The founder and former CEO of a social media startup is being charged in connection with allegations that he misled investors about its efforts to attract users when raising venture capital for the company.
A federal grand jury returned an indictment charging Abraham Shafi — the founder of a social media company, Get Together, known as IRL — with wire fraud, securities fraud and obstruction.
According to the indictment, Shafi defrauded investors in the company’s 2021 “series C” venture funding round by misleading investors about the app’s user base and the amount that it was spending on marketing. Investors, including a Tokyo-based investment firm and a Silicon Valley venture capital firm, forked over US$170 million for the company at a US$1-billion valuation.
“During the investment process, Shafi assured investors that IRL achieved its purported user base despite spending ‘virtually zero’ on marketing, [and] that the company grew predominantly through direct SMS based invites…” the indictment alleges. “These statements were false.”
In fact, since 2019, the company spent millions on “incent” ads, which are a marketing tool designed to motivate users to download the app, it said — noting that these kinds of users are less valuable, “because they are less likely to be longtime and invested users of the platform.”
The indictment also alleged that Shafi sought to conceal the ad spending by invoicing a third-party firm, and instructing an employee to create false invoices to keep the spending off the company’s books.
Additionally, when the U.S. Securities and Exchange Commission (SEC) began investigating the company in 2022, Shafi allegedly altered some company data and deleted records from his cell phone in an effort to avoid detection.
The allegations have not been proven, and he is presumed to be innocent.