The US Securities and Exchange Commission (SEC) has taken action against Abraham Shafi, the founder and former CEO of the social network IRL, for allegedly misleading investors. The SEC claims that Shafi provided false information about the company’s growth and failed to disclose his personal use of corporate credit cards, along with his wife Barbara Vurtman.
IRL, a social networking platform positioned as a viral application, experienced a surge in popularity during the pandemic. However, a major issue came to light when an internal investigation in June 2023 revealed that 95% of the application’s users were bots. Despite this, Shafi was able to secure $170 million in venture capital funding, leading to a valuation of $1.17 billion for the startup before its downfall.
The SEC alleges that Shafi misrepresented IRL as a rapidly growing platform with 12 million users, while in reality, the company spent millions on advertising to attract downloads. Shafi allegedly concealed these expenses by underreporting marketing costs and funneling payments through third parties.
In addition to financial misconduct, Shafi and Vurtman are accused of using corporate funds for personal expenses, including clothing, furniture, and travel. The SEC contends that Shafi misled investors about IRL’s business practices and performance to attract funding.
Earlier this week, the SEC also charged the founder of BitClout, operating under the pseudonym Nadezhda al-Svetzhi, with fraud and illegal securities offerings. Al-Svetzhi allegedly evaded regulatory scrutiny to raise over $257 million in cryptocurrency.