Firm Co-Founder Deceives His Investors by Concealing Expenses

Financial fraud is a long-time staple of the Commission’s enforcement program. Over the years the program has uncovered fraudulent activity that at times shook major corporations. In the end, there was always a scheme that operated to the financial detriment of the corporate entity and its investors but to the benefit of the maestro conducting the tune to which the company danced. The Commission’s latest case involving such a scheme is SEC v. Shafi, Civil Action No. 4:24-cv-04636 (N.D. Ca. Filed July 31, 2024).

Named as defendant is Abraham Shafi, a resident of Hawaii. He is the co-founder of Get Together, Inc., known as IRL. He served as its CEO during the relevant period and up to April 2023.

Defendant and his co-founders created the IRL social media app in 2018. At launch the idea was to build a social media platform centered on events that people would attend together “in real life” and later remotely.

Mr. Shafi began promoting the company in September 2019 using “incent” advertisements. The advertisements offered users a reward unrelated to the app in exchange for downloading the app. This type of material can attract some app developers because it can be used to drive a large volume of downloads quickly at low costs. Here the point was to drive large download volumes and achieve a high rank in the Apple App Store, according to statements Mr. Shafi made to others.

While the advertising was effective, Defendant did not disclose the expenditures for it. Prospective investors were provided with materials about the advertising and offering materials that understated the costs. Potential investors were thus not aware of significant portions of the costs. Those investors were also not aware that Defendant and a friend misused the company credit cards to purchase large amount of the advertising as well as about $170 million of preferred stock issued by the company in a “Series C” offering. As a result, investor VC1, a venture capital fund, purchased about $125 million of company securities from the firm and another $7.5 million directly from Defendant. Another venture capital fund purchased an additional $10 million worth of IRL securities.

After the offering, Defendant continued to deceive investors whose representatives held seats on the company board of directors. Mr. Shafi also orchestrated a scheme to continue under reporting expenditures. For example, he used firm credit cards to cover significant expenses for his wedding. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 26066 (August 6, 2024).