A social media app founder and his wife are facing allegations of defrauding investors by using millions of pounds in company funds for their wedding and extravagant holidays, the US Securities and Exchange Commission (SEC) has claimed.
Abraham Shafi, founder of the Gen Z-focused social media app IRL, and his wife, Barbara Woortmann, are accused of misusing company funds on personal expenses, including a lavish wedding in 2022 and trips to Hawaii.
IRL, designed to appeal to younger users who had abandoned Facebook, raised a substantial £132 million from investors, including SoftBank, with the promise of providing a real-life events platform. The app claimed to have garnered a quarter of US teenagers as users. However, IRL was shuttered last year after SoftBank revealed that the majority of its user base was fabricated.
The SEC alleges that Shafi and Woortmann used company credit cards to fund millions of pounds in personal expenditures. This included hundreds of thousands of pounds spent on their wedding, encompassing luxurious hotels and airfare for guests, and tens of thousands of pounds on holidays in Hawaii.
In October 2021, Shafi allegedly spent £27,000 on a luxury resort in Hawaii, while Woortmann reportedly spent over £12,000 at a wellness and alternative medicine retailer in June 2021 â the same month IRL secured funding from SoftBank.
Further alleged misuse of funds included home improvement purchases, clothing and jewellery, restaurant bills, groceries, and food delivery services. Although Shafi reportedly repaid around £2 million of the personal expenses after being confronted by IRLâs Chief Financial Officer, the SEC states that some expenses were never recouped.
The lawsuit further accuses Shafi of misleading investors about the companyâs significant advertising spending aimed at boosting app downloads. While Shafi claimed IRL's growth was fuelled by word-of-mouth and viral adoption, the SEC alleges that the company spent a substantial £4.5 million on incentivised advertisements, which rewarded users with in-app bonuses for downloading the app.
Monique Winkler, Director of the SEC's San Francisco office, stated: "Mr Shafi took advantage of investors' enthusiasm for pre-IPO technology investments, fraudulently raising approximately £132 million by deceiving them about IRL's business practices." The lawsuit also claims that Shafi instructed employees to conceal advertising expenditures by categorising them as hosting costs.
SoftBank, which invested £120 million in IRL, filed a separate lawsuit against Shafi and five other individuals last year, alleging that they participated in a cover-up scheme. Shafi, alongside IRL co-founders Krutal Desai and Genrikh Khachatryan, have counter-sued SoftBank, accusing the investment firm of driving the company into ruin by assuming control of the app.
The SEC's lawsuit against Shafi could result in a financial penalty and a ban on future fundraising if successful.
Lawyers representing Mr. Shafi have been contacted for comment.
