SoftBank sues social media startup it invested in, alleging it faked user numbers

SoftBank’s Vision Fund filed go well with in opposition to the founders of one among its portfolio firms Monday, alleging that they artificially inflated consumer metrics, lied to the fund about efficiency and bilked the fund for hundreds of thousands.

Buzzy social media startup IRL launched in April 2021 and was seemingly “one of the fastest growing social media apps for Generation Z,” the criticism in San Francisco federal court docket alleges.

SoftBank was invested within the firm attributable to its apparently low value, “strong” consumer engagement that left it “well positioned for further viral growth” in the identical approach Facebook and Twitter exploded.

In May 2021, a month after the corporate launched, SoftBank invested $150 million in IRL by way of one of many conglomerate’s high-spending Vision Funds, shopping for $125 million in shares from the corporate and one other $25 million from insiders together with CEO Abraham Shafi in addition to Noah Shafi and Yassin Aniss, the criticism says.

SoftBank believed that IRL had 12 million month-to-month energetic customers.

But these numbers have been a lie, the criticism alleges. IRL was secretly swarming its personal platform with a military of bots, in keeping with the criticism, creating the veneer of a thriving social community which was, in actuality, a canopy to “defraud investors.”

The plot started to unravel when the U.S. Securities and Exchange Commission opened an investigation into IRL in late 2022. In April 2023, Abraham Shafi was suspended as CEO, and the corporate dissolved in June.

The go well with raises vital questions concerning the stage of scrutiny that SoftBank utilized to its portfolio firms. When a third-party evaluation of consumer numbers got here in considerably beneath IRL’s personal gross sales pitch, SoftBank representatives accepted Abraham Shafi’s explanations that they have been “definitely not accurate,” in keeping with the go well with.

Past missteps from SoftBank embody giant positions in allegedly fraudulent crypto alternate FTX and devalued property firm WeWork. SoftBank’s Vision Funds have faltered considerably because the market highs of 2021, and the conglomerate posted a full-year lack of $32 billion for the fiscal 12 months ending March 31, 2023.