CEO of social media startup charged with fraud after using investor money on lavish wedding: 'Its users were almost entirely bots'

The former CEO of a so-called "unicorn startup" — a privately held company thought to be valued at or over a billion dollars — has been charged with eight felony counts of defrauding investors, Fortune reports.

Abraham Shafi, 38, was previously charged by the United States Securities and Exchange Commission (SEC) over similar allegations involving the now-defunct app IRL.

On Wednesday, August 27, the United States Department of Justice issued a press release indicating that a federal grand jury returned an indictment charging Shafi with "wire fraud, securities fraud, and obstruction."

According to the indictment, also filed on August 27, Shafi founded IRL ("in real life") in or around the year 2018. That aligns with a glowing profile of Shafi and IRL published by a Forbes contributor in October 2022, the details of which were often mirrored in the new indictment.

The author credited Shafi's "resilience, keen instincts, and optimistic mindset" for IRL's status as a "successful unicorn social media company." 

Among the app's listed "accolades" at the time were IRL's entry into the App Store's top 10, an alleged valuation of over $1 billion, and an impressive user base purportedly comprised of 20 million active users, three-quarters of whom were from the coveted Gen Z demographic.

Less than a year later, it all came crashing down. In June 2023, TechCrunch reported that IRL was shuttering after a round of layoffs in June 2022 sparked suspicions among both employees and the SEC that the app's uncanny growth statistics were, in fact, smoke and mirrors.

An internal investigation determined that a staggering 95% of IRL's engagement was "automated or from bots," and Shafi was charged by the SEC with defrauding investors.

Some bots utliize artificial intelligence, which can have negative effects on the environment. 

At the heart of the newest indictment were two primary claims: that Shafi intentionally, materially misled and induced investors to buy in by concealing the true nature of IRL's user base, falsifying invoices for paid traffic, and that he lived lavishly on that cash.

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In a March opinion addressing the first issue, Delaware Chancery Court Vice Chancellor Lori Will characterized the gravamen of the investors' position, namely that IRL was a "hoax because its users were almost entirely bots."

As for the second, the DOJ's indictment alleged, among other things, that Shafi and "his partner spent hundreds of thousands of dollars in company funds" on their wedding. The Justice Department further alleged that Shafi wiped his iPhone to obstruct the SEC's investigation.

The charges made Shafi one of several individuals who'd ranked on Forbes' "30 Under 30" list only to face jail time for allegedly defrauding investors.

If convicted, Shafi faces a maximum sentence of 20 years on each of the eight felony counts.

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