In July 2024, the U.S. Securities and Exchange Commission (SEC) filed a civil complaint against Abraham Shafi, the former CEO and co-founder of the social media platform IRL (Get Together, Inc.), for orchestrating a fraudulent scheme that misled investors and diverted company funds for personal use. The complaint also names Barbara Woortmann, Shafi’s wife, as a relief defendant for unjust enrichment. The SEC alleges that from 2021 to 2023, Shafi and Woortmann engaged in a wide-ranging fraud scheme that included inflating user metrics and misusing corporate funds.
Key Allegations:
- Misleading Investors on User Growth and Popularity:
- Shafi raised approximately $170 million in a Series C private offering for IRL between March and June 2021. During this period, he falsely presented IRL’s growth as organic, claiming the platform had millions of active users. In reality, much of IRL’s user base growth was driven by paid “incent” advertisements, where users were rewarded to download the app rather than becoming long-term active users.
- Shafi failed to disclose this reliance on incent advertising to investors, misleading them into believing IRL’s popularity was based on genuine user interest rather than paid downloads.
- Fabricating Financials and Underreporting Marketing Expenses:
- Shafi significantly underreported IRL’s advertising and marketing expenses to potential investors. For example, he falsely claimed that IRL’s monthly marketing expenses were less than $50,000, while in reality, the company was spending upwards of $500,000 per month on incent advertisements.
- He provided false financial summaries and marketing reports to secure investor funding, inflating the company’s valuation and leading to the substantial $170 million investment.
- Personal Use of Corporate Funds:
- Shafi and Woortmann used IRL’s business credit cards for personal expenses, including luxury items, clothing, jewelry, and travel. These expenses totaled millions of dollars, with charges that included extravagant purchases for their April 2022 wedding and associated luxury hotel accommodations.
- Despite an internal investigation by IRL’s CFO, who discovered the misuse of funds, Shafi and Woortmann continued to charge personal expenses to the company without proper reimbursement.
- Bot-Driven User Metrics:
- After Shafi was removed as CEO in April 2023, IRL’s user numbers plummeted. A forensic investigation revealed that up to 95% of IRL’s users were likely bots, not real individuals. This revelation further demonstrated that the company’s growth and success were artificially inflated and misrepresented to investors.
Legal Violations:
The SEC has charged Shafi with violating multiple securities laws, including:
- Section 10(b) of the Securities Exchange Act and Rule 10b-5, which prohibits fraudulent activities related to the purchase or sale of securities.
- Section 17(a) of the Securities Act, which addresses fraud in the offer or sale of securities.
- Woortmann is charged with unjust enrichment due to her personal benefit from the misused funds.
Potential Penalties and Remedies:
The SEC is seeking several remedies, including:
- Permanent injunctions to prevent Shafi from future violations of federal securities laws.
- Disgorgement of all ill-gotten gains, including those obtained by Woortmann.
- Civil monetary penalties.
- A permanent bar on Shafi serving as an officer or director of any public company.
Conclusion:
This case highlights the importance of transparency and honesty in the tech and investment sectors. The SEC’s action against Shafi and Woortmann underscores the consequences of misleading investors, manipulating financial data, and using corporate funds for personal gain. As this lawsuit progresses, it serves as a reminder to both entrepreneurs and investors of the need for rigorous due diligence and accountability in high-growth startups.
About Michael Rasmussen
Michael Rasmussen is the founder of United Atlantic Legal Services. He is a licensed attorney in Florida and registered solicitor in the United Kingdom. Michael has acted as General Counsel and Chief Compliance Officer to several investment advisers, including private fund managers, responsible for the management of billions of dollars in client assets.
Michael is also the founder of FinProLaw, an online learning platform where Michael has created courses designed for investment adviser compliance professionals. These courses include:
- Investment Adviser Compliance Essential for Chief Compliance Officers
- Foundations of Investment Adviser Compliance
- What is a “Security”?
- Investment Adviser Marketing Rule
- Regulation A – Exemption from Registration
- Regulation Crowdfunding – Exemption from Registration
- Regulation D – Exemption from Registration
Michael can also be found on LinkedIn.
Investment adviser firms who are also clients of United Atlantic Legal Services can receive many of these courses at a significantly reduced fee or, in some cases, at no expense. Contact us today or visit the FinProLaw to learn more.