SoftBank accused of ‘destroying’ social media app to protect reputation

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SoftBank’s Vision Fund has been accused of deliberately “destroying” a Gen Z-focused social media company once valued at more than $1 billion in order to damage its investor reputation amid an investigation by the to protect supervisory authorities.

In a lawsuit filed Wednesday, the co-founders of IRL, which received $150 million from SoftBank after touting it as an alternative to Facebook for younger users, allege that the company and two other venture capital investors fabricated a “blatant, outrageous lie.” The app was populated almost entirely by bots as an excuse for the struggling startup to shut down in June.

“If the company never had a real user base. . . they were able to position themselves[as]“The victims of a sophisticated fraud, not the venture capitalists, who drove a billion-dollar company into the ground in just a few weeks,” attorneys for Abraham Shafi, Krutal Desai and Genrikh “Henry” Khachatryan wrote in their lawsuit.

They sued SoftBank, along with co-investors Goodwater Capital and Floodgate Fund, as well as the directors appointed to the IRL board by the venture capital firms, for breach of fiduciary duty, among other things.

The allegations against the Japanese conglomerate come after a series of high-profile failures, including the recent bankruptcy of SoftBank-backed WeWork.

SoftBank itself sued IRL’s former CEO Shafi and members of his family in July in a lawsuit that is likely to be appealed. She claimed the founder defrauded the Japanese conglomerate by lying about IRL’s user base and claimed he and his co-conspirators deleted evidence of the scheme as soon as regulators began investigating the startup.

The company said it invested in the app because it assured there were 12 million monthly active users, although a report commissioned in 2023 found that 95 percent of users were fake.

Shafi and the other defendants “used bots to make IRL appear as if it were a growing, thriving app,” SoftBank’s lawyers wrote. “In reality, the platform was a virtual ghost town full of bots that deceptively imitated active human users.”

They added that Shafi “hide the plan.” [SoftBank] during the due diligence process through a mixture of “misleading statements” and “omissions of material facts”.

But in his lawsuit, Shafi claims SoftBank conducted its own due diligence and was initially extremely interested in the app. SoftBank CEO Masayoshi Son himself wanted to “meet within 48 hours” after learning about the opportunity and offered a $500 million investment.

After a market downturn in 2022 wiped out some of his bets and SoftBank lost its $100 million investment in FTX, there was a “strong reputational incentive for SoftBank employees to avoid further embarrassment,” Shafi’s lawyers claim, and there was An investigation by the U.S. Securities and Exchange Commission’s takeover of IRL led venture capitalists to look for a “scapegoat.”

The VC-appointed directors at IRL then commissioned a report and “used the ‘95% Bots’ lie as an excuse to close the company and return capital to shareholders – that is, capital largely to SoftBank, Goodwater and Floodgate.” who would get the lion’s share of the company’s $40 million cash back because they owned preferred stock.”

Attorneys in the case filed by Shafi and his co-founders include Stephen Shackelford of Susman Godfrey, who was part of the team that secured a $787.5 million settlement from Fox for spreading false claims of voter fraud through Dominion Voting system received.

SoftBank, Goodwater and Floodgate did not immediately respond to requests for comment.

Olly Dawes

Olly Dawes is a Nytimas U.S. News Reporter based in London. His focus is on U.S. politics and the environment. He has covered climate change extensively, as well as healthcare and crime. Olly Dawes joined Nytimas in 2023 from the Daily Express and previously worked for Chemist and Druggist and the Jewish Chronicle. He is a graduate of Cambridge University. Languages: English. You can get in touch with me by emailing:

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