The CEO who managed Tech Unicorn, of another value at $ 1.2 billion, accused of fraud after having pretended to spend millions for his wedding and art lessons

According to the Ministry of Justice, Abraham Shafi, 38, who lives in Hawaii, would have told investors on venture capital that the growth of its social media application based on events, IRL, was “biological” of people inviting their friends to download it. Shafi said that the company had spent that $ 50,000 per month in marketing and public relations to acquire new users, according to the judicial archives. In reality, the IRL spent about $ 200,000 per month in advertisements to help inflate the number of users and hide this data from potential investors, according to the authorities. In 2021, IRL raised $ 170 million in SoftBank Vision 2 SoftBank Vision 2, solidifying its coveted status as a unicorn with an evaluation of $ 1.17 billion and landing it among the 10 most downloaded social media applications on Apple. Now Shafi faces an obstruction of justice, fraud in securities and accusations of crime of wire fraud, as well as civil accusations of Securities & Exchange Commission.

The authorities allege that investors specifically asked Shafi during the C series process on “user acquisition channels” on the platform. Shafi said IRL was different from other social media applications.

“This is a free organic channel (users are not encouraged or paid for these invitations, and must invite each friend individually without bulk invitations)”, an e-mail written by Shafi to an investor extracted in the states of the accusation act. “Unlike other applications that spend aggressively to acquire new users, we spend very little.”

Meanwhile, Shafi would have hidden the IRL’s advertising expenses by invoicing spending to a third -party business, the accusation said.

“Shafi had spent millions of dollars in paid advertising in the form of incentive advertising, a type of advertising in which users receive a reward in a third -party application if they download IRL,” said the DoJ in an advertisement. “In the head of the C series, Shafi asked his seller a” large burst “of announcements for” a few days “to drive more installations from the IRL application.”

SoftBank has since been pursued Shafi for $ 150 million and the founders of IRL, in turn, have continued their former venture capital investors and members of the board of directors. In legal deposits, Shafi has already denied reprehensible acts.

An opinion of the memorandum of the Court of Delaware Chancery written by the Vice-Chancelière Lori W. summed up the opposite views of the VC and the founders of the IRL: according to Will, Shafi and the other founders claim that the VCs “panicked” after the dry began to exceed them in the context of an investigation into the users of the IRL and the ” Silicon valley which would breastfeed future investment spaces ”. To protect themselves, the founders said that the VCs ordered an external company that said that platform users were mainly made up of robots. According to Will’s opinion, the VC replied that the whole platform was a “hoax because its users were almost entirely robots”. The members of the board of directors appointed by the CV consider that Shafi has been “suspended in an appropriate manner” for alleged fault and that the closure of the company was the only “responsible path for all investors”.

Shafi lawyers did not respond to a request for comments. A SoftBank spokesperson refused to comment. Shafi and the other founders denied the allegations of Bot.

The Doj and SEC authorities allege that Shafi began to use “incentive advertising” for JUICE IRL’s downloads and the user basis in 2019. Shafi paid the advertising company through a third -party business so that expenses do not appear in IRL’s books, according to an accusation act. Shafi has hidden payments by including them on IRL’s great general book as “consultation,” he said. By 2020, Shafi had increased its advertising expenses from $ 3,000 per day to $ 5,000 per day with an alleged objective of driving around 12,000 daily application installations on iOS and 6,500 devices on androids. That year and in 2021, Shafi would have started spending hundreds of thousands of months a month on advertisements, still paying by the third party.

All in all, the SEC claims that Shafi spent $ 5.7 million in advertisements between 2019 and 2021. However, in its pitch pitch to investors, the authorities allege that Shafi presented that IRL’s growth comes from friends inviting other friends. When a potential investor asked questions about a peak in users, Shafi said it was because of “seasonality during the holidays”. In his discussion points with investors, Shafi would have scored four marketing suppliers, but omitted that the IRL advertising company paid.

The series C financing series closed its doors and Shafi sold $ 7.5 million in its own share purchase options while SoftBank and others have invested $ 170 million. Subsequently, IRL hired a financial director who would have questioned Shafi on IRL’s payments to the third party company the advertising company. In response, the indictment said that Shafi has changed speed, allegedly leading someone affiliated to the company to create “false invoices” to give the impression that the money spent for advertisements paid for Amazon web services, short message service (SMS) and Cloud Google costs.

Meanwhile, the SEC and the Doj claim that Shafi used IRL to finance its personal expenses, before and after the C series. The indictment declares that Shafi used IRL credit cards to pay “luxury hotel stays” in Hawaii for its wedding guests, thousands of dollars for “art courses”, “air purification services”, thousands of people on Japan, hundreds of thousands of luxury clothes and furniture. The complaint of the SEC indicates that Shafi has reimbursed the IRL for around 2.5 million dollars for the personal expenses of him and his wife, but has not reimbursed other people who included “spiritual and alternative medicine” and various “luxury complex” hotels in Hawaii. Shafi said in legal documents that he had never hidden the practice of using the same credit card for commercial and personal expenses, and that it goes back when it founded the company and funded it personally.

In 2022, the SEC assigned Shafi and others to the IRL on user metrics and supplier payments. In response, the IRL launched its own internal investigation, the indictment said.

At this stage, the authorities claim that Shafi tried to hide his involvement in advertising expenses by allegedly asking the person who created the false invoices to say that he was behind all this and that Shafi had no involvement. Shafi would also have restored his phone to a “previously recorded backup”, which deleted current data and content. Two days later, IRL imagined Shafi’s phone as part of its internal investigation. Later, the dry claims that Shafi “falsely denied” in the testimony under the oath that he suffered his phone after obtaining the assignment of the dry.

The Summary of Will of the past few months to IRL notes that the SEC investigation has prompted a lot of back and forth to the startup. The company hired an outside lawyer and several law firms and investigators to respond to the agency’s assignments. An external company reported that the platform was invaded by robots and had few human users, while another found a radical bot activity. In April 2023, after the SEC deposited two of the members of the board of directors appointed by VC, a special committee of the board of directors would have told Shafi to resign where it would be suspended for its use of IRL credit cards to pay its personal expenses. Shafi would have refused and the board of directors suspended it.

After the Shafi suspension, IRL user numbers landed, according to legal files. In June, the Council voted to dissolve the company and distributed 40 million dollars in cash to investors. The proceedings are underway.

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