SoftBank Founder Masayoshi Son is pictured here in 2019 during an earnings presentation.
Tomohiro Ohsumi | Getty Images
SoftBank’s Vision Fund filed suit against the founders of one in every of its portfolio corporations Monday, alleging that they artificially inflated user metrics, lied to the fund about performance and bilked the fund for tens of millions.
Buzzy social media startup IRL launched in April 2021 and was seemingly “one in every of the fastest growing social media apps for Generation Z,” the grievance in San Francisco federal court alleges.
SoftBank was invested in the corporate because of its apparently low price, “strong” user engagement that left it “well positioned for further viral growth” in the identical way Facebook and Twitter exploded.
In May 2021, a month after the corporate launched, SoftBank invested $150 million in IRL through one in every of the conglomerate’s high-spending Vision Funds, buying $125 million in shares from the corporate and one other $25 million from insiders including CEO Abraham Shafi in addition to Noah Shafi and Yassin Aniss, the grievance says.
SoftBank believed that IRL had 12 million monthly energetic users.
But those numbers were a lie, the grievance alleges. IRL was secretly swarming its own platform with a military of bots, in accordance with the grievance, creating the veneer of a thriving social network which was, in point of fact, a canopy to “defraud investors.”
The plot began 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 suit raises significant questions on the extent of scrutiny that SoftBank applied to its portfolio corporations. When a third-party assessment of user numbers got here in significantly below IRL’s own sales pitch, SoftBank representatives accepted Abraham Shafi’s explanations that they were “definitely not accurate,” in accordance with the suit.
Past missteps from SoftBank include large positions in allegedly fraudulent crypto exchange FTX and devalued property company WeWork. SoftBank’s Vision Funds have faltered significantly 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.
