A social media boss and his wife used millions of dollars of company funds to pay for their wedding and luxury holidays, US regulators have said.
The Securities and Exchange Commission (SEC) is suing Abraham Shafi, the founder of the social media app IRL, and his wife, Barbara Woortmann, for fraud.
IRL, an app aimed at Gen Z smartphone users that enabled them to discover real-life events, raised $170m (£132m) from investors including SoftBank.
The app was presented as a version of Facebook’s Groups feature for younger users who had abandoned the social network. IRL claimed that a quarter of US teens had downloaded it.
However, it was shut down last year when its backers found that the vast majority of its users were fake, according to a separate SoftBank lawsuit.
The SEC said that Mr Shafi and Mrs Woortmann had used company credit cards to fund millions in personal expenses.
This included hundreds of thousands of dollars in expenses related to their wedding in 2022 – including luxury hotels and airfare for guests – and tens of thousands of dollars for holidays in Hawaii.
The SEC said Mr Shafi spent $34,700 on a luxury resort in Hawaii in October 2021, while Mrs Woortmann spent more than $16,000 at a merchant specialising in spirituality and alternative medicine in June 2021 – the same month it raised funds from SoftBank.
The couple also used company credit cards for home improvement purchases, clothing and jewellery, restaurants, groceries and food delivery apps.
It said that after Mr Shafi was confronted by IRL’s chief financial officer, he repaid around $2.5m in personal expenses but that some expenses were never repaid.
The lawsuit also said that Mr Shafi had lied about the company’s heavy spending on advertising to drive downloads of the app.
Mr Shafi had told investors that IRL’s growth was built on word of mouth and viral adoption, when the company had spent $5.7m on incent adverts, which reward users who download the apps with extra lives for games or credits in other apps.
“Mr 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,” Monique Winkler, the San Francisco director of the SEC said.
Mr Shafi also directed employees to hide advertising spending as hosting costs, the lawsuit said.
SoftBank, which put $150m into IRL, sued Mr Shafi for fraud last year, alongside five siblings and cousins who it claims were part of the cover-up.
IRL’s founders, Mr Shafi, Krutal Desai and Genrikh Khachatryan, have sued SoftBank, claiming it drove the company off a cliff by taking control of the app.
Mr Shafi faces a fine and being banned from raising investment in future if the SEC’s lawsuit is successful.
Lawyers for Mr Shafi were contacted for comment.