The founder of the app IRL, which, pre-pandemic, sought to connect users with real-world events but later pivoted to online events and more social media features, has now been charged with fraud by the Securities and Exchange Commission (SEC).
It seems that IRL founder Abraham Shafi has been spinning some lies for quite some time with regard to the user base and success of his app, which at one point in early 2023 claimed to have 20 million active users, 75% of which were Gen Z.
According to a complaint from the SEC, Shafi is being charged with defrauding investors by making false and misleading statements about the company’s growth, and further misusing company funds for the personal use of him and his fiancee.
IRL shut down in June 2023 after its board of directors discovered that 95% of its purported users were bots. Now, investors including SoftBank and Dragoneer want their money back, and Shafi is being brought up on fraud charges. The company received $170 million in a Series C funding round in June 2021, as TechCrunch reported at the time. And $170 million is the amount the SEC is now seeking in restitution.
That founding round led to IRL achieving "unicorn" status, with a $1.17 billion valuation. GQ Middle East subsequently celebrated the Egyptian-born Shafi as the "Middle East's First Founder of a Billion-Dollar Social Media App."
"The philosophy is not to raise when you have to, but to raise when it makes sense," Shafi told TechCrunch at the time of the funding. He spuriously added, "And we were scaling like crazy to the point where our servers were melting. It made sense to take those discussions very seriously when they came to us."
IRL likely appeared doomed to Shafi and others when, after raising about $30 million total, the pandemic hit, and its premise of filling in the gap for event listings for Gen Z — with Facebook events largely unused these days by the younger set and no similar product attached to Instagram, TikTok, or Snapshat. People weren't going to in-real-life events for a while there, but IRL pivoted to online events, and then purported to see explosive growth in users.
Anyone who participated in these online events beyond the first few months of the pandemic should have known this seemed fishy.
IRL also expanded with social media features, earning — or giving itself — the moniker "WeChat of the West." And launched a second app called Memix in late 2022, which created personalized memes for inserting in chats.
The SEC complaint alleges that Shafi spent millions in online ads to attract new users, and hid these expenses from the board.
It's not clear how much of the $170 million funding round was spent in the year that elapsed before the company's shutdown. It appears that Shafi decamped at some point from the Bay Area to the Big Island in Hawaii — the SEC lists him as a resident of Pepeekeo, Hawaii.
But the SEC alleges that Shafi and his fiancée, Barbara Woortmann, "charged hundreds of thousands of dollars to IRL’s business credit cards for personal expenses, including for clothing, home furnishings, and travel."
"As we alleged, 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," said Monique C. Winkler, Director of the SEC’s San Francisco Regional Office, in a statement. "Investors in this space should continue to be vigilant."
The lawsuit is seeking permanent injunctive relief, civil money penalties, and disgorgement with prejudgment interest from both Shafi and Woortmann. And, further, it seeks to ban Shafi from serving as an officer or director of another company.
Shafi is charged with violating the antifraud provisions of federal securities law.