The Securities and Exchange Commission has charged Abraham Shafi, the founder and former CEO of Get Together Inc., a privately held social media startup known as “IRL,” with defrauding investors, including SoftBank.
According to the complaint, Shafi made false and misleading statements about the company’s growth and concealed his and his fiancée’s extensive use of company credit cards to pay for personal expenses.
“Shafi took advantage of investors’ appetite”
The Hawaii-based executive raised about $170 million from investors by portraying IRL as a viral social media platform that organically attracted the vast majority of its purported 12 million users.
IRL, however, spent millions of dollars on advertisements that offered incentives to download the IRL app and Shafi hid those expenditures with offering documents that significantly understated the company’s marketing expenses and by routing advertising platform payments through third parties.
Monique C. Winkler, Director of the SEC’s San Francisco Regional Office, said: “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. Investors in this space should continue to be vigilant.”
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The SEC’s complaint further alleges that Shafi failed to disclose to investors that he 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.
Can SoftBank do its due diligence?
Shafi was suspended by the IRL board in April amid misconduct claims. By June, the board found that 95% of IRL’s 20 million users were fake. The founders claim investors fabricated this figure to shut down the company and return capital to shareholders.
IRL founders Abraham Shafi and Genrikh Khachatryan decided to sue Chi-Hua Chien of Goodwater Capital, Serena Dayal of SoftBank, and Mike Maples of Floodgate over this claim.
IRL raised over $200 million, reaching a $1.17 billion valuation, with SoftBank leading a $170 million Series C round in 2021. Shafi and Khachatryan allege investors wanted to shut down IRL to cover the company’s $40 million cash on hand.
The bitter conflict has raised new concerns about the adequacy of SoftBank’s due diligence, following its multibillion-dollar losses due to WeWork’s charismatic founder.
