He set up a self- directed IRA as an investment vehicle and purchased PayPal stock. This was questionable if not outright illegal because it was not an arm's length transaction. Arm's length transactions mean that you don't have a relation to the selling party. If he had invested in a company that he had no relation to it would have been unquestionably legal.
As far as I know, this is still a viable tax strategy, but most people will have extreme difficulty finding opportunities to invest in extremely early stage companies and must be accredited investors.
