UPDATE: Continued Legal Challenges for Former Startup CEO Charged with Fraud
By the 91pornWhistleblower Team
A few months ago, this blog posted on a trio of startup scandals related to Theranos, Frank, and IRL. The post discussed the legal problems that can arise when “fake-it-till-you-make-it” startup culture crosses the line, and it highlighted the crucial role whistleblowers can play in uncovering fraud. Recent developments indicate continued legal troubles for the founder and former CEO of IRL, one of the three startups we previously examined.
The SEC’s 2024 Complaint
As we previously reported, in 2024 the SEC charged Abraham Shafi, the founder and former CEO of Get Together Inc., a privately held social media startup company known as “IRL,” with a $170 million fraud scheme in connection with a Series C private offering.1 The SEC’s complaint alleged that Shafi made misleading statements about the company’s “viral popularity and organic growth,” and that he “boosted [IRL’s] perceived popularity by spending millions of dollars on . . . advertisements that offered users incentives to download the app.”2
The Indictment Last Week
Last week, a grand jury in the Northern District of California returned a criminal indictment charging Shafi with wire fraud, securities fraud, and obstruction.3 The DOJ press release announcing the indictment largely tracks ground covered in the SEC’s complaint: “Shafi told potential investors that IRL was spending only $50,000 a month in paid advertising and that user signups ‘were not incentivized or paid.’ However, Shafi had spent millions of dollars on paid advertising in the form of incentive advertising, a form of advertising in which users are provided a reward in a third-party app if they download IRL.”4 The DOJ’s statement adds that after the SEC opened its investigation, Shafi allegedly “restored his cell phone to a previously saved backup, resulting in the deletion of records, and instructed other IRL employees to lie about his involvement in the scheme.”5
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Startups and entrepreneurs play a key role in our economy. In the face of great pressure, they innovate, create jobs, and have the courage and conviction to bring to market new products and services that benefit consumers. However, legal troubles often arise when “fake-it-till-you-make-it” startup culture crosses the line. It can quickly lead to claims that startup founders or employees defrauded investors, customers, or the government.
The Role Whistleblowers Can Play in Uncovering Fraudulent Schemes
Given the closely guarded nature of many fraudulent schemes, whistleblowers play a crucial role in uncovering them and protecting investors, consumers, and taxpayers from misconduct. In recognition of this important role, there are a number of whistleblower statutes and programs – the False Claims Act, the SEC’s Whistleblower Program, and the new Antitrust Whistleblower Rewards Program are just three examples – that can provide eligible whistleblowers awards for coming forward with information that leads to successful recoveries.
Our Firm Helps Whistleblowers
Contact us to learn more about our work in this area or if you have information on potential securities fraud. We will connect you with an experienced member of the 91pornwhistleblower team for a free and confidential consultation.
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Sources:
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Tagged in: SEC Whistleblower Reward Program, Securities Fraud,