Silicon Valley app founder charged with defrauding investors out of $170M

"The founder of the now-defunct social media app IRL has been accused of defrauding investors out of $170 million and using hundreds of thousands of that money to fund his lavish wedding, the U.S. Department of Justice said Wednesday. A federal grand jury in Oakland indicted Abraham Shafi, 38, of Hawaii, with eight felony charges, including six counts of wire fraud."

"Federal prosecutors argue Shafi extracted the $170 million by assuring investors IRL only spent $50,000 a month in paid advertising and didn't use any type of marketing that exchanged downloads for rewards, known as incentive advertising. In reality, prosecutors said, Shafi spent millions on incentive advertising, hiding the payments by funneling the expenditures through a third-party company, which Shafi then instructed to create false invoices to send to IRL's chief financial officer."

"The scheme began around September 2019 and lasted through around 2023, during which Shafi spent a "significant amount" of investor funds for personal expenses, including luxury hotel stays, luxury clothing and home furnishings, prosecutors said. He also used thousands of dollars for art classes, and hundreds of thousands of dollars to fund his wedding, which included coverage for his guests' airfare and luxury hotels, prosecutors said."

"Prosecutors allege Shafi repeatedly lied to investors when they asked about user acquisition. Prosecutors said Shafi lied when he said, "[u]nlike other apps that spend aggressively to acquire new users, we spend very little." And in the months before securing his Series C funding, Shafi asked an advertising company for a "big burst" of ads to collect a higher number of app downloads."

Abraham Shafi, founder of Get Together and the IRL app, was indicted by a federal grand jury in Oakland on eight felony counts, including six counts of wire fraud. Prosecutors allege Shafi assured investors IRL spent only $50,000 monthly on paid advertising and did not use incentive advertising, while secretly spending millions on incentive ads. Prosecutors say Shafi funneled payments through a third-party company, had false invoices created, and directed those invoices to IRL's chief financial officer. From about September 2019 through 2023, prosecutors allege Shafi used investor funds for luxury hotels, clothing, home furnishings, art classes, and paid hundreds of thousands for his wedding and guest travel.

Read at San Francisco Chronicle