Authorities in the US have charged the founder of the former social media company, IRL, with a $170m (£133m) fraud.
The Securities and Exchange Commission (SEC) accuses Abraham Shafi of defrauding investors by making misleading statements about the company’s growth.
IRL – which was once considered a potential rival to Facebook – took its name from its intention to get its online users to meet up in real life.
However, the initial optimism evaporated after it emerged most of IRL’s users were bots, with the platform shutting in 2023.
As well as accusing Mr Shafi of defrauding investors, the SEC also says he concealed his and his fiancée’s extensive use of company credit cards to pay for personal expenses.
It is alleged he and Barbara Woortmann spent hundreds of thousands of dollars on personal expenses, including clothing, home improvements and travel.
Monique C. Winkler, Director of the SEC’s San Francisco Regional Office, said: “As we alleged, Shafi took advantage of investors’ appetite for investments in the pre-IPO technology space and fraudulently raised approximately $170m by lying about IRL’s business practices.
“Investors in this space should continue to be vigilant.”
The SEC says it believes Mr Shafi raised about $170m by portraying IRL as the new success story in the social media world.
It alleges he told investors that IRL had attracted the vast majority its supposed 12 million users through organic growth.
In reality, it argues, IRL was spending millions of dollars on advertisements which offered incentives to prospective users to download the IRL app.
That expenditure, it is alleged, was subsequently hidden in the company’s books.
Mr Shafi has not responded to the charge, but in a post on LinkedIn a year ago, amid widespread reports that as many as 95% of IRL’s customers were actually bots, he defended his role in the company.
The SEC’s complaint was filed in the US district court for the northern district of California.
Among other penalties, it seeks a ban against Mr Shafi from holding directorship of companies.