SoftBank is suing social app IRL for fraud. The Japanese investment giant is suing IRL after reports that most of its user base comprised “automated or from bots”. It has asked for $150 million in damages. SoftBank had paid $150 million to purchase IRL shares based on IRL’s valuation at $1 billion in May 2021. Incidentally, IRL is also being probed by the YS Securities and Exchange Commission (SEC) to determine whether the app violated security laws by misleading investors.
IRL was touted to become an event organizing alternative for Gen Z, who were claimed to be using Facebook less and less.
What the lawsuit claims
In its lawsuit, SoftBank said that IRL CEO Abraham Shafi had claimed that his mobile app had been downloaded by 25 per cent of US teens under 18 years old and IRL had 12 million monthly active users, growing at a “meteoric” 400 per cent year-over-year rate. Additionally, IRL reported strong user engagement and retention metrics, which showed that nearly 30 per cent of its MAUs were using the platform on a daily basis. However, these metrics were accurate, according to SoftBank.
According to the lawsuit, IRL spent tens of thousands of dollars on proxy services to fraudulently inflate its user data with bots.
“Upon information and belief, IRL did not actually have 12 million MAUs during the period when SoftBank conducted diligence for its investment in April and May of 2021. Nor had 25 per cent of teenagers under 18 years old downloaded IRL’s mobile app,” the lawsuit claimed.
To the contrary, “the social app spent substantially more than $50,000 per month to acquire each actual, monetisable user,” and despite explicitly telling SoftBank that “no (IRL) Active User was generated by any click farm or similar service, bot, automated programme or similar device,” on information and belief the vast majority of IRL supposed “active users actually were bots”.
Earlier this year, IRL announced layoffs. “We have all seen the state of the market,” IRL CEO and co-founder Shafi wrote in a company-wide memo where the social app announced it would be dramatically cutting staff.
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