Abraham Shafi, the founder of the defunct social media company IRL, has been charged with fraud. The provider had supposedly told investors about growth while spending corporate funds on personal expenses. IRL, an app purporting to bring people into real life, closed in 2023 after its most users turned out to be bots.

The embattled founder of the social media firm IRL has been hit by fraud charges brought about by the US authorities in the filing two hours earlier. According to the Securities and Exchange Commission, Abraham Shafi led on investors to the supposed astronomical growth of IRL while the platform was infested with bot accounts. IRL, which stood for “In Real Life,” was supposed to allow people to meet in real life, but it closed in 2023, the full truth about its user base uncovered.

Shafi is accused by the US Securities and Exchange Commission of defrauding investors of $170 million, or about £133 million. Shafi set out to allegedly make false statements regarding the company’s performance to woo investors into believing IRL was the next Facebook. He even stated it had millions of real users and its growth was 100% organic. The SEC claims this wasn’t so; rather, the app cost millions of dollars in advertising for people to download, many of those users being bots.

Apart from misleading investors, Shafi and his fiancee, Barbara Woortmann, allegedly used the company credit cards for personal expenses. Hundreds of thousands of dollars were spent on clothing, house renovation, and travel, regardless. However, all this misspending was kept off the books of the company.

“Shafi took advantage of investor interest in pre-IPO technology companies and pocketed nearly $170 million based on lies about IRL’s business practices. Investors in this area need to be on the lookout,” said Monique C. Winkler, regional director of the SEC’s San Francisco Regional Office.

The SEC’s complaint was filed in the United States District Court, Northern District of California. Among other relief sought, the SEC is trying to obtain the entry of court orders permanently enjoining Shafi from acting as an officer or director of any issuer.

To date, Shafi has not responded to the charges. However, when reports surfaced that about a year ago, 95% of IRL’s users were bots, he came out to defend his role in the company with a LinkedIn post, hoping to clear the air and assure people that the app was a legitimate business.

The IRL case is a lesson to investors and entrepreneurs alike. It is always important to deal transparently and honestly in business. Misleading investors regarding the potentials of a company, together with misusing company funds, may have some very serious consequences, which could include litigation and the eventual collapse of the company.

IRL once had massive potential on social media. The idea was quite refreshing in the context of bringing people together in real life within the digital age. Success, however, lies in a bed of lie, as most of its users are actually not real people but bots; their apparent growth has been solely on the deceptive ad practices.

Investors were attracted to IRL, in that they believe it is a fast-growing platform with millions of active users. They were promised a return to this investment, but their hopes met false claims and hidden expenses. This case goes to show the kind of risks that new technology companies are to involve when it comes to due diligence.

The charges leveled against Shafi and Woortmann are of a serious nature. In case of conviction, they risk major penalties, including fines and prohibition from serving as officers or directors of any company. The flow of very important lessons in integrity and transparency in business become very tangible lessons from this case. Investors entrust their money to companies, and that trust should not be broken.

In a nutshell, the IRL one learned result for fraudulent activities in businesses. The case laid against Abraham Shafi, in the charges pinned against him, indicates that misleading investors and misappropriating funds may result in criminal prosecution and may have contributed to the collapse of the business. This means that for a successful business, transparency and honesty is a necessity for establishing a business that maintains integrity.