I also invested in Scoutpats when I was a Meta employee. I'm not sure who to put the blame on but Sief did mislead investors as he never revealed his actual role. Here's Bloomberg article posted last month. https://www.bloomberg.com/news/articles/2024-04-04/the-case-...
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By Aisha Counts
April 4, 2024 at 3:00 AM PDT
Among the many channels on Meta Platforms Inc.’s internal messaging system is a group for employees to chat about investing in real estate. In 2019 an engineering recruiter named Sief Khafagi, who worked in Meta’s Los Angeles office, began posting about Scoutpads, a service he’d set up that connected users with developers to put money into real estate.
Scoutpads wasn’t directly investing in properties. Instead, it was an online platform that served as a middleman between investors and real estate partners who pooled the money to buy properties, usually in residential areas. The startup then took a referral fee from its users’ returns when they were sold. The idea appealed to Meta employees, who had plenty of money to spend, along with a natural affinity for a crowdfunding website reducing the friction of real-life investments. Its appearance in an office chatroom gave it an added air of legitimacy. Dozens of Khafagi’s co-workers invested.
This didn’t seem weird by Silicon Valley standards. Ambitious engineers and product managers sometimes see a stint in Big Tech as a way to gain the experience and financial cushion that will help them create their own startups. It’s not unheard of for founders to start exploring their new thing before they quit their day job. Nor is it unusual for tech workers to put money into each other’s companies. People in the industry can get rich very quickly, thanks to stock grants, and they are often eager to put that money to work. Like many other Big Tech companies, Meta has long allowed employees to invest in outside startups, and many of its executives have been doing so for years. “It’s part of the culture of Silicon Valley,” says Christina Kramlich, a certified financial planner and adviser at Chicory Wealth. “It is definitely common, especially in boom times.”
What is less common is for an active employee to solicit investment on the company’s internal systems. The reasons to have employees do recreational investing on their own time became clear when Scoutpads went under, leaving about 160 people who’d found real estate investments via the platform, including the dozens of Meta employees, with an estimated $50 million in losses. Khafagi says that “people have a right to be upset,” though he also says one of Scoutpads’ real estate partners is to blame. A group of Scoutpads users filed a lawsuit accusing the partner, a real estate company called Metallic Blue Development, or MBD, of defrauding them.
Meta had no direct connection to the episode, but that doesn’t necessarily matter when people feel burned. Employees complained to the company that it should take responsibility for what happens on its internal chatrooms. “Maybe [Meta] should have had a policy against any sort of promotions like that,” says Jeff Smith, a former Facebook product designer who says he lost more than $50,000. “I think something like this could happen at any workplace.”
A Meta spokesperson says it has “investigated this matter, and the person is no longer at the company.” She declined to comment about the circumstances of Khafagi’s departure and didn’t respond to questions about it. Meta also declined to provide more information about its policies on soliciting investments in the office. But one of the Scoutpads investors says Meta responded to the incident by adding a rule that employees aren’t allowed to discuss specific investment opportunities at work.
Meta employees who invested through Scoutpads say part of the draw was that a colleague was building the platform. One investor, an engineering manager who considered himself relatively sophisticated about real estate but had never invested in a colleague’s startup, says he found Khafagi convincing. After several co-workers vouched for Khafagi, this person invested about $200,000. A senior product manager for Facebook Marketplace, where people buy and sell used goods, had regularly invested in startups run by friends or ex-colleagues. He’d never invested with someone he still worked with, but Scoutpads was advertising 20% or 25% returns on each deal, according to investors and documentation viewed by Bloomberg Businessweek. He got in, too.
In total, Businessweek talked to seven current and former Meta employees who invested with Scoutpads. Each had put in $100,000 to $500,000, according to documents they provided. To fund their bets, they pulled money from bank accounts or sales of vested Meta stock. Several of them requested anonymity for fear of legal retribution and to protect business relationships.
A year in, things looked good. The senior product manager said he put in one payment of $30,000 that was invested in residential properties in Los Angeles and yielded him $40,000. Bolstered, many reinvested all their earnings. They also started bringing in co-workers, friends and family members. Smith, who says he’d been investing in stocks and startups for years but didn’t know much about real estate, says Scoutpads was offering referral bonuses to users who brought new investors to the fund. After several years of positive returns, he invited a co-worker from Airbnb Inc., where he began working after leaving Meta in 2019.
In 2021, Metallic Blue Development stopped sharing proceeds with Scoutpads. It’s unclear what percentage of Scoutpads business went through MBD, but the disruption was an existential threat to the startup. Investors who tried to take out their money couldn’t. Some Scoutpads investors say they weren’t able to get in touch with Khafagi around this time; he says he couldn’t get in touch with MBD. In 2022, Khafagi and several other investors filed a suit to impose involuntary bankruptcy on MBD, which was granted in July 2023. The Meta employees dropped their own suit against MBD after Khafagi filed his, figuring they’d never recover assets from a company in bankruptcy. A representative for MBD didn’t respond to requests for comment.
Some Meta employees took significant losses. The seven investors Businessweek spoke with say they lost more than $1 million in total; one senior engineer says he lost $500,000. Some blame Khafagi and have even considered hiring a private investigator to scrutinize the business. “There’s a lot of us who are really angry about this case,” says Richard Chen, an investor and former senior engineer for Facebook.
Khafagi describes himself as one of the victims, saying he lost $1.3 million, some of which belonged to his mother. Still, he says in an interview with Businessweek, “I do feel some level of moral responsibility just by being the person they talk to.” In 2021 he started another company, Techvestor, which uses a similar model to allow people to invest in properties to be rented on Airbnb.
One long-tenured Silicon Valley wealth manager, who spoke on condition of anonymity to avoid alienating potential clients, says his main takeaway from the incident is that wealthy tech workers are often not such sophisticated investors. “All these folks are very educated and very smart, but they’re not necessarily educated in finance,” he says.
Some investors admit they hadn’t vetted their investments that closely, saying they didn’t read the pages of documents outlining the investment terms. One engineer admits he didn’t even find out Khafagi’s name, because knowing he was a colleague was enough to give him confidence.
Smith, though, says he did his homework. “We’re educated people who did a lot of due diligence, ran this past advisers, and went and visited properties,” he says. “It really passed all the sniff tests for me.” Smith says he never expects to get his money back.
Many of the investors from the Meta chatroom have moved on to such companies as Amazon.com, Google, LinkedIn and Stripe. Some have raised tens of millions of dollars for their own startups and venture capital firms. Jyoti, a former Meta employee who lost $100,000 and asked to be identified by only her first name, doesn’t feel bad for herself. She won’t touch real estate again, she says, but has continued investing in startups. She plans to take a tax write-off on the money she lost. Jyoti and her colleagues are still trying to figure out where it all went wrong, she says. “The only thing we can think of is they did a really good job on tapping into this network.”
