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Here are some key points from a recent lawsuit involving the founder of a SoftBank-backed social media app aimed at Gen Z users:
- The Securities and Exchange Commission filed a lawsuit against Abraham Shafi, the 37-year-old founder of the IRL platform in 2018.
- Shafi allegedly deceived investors by funneling $170mn into the app without revealing its advertising practices.
- The app, valued at over $1bn, was shut down in 2023 by SoftBank due to fake user accounts.
- SoftBank filed a lawsuit against Shafi, demanding a return of their investment and punitive damages.
- Shafi countered, claiming he was unfairly targeted by SoftBank and disputed the allegations.
The SEC pointed out that Shafi misrepresented his growth strategy, boasting 12mn users and high rankings without revealing the extensive advertising spending involved. This misleading information led investors to believe in the app’s organic growth when it was largely fueled by paid marketing.
One incriminating text message exchange revealed Shafi’s reliance on minimal marketing spend to attract potential investors. This lack of transparency painted a false picture of IRL’s success and popularity.
Investors were also unaware of Shafi’s extravagant personal expenses using IRL’s credit cards, ranging from luxury purchases to daily essentials. This misuse of funds added to the deception surrounding the app’s financial practices.
In conclusion, this case highlights the importance of transparency and honesty in business dealings. It serves as a cautionary tale for investors to conduct thorough due diligence and scrutinize claims before committing funds to any venture. By being vigilant and informed, investors can protect themselves from potential fraudulent schemes and financial losses.
