This week America’s Securities and Exchange Commission filed fraud charges against the former CEO of the startup social media site “IRL”
The BBC reports:
IRL — which was once considered a potential rival to Facebook — took its name from its intention to get its online users to meet up in real life. However, the initial optimism evaporated after it emerged most of IRL’s users were bots, with the platform shutting in 2023…
The SEC says it believes [CEO Abraham] Shafi raised about $170m by portraying IRL as the new success story in the social media world. It alleges he told investors that IRL had attracted the vast majority its supposed 12 million users through organic growth. In reality, it argues, IRL was spending millions of dollars on advertisements which offered incentives to prospective users to download the IRL app. That expenditure, it is alleged, was subsequently hidden in the company’s books.
IRL received multiple rounds of venture capital financing, eventually reaching “unicorn status” with a $1.17 billion valuation, according to TechCrunch. But it shut down in 2023 “after an internal investigation by the company’s board found that 95% of the app’s users were ‘automated or from bots’.”
TechCrunch notes it’s the second time in the same week — and at least the fourth time in the past several months — that the SEC has charged a venture-backed founder on allegations of fraud…
Earlier this week, the SEC charged BitClout founder Nader Al-Naji with fraud and unregistered offering of securities, claiming he used his pseudonymous online identity “DiamondHands” to avoid regulatory scrutiny while he raised over $257 million in cryptocurrency. BitClout, a buzzy crypto startup, was backed by high-profile VCs such as a16z, Sequoia, Chamath Palihapitiya’s Social Capital, Coinbase Ventures and Winklevoss Capital.
In June, the SEC charged Ilit Raz, CEO and founder of the now-shuttered AI recruitment startup Joonko, with defrauding investors of at least $21 million. The agency alleged Raz made false and misleading statements about the quantity and quality of Joonko’s customers, the number of candidates on its platform and the startup’s revenue.
The agency has also gone after venture firms in recent months. In May, the SEC charged Robert Scott Murray and his firm Trillium Capital LLC with a fraudulent scheme to manipulate the stock price of Getty Images Holdings Inc. by announcing a phony offer by Trillium to purchase Getty Images.
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