New Delhi: Abraham Shafi, the founder and former Chief Executive Officer (CEO) of the now-defunct social media startup IRL, has asked a U.S. federal court to dismiss the securities fraud case against him, arguing that the prosecution was tainted by a conflict of interest. Shafi contends that the lawyer who led the company’s internal investigation later assumed a senior position in the same U.S. Attorney’s Office that ultimately filed criminal charges against him, raising serious concerns about the fairness of the prosecution.
The motion was filed in the U.S. District Court in Oakland, California. Shafi faces charges of wire fraud, securities fraud, and obstruction of justice. U.S. prosecutors allege that during IRL’s 2021 funding round, he misled investors into investing approximately $170 million (around ₹1,460 crore) by providing false or misleading information about the company’s business and financial performance. At the time, the company was valued at more than $1 billion (around ₹8,600 crore).
According to prosecutors, Shafi spent millions of dollars on incentive-based advertising campaigns to increase downloads of the IRL app while allegedly telling investors that the company had spent “very little” on advertising to acquire new users. The prosecution claims those alleged misrepresentations influenced investment decisions and formed the basis of the fraud case.
Shafi has pleaded not guilty and denies all allegations. In his latest court filing, he argues that the charges rely heavily on findings from an internal investigation initiated after the U.S. Securities and Exchange Commission (SEC) issued a subpoena to IRL in 2022.
The defense alleges that the lawyer who conducted that investigation later became the head of the Corporate and Securities Fraud Section at the U.S. Attorney’s Office for the Northern District of California. According to the filing, while in private practice, she had allegedly urged both the SEC and the U.S. Department of Justice to pursue enforcement action against Shafi. The defense argues that her subsequent appointment to a supervisory role in the same office compromised the impartiality of the prosecution.
Federal prosecutors, however, maintain that the official was completely screened from the case after joining the government through an ethical wall designed to prevent any conflict of interest. They also state that supervision of the investigation was transferred to the Fraud Section of the U.S. Department of Justice’s Criminal Division in Washington, D.C., and that she played no role in the decision to indict Shafi.
Despite those safeguards, Shafi’s legal team argues that the conflict could not be cured merely through administrative separation. According to the defense, once the lawyer assumed a leadership role within the office handling the investigation, the appearance of impartiality was irreparably compromised. The motion argues that the case should have been transferred to another U.S. Attorney’s Office to eliminate any potential conflict.
The federal court has not yet ruled on the motion. If the judge finds merit in the conflict-of-interest allegations, the court could examine whether the investigation or prosecution was improperly influenced and determine whether dismissal or other remedies are appropriate. If the court accepts the government’s position, the criminal proceedings will continue as scheduled.
The case has attracted attention in the United States because it raises broader questions about prosecutorial independence, corporate fraud investigations, and ethical standards governing transitions between private legal practice and senior government positions. Legal experts say the court’s eventual decision could influence how future cases involving potential conflicts of interest are handled, particularly where lawyers move between private practice and public prosecution.
