Founder of social media startup IRL charged in $170 million fraud scheme

The founder and former CEO of the social media startup IRL has been indicted on federal charges of wire fraud, securities fraud, and obstruction in connection with a $170 million investment scheme, according to the U.S. Justice Department.

Court documents allege that Abraham Shafi, 38, of Pepeekeo, Hawaii, misled investors during IRL’s 2021 Series C funding round, which raised $170 million at a valuation of more than $1 billion.

Prosecutors said Shafi falsely told investors that the company spent little on advertising and that new user signups were organic, while in fact millions of dollars were spent on incentive-based ads in which users were rewarded for downloading the app.

Investigators said Shafi concealed the ad spending by routing invoices through a third-party firm so the expenses would not appear on IRL’s books.

After securing funding, he allegedly ordered employees to create false invoices labeling the ad costs as infrastructure spending and continued to misrepresent the company’s finances.

When the Securities and Exchange Commission opened an investigation, Shafi allegedly deleted records from his phone and told employees to lie about his involvement, according to the indictment.

IRL, short for “In Real Life,” was promoted as a platform to help people organize social events. Shafi told CNBC in 2018 that investors supported the company for its potential to compete with Facebook and Snapchat.

Backers included prominent venture firms such as Peter Thiel’s Founders Fund and Floodgate. Co-founders included Scott Banister, an early investor in Facebook and the first board member of PayPal, CNBC reported.

If convicted, Shafi faces up to 20 years in prison on each count. The FBI is investigating the case.