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SEC charges social media startup ‘IRL’ founder with fraud

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5 months ago

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The Securities and Exchange Commission charged the founder of a pandemic-born unicorn social media network “IRL” with defrauding investors of $170 million. 

Abraham Shafi, age 37, founder and former CEO of Get Together Inc., the privately-held parent company of IRL, misled investors by portraying IRL as a viral social platform that organically attracted the majority of its purported 12 million users, the SEC claims. 

The complaint states that IRL spent millions on advertising that offered incentives to download the app and hid those expenses with documents that significantly understated its marketing expenditures and by routing payments through third parties. The SEC further alleges that Shafi failed to disclose to investors that he and his fiancée, Barbara Woortmann, charged hundreds of thousands of dollars to IRL’s business credit cards for personal expenses such as clothing, home furnishings and travel.

sec-seal.jpg
The Securities and Exchange Commission

Graeme Sloan/Bloomberg

IRL was previously touted by some publications as a Facebook rival with its purportedly young user base. By 2021, it was valued at nearly $1.2 billion, having raised over $200 million with big-name investors such as Softbank, Goodwater Capital, Founders Fund and Floodgate. But in April 2023, IRL’s board of directors removed Shafi as CEO after learning of his and Woortmann’s use of IRL credit cards for personal expenses. Shortly after, an internal investigation by the board found that 95% of its users were likely bots. 

“As we alleged, Shafi took advantage of investors’ appetite for investments in the pre-IPO technology space and fraudulently raised approximately $170 million by lying about IRL’s business practices,” Monique Winkler, director of the SEC’s San Francisco regional office, said in a statement. “Investors in this space should continue to be vigilant.”

Shafi has not yet pleaded to the charge, and he did not immediately respond to request for comment. 

However, Shafi shared his own recounting of his ousting on LinkedIn in July 2023. He wrote: “When I was suspended at the end of April, I was told nothing about bots. At that meeting, I was told that either I could resign or, if I did not, that a statement would be released accusing me of a “pattern of misconduct.” I was not going to resign over a personal expenses issue, so that damaging statement went out, as warned, leading many to assume that the suspension related to bots.”

The SEC’s complaint was filed on Friday in the U.S. District Court for the Northern District of California. It charges Shafi with violating antifraud provisions and seeks a permanent injunctive relief, civil money penalties, disgorgement with prejudgment interest and an officer-and-director bar against Shafi. The complaint also lists Woortmann as a relief defendant and seeks disgorgement with prejudgment interest for the personal expenses she charged to the business card that was ultimately paid with investor money.

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Accounting

In the blogs: Just in time

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1 day ago

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December 24, 2024

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BOI is back; phantom stocks; continuous compliance; and other highlights from our favorite tax bloggers.

Just in time

  • Tax Vox (https://www.taxpolicycenter.org/taxvox): Who benefits and who loses from extending major provisions of the Tax Cuts and Jobs Act?
  • Taxing Subjects (https://www.drakesoftware.com/blog): The Republican party can shape legislative priorities for the next two years, setting the stage for long-term policy changes. A downloadable resource offers a breakdown of key policy areas and action steps for tax pros and small businesses. 
  • AICPA & CIMA Insights (https://www.aicpa-cima.com/blog): How the IRS and tax pros can both start prepping for any government shutdown.
  • Eide Bailly (https://www.eidebailly.com/taxblog): “Just in time for the holidays,” a federal appeals court has restored the Corporate Transparency Act requirement for businesses to disclose their beneficial owners.
  • Taxable Talk (http://www.taxabletalk.com/): And just like that, yet again, with an injunction’s stay, course is reversed.
  • Current Federal Tax Developments (https://www.currentfederaltaxdevelopments.com/): At least they extended the deadlines a whisker.
  • The Tax Times (https://www.thetaxtimes.com): The IRS continues to claw back from non-filers, to the tune of 10 figures and counting.
  • The National Association of Tax Professionals (https://blog.natptax.com/): Favorite headline of the week: “The best gifts for the tax pro in your life this holiday season.”
  • National Taxpayer Advocate (https://www.taxpayeradvocate.irs.gov/taxnews-information/blogs-nta/): “‘Twas the night before tax season, and all through the land; Tax professionals were working, each with pen in hand; The forms were all sorted with numbers just right; who says tax accounting can’t thrill and excite?”

2025

Continuity

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Accounting

H&R Block releases Santa Claus’s tax return

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1 day ago

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December 24, 2024

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That doesn’t look like a 1040 … .

H&R Block has given the world just what it wants to see this holiday season: Santa Claus’s tax return.

Santa has a lot of itemizations to consider. Eight tiny reindeer depend on him for food and shelter, for instance, but are they dependents? How much can you give to one person before reporting it? Does Santa keep good mileage records for his 41.5 million miles? Santa isn’t an employee, so compensation (even in cookie form) over the threshold may create a 1099-NEC.

Old St. Nick, who files MFJ with Mrs. Claus, did all right on 1040 Line 34, but some of his numbers do bear examination: 6.3 million cookies and 2 million gallons of milk means a third of a gallon of milk per cookie. Will the deduction of coal, magic dust and sleighbells stand up to audit? At least Santa has plenty of time on his hands between January and April to find a good preparer.

Santa's tax return

“Even the jolly man in red takes time to report taxes,” reads the announcement from the tax prep giant. “He’s probably the world’s most famous small-business owner, running a gift-giving workshop and distribution network across the globe … Santa is giving us the first ever peek at his tax return and showing us how he used H&R Block Online and AI Tax Assist to get his maximum refund.”

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Accounting

5 changes coming to IRAs and 401(k)s in 2025

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1 day ago

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December 24, 2024

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The SECURE 2.0 Act contained several changes to traditional and Roth individual retirement accounts and 401(k) plans that are being phased in over the coming years, with several notable changes coming in 2025. The Illinois CPA Society highlighted five changes coming to IRAs and 401(k)s in 2025:

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