SoftBank Sues Social App IRL for Fraud, Seeks USD 150 Million in Damages
Japanese investment firm SoftBank has filed a lawsuit against social app IRL, accusing the company of engaging in fraudulent practices related to its user base and growth statistics. SoftBank is seeking $150 million in damages as a result of the alleged deception.
In May 2021, SoftBank made a $150 million investment to purchase shares in IRL, valuing the company at $1 billion. However, the investment firm claims that its decision was based on misleading information provided by IRL’s CEO, Abraham Shafi.
According to the lawsuit, Shafi purportedly made false claims about the popularity and reach of IRL’s mobile app. He allegedly stated that the app had been downloaded by 25 percent of teenagers under the age of 18 in the United States and boasted 12 million monthly active users. Furthermore, Shafi reportedly claimed that IRL’s user base was experiencing rapid growth at an impressive rate of 400 percent year-over-year.
However, SoftBank contends that these claims were fabricated and lacked verifiable evidence. The investment firm now believes that it was misled into making a substantial investment based on false information provided by IRL’s CEO.
The lawsuit by SoftBank underscores the significance of accurate and transparent reporting of user metrics and growth statistics, especially in the competitive landscape of social media apps. Investors rely heavily on such data to make informed decisions about potential investments, and any misrepresentation can lead to financial repercussions and legal consequences.
As the legal proceedings unfold, the case may have implications not only for SoftBank and IRL but also for the broader investment community, serving as a reminder of the importance of due diligence and the need for companies to provide accurate and reliable information to their stakeholders.
According to the lawsuit filed by SoftBank, the information and belief is that IRL did not actually have 12 million Monthly Active Users (MAUs) during the period when SoftBank conducted diligence for its investment in April and May of 2021. Additionally, the lawsuit alleges that IRL’s claim that 25 percent of teenagers under 18 years old had downloaded their mobile app was also false.
The lawsuit suggests that IRL provided misleading and inaccurate information to SoftBank during the due diligence process, leading the investment firm to make a substantial investment based on false claims about the app’s user base and reach among the teenage demographic.
The allegations by SoftBank highlight the seriousness of providing accurate and transparent information during investment negotiations. Failing to provide truthful and verifiable data can have significant consequences, leading to potential legal actions and damage to the company’s reputation and credibility in the eyes of investors and the public.
As the legal proceedings continue, both parties will present their evidence to support their claims. The case will likely be closely watched by the investment community, emphasizing the importance of thorough due diligence and the need for companies to adhere to strict ethical standards in their interactions with investors and stakeholders.
Contrary to IRL’s claims about its user base and acquisition costs, the lawsuit filed by SoftBank alleges that the social app actually spent substantially more than $50,000 per month to acquire each genuine, monetizable user. Moreover, despite explicitly assuring SoftBank that the app did not have any bot-generated or automated users from click farms or similar services, SoftBank now believes that the vast majority of IRL’s supposed “active users” were, in fact, bots.
This discrepancy raises serious concerns about the accuracy and legitimacy of IRL’s user data, further reinforcing SoftBank’s claim of fraudulent practices by the social app. The alleged use of bots to inflate user numbers could have misled investors into believing that the app had a larger and more engaged user base than it actually did.
In addition to the lawsuit filed by SoftBank, IRL is also under investigation by the U.S. Securities and Exchange Commission (SEC). The SEC is looking into whether the app violated securities laws by providing misleading information to investors. Such investigations can lead to legal consequences for the company and its executives if any violations of securities regulations are discovered.
The ongoing SEC investigation highlights the seriousness of providing accurate and transparent information to investors, as well as the potential legal ramifications for companies found to have engaged in deceptive practices. The outcome of both the lawsuit and the SEC investigation will have significant implications for IRL’s reputation, financial standing, and relationships with investors and regulators.
