IRL Founder Charged With $1.7B Fraud Scheme

The founder of the offline social application IRL has been charged with defrauding investors out of 1.7 billion dollars during a 2021 funding round. The U.S. Department of Justice announced that a federal grand jury in Oakland has indicted the 38-year-old founder, who is from Hawaii, on charges of wire fraud, securities fraud, and obstruction of justice, all related to the alleged scheme.

The founder, who previously served as the CEO of IRL's parent company, Get Together, oversaw a C-round funding that valued the company at 10 billion dollars. IRL, a platform designed for users to organize activities and engage in offline social interactions, ceased operations in June 2023. The application had gained market attention in 2018, making it to the list of popular social apps on the Apple App Store.

According to the Department of Justice, prior to the C-round funding, the founder spent hundreds of millions of dollars on incentive-based advertising to boost app downloads. However, the founder allegedly told investors that the company had made minimal investments in acquiring new users. The Department of Justice further alleges that the founder concealed these expenses by billing them to another company.

The indictment also accuses the founder and his fiancée of using investor funds for personal expenses, including stays at luxury hotels, purchases of high-end fashion items, spending at home goods retailers, paying for art classes costing tens of thousands of dollars, and spending tens of millions of dollars on the founder's wedding, including airfare and luxury hotel accommodations for guests.

The founder had previously stated in February 2018 that investors were drawn to the company due to its potential to compete with Facebook and Snapchat. Notable investors in IRL included the Founders Fund, backed by Peter Thiel, and the venture capital firm Floodgate. The founder's co-founders at IRL included Scott Banister, the first board member of PayPal and an early investor in Facebook.

The Department of Justice's indictment names only the founder. Each charge carries a maximum penalty of 20 years in prison. Last year, the U.S. Securities and Exchange Commission filed a civil lawsuit against the founder for the same alleged fraudulent scheme. The SEC's regional director for the San Francisco office, Monique Winkler, stated that the founder exploited investors' interest in pre-IPO tech investments by deceiving them about IRL's business operations, fraudulently raising approximately 1.7 billion dollars.

This case underscores the risks associated with investing in startups, particularly in the social media and technology sectors, where promises of rapid growth and innovation can sometimes mask underlying financial issues. The founder's actions have raised concerns about the transparency and accountability of startup founders, as well as the need for stricter regulations to protect investors from fraudulent activities. The legal proceedings against the founder are ongoing, and the outcome of the case will have implications for the broader startup ecosystem, particularly in the social media and technology sectors.