SoftBank's Vision Fund has filed a lawsuit against the founders of IRL, one of its portfolio companies, alleging that they engaged in fraudulent activities to inflate user metrics and deceive investors. IRL, a social media startup targeting Generation Z, was touted as one of the fastest-growing apps in its category. SoftBank invested $150 million in the company in May 2021, believing it had 12 million monthly active users.
However, according to the lawsuit, IRL had been artificially boosting its user numbers by employing an army of bots on its platform. This scheme allowed the company to create a facade of a thriving social network, when in reality, it was defrauding investors. The plot began to unravel when the U.S. Securities and Exchange Commission initiated an investigation into IRL in late 2022. As a result, CEO Abraham Shafi was suspended in April 2023, and the company eventually dissolved in June.
The lawsuit raises concerns about the level of scrutiny that SoftBank applied to its portfolio companies. Despite a third-party assessment revealing significantly lower user numbers than claimed by IRL, SoftBank representatives reportedly accepted Shafi's explanations and did not further investigate the discrepancies.
This is not the first time SoftBank has faced issues with its investments. The conglomerate has previously invested in allegedly fraudulent crypto exchange FTX and experienced losses due to the devaluation of property company WeWork. SoftBank's Vision Funds have also struggled since the market highs of 2021, with the conglomerate reporting a $32 billion loss for the fiscal year ending March 31, 2023.
These recent events cast doubt on SoftBank's investment practices and highlight the need for greater due diligence when evaluating potential portfolio companies. The lawsuit serves as a reminder that even high-profile investors can fall victim to fraudulent activities and emphasizes the importance of thorough investigations before making significant investments.