraud.

On Wednesday, the SEC announced charges against Abraham Shafi, the founder and former CEO of the social media startup IRL, accusing him of defrauding investors. According to the SEC, Shafi made false claims about the company’s growth and hid personal expenses made using company credit cards by him and his fiancée, Barbara Woortmann.

The Rise and Fall of IRL

IRL, which gained popularity as a social calendar app during the pandemic, aimed to become the "WeChat of the West." However, the company shut down in June 2023 after an internal investigation revealed that 95% of its users were fake. The board discovered that most of the app’s users were either automated or bots.

Despite these issues, Shafi had raised $200 million in venture capital, with the last round being a $170 million Series C led by SoftBank’s Vision Fund 2, which gave IRL a valuation of $1.17 billion. The SEC’s complaint states that Shafi misrepresented IRL’s user base and spent millions on ads that offered incentives to download the app, which he then concealed from investors.

Allegations of Misuse of Funds

The SEC alleges that Shafi and Woortmann charged hundreds of thousands of dollars on company credit cards for personal expenses, including clothing, home furnishings, and travel. Monique C. Winkler, Director of the SEC’s San Francisco Regional Office, commented, “Shafi took advantage of investors’ appetite for pre-IPO tech investments and fraudulently raised approximately $170 million by lying about IRL’s business practices. Investors should remain vigilant.”

A Trend of Fraud Charges

This case follows other recent SEC actions, such as the charges against BitClout founder Nader Al-Naji earlier this week for fraud and unregistered securities offerings. Al-Naji allegedly used the pseudonym “DiamondHands” to raise over $257 million in cryptocurrency while avoiding regulatory scrutiny. High-profile venture capital firms backed BitClout, including a16z, Sequoia, and Winklevoss Capital.

In June, the SEC charged Ilit Raz, CEO and founder of the now-defunct AI recruitment startup Joonko, with defrauding investors of at least $21 million. Raz allegedly made false statements about the startup’s customer base, platform users, and revenue. Additionally, in May, the SEC charged Robert Scott Murray and Trillium Capital LLC with a scheme to manipulate Getty Images' stock price through a fake purchase offer.