Another Silicon Valley CEO Charged with Fraud
Boardroom Governance Newsletter #68 | Sept 3, 2025
In 2023, I wrote about the case of a unicorn company called IRL, a social media app for Generation Z, that shut down earlier that year.
The saga of IRL has now moved from the realm of civil litigation into the criminal courts. Last week, a federal grand jury in Oakland returned an eight-count indictment against the company’s founder and former CEO, Abraham Shafi, charging him with wire fraud, securities fraud, and obstruction of justice.
The indictment paints a picture of a startup built on smoke and mirrors. In the spring of 2021, IRL raised $170 million in its Series C round, led by SoftBank, at a $1 billion valuation. Shafi personally pocketed about $7.5 million by selling some of his own stock. At the time, he assured investors that IRL had reached 12 million monthly active users with “virtually zero” marketing spend, growing organically through viral SMS invites between friends. The story was compelling: authentic growth, meteoric adoption, and a product that had captured a quarter of U.S. teens.
But according to prosecutors, the reality was far less inspiring. Since at least 2019, IRL had been spending millions of dollars on so-called “incent ads”, paid schemes where users are rewarded in other apps for downloading IRL. These users, prosecutors allege, were less real community members than disposable clicks. To keep the illusion alive, Shafi is accused of funneling payments through a third-party shell, generating falsified invoices, and assuring investors that IRL’s marketing spend was only about $50,000 a month.
The money flowing in from SoftBank and others did not just prop up IRL’s inflated user metrics. Prosecutors say Shafi used more than a million dollars in company funds for himself: luxury hotels, designer clothes, a trip to Japan, and even his lavish 2022 wedding in Hawaii, where IRL allegedly paid for guests’ airfare and accommodations.
When the SEC began digging in 2022, Shafi allegedly turned to obstruction. The indictment claims he instructed an associate to delete or alter documents, pressured them to take the blame for falsified invoices, and then wiped his own iPhone by restoring it to an earlier backup just days before it was to be imaged in an internal probe. Under oath, he denied doing so.
For those who have followed IRL’s collapse, none of this comes entirely as a surprise. In 2024, the SEC charged Shafi with fraud, and that case was deemed related to the private action and assigned to the same district judge, Yvonne Gonzalez Rogers of the Northern District of California.
There is also counter litigation in Delaware, where the founders accuse the venture-backed directors of disloyalty and self-dealing in shutting down the company. Now the criminal case adds another layer of scrutiny, raising the stakes not just for Shafi but for the broader ecosystem of venture-backed governance.
The indictment is also a cautionary tale for investors and corporate directors. As Bloomberg’s Matt Levine noted in his characteristically dry way, sometimes “robust due diligence” can be as simple as spending a few days using the app. If your experience is endless groups called “Play Video Games” populated by bots, perhaps that tells you more than any glossy pitch deck.
IRL’s rise and collapse is emblematic of the post-unicorn reckoning. The funding boom of 2019 to 2021 rewarded hypergrowth at all costs, but as the tide has receded—except in AI, where investment continues to smash records—the aftermath has brought notable lawsuits, shutdowns, and even criminal charges.
We’re tracking some of these cases through our Startup Litigation Digest, which has covered 32 cases since 2023.
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Other Relevant Corporate Governance News and Content
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Onward and upward.
Sincerely,
Evan Epstein