The U.S. Securities and Exchange Commission (SEC) has filed charges against Ilit Raz, the Israeli CEO and founder of the startup Joonko, for investor fraud amounting to at least $21 million. The indictment was filed in the Southern District of New York court.
Joonko, founded in 2016, developed AI software designed to enhance workplace diversity by assessing an organization's diversity and recommending suitable candidates for open positions, as well as alerting to any imbalance.
According to the indictment, Raz falsely claimed that Joonko had secured over 100 corporate clients, including Fortune 500 companies, to secure funding for the company. This allegedly led to inflated revenue figures and an exaggerated number of active candidates on the company's platform—reported to be over $1 million and 100,000, respectively.
Documents submitted by the SEC reveal that Raz presented fake bank statements to reassure one investor. However, her plan unraveled when the investor persisted in questioning her, leading her to confess to falsifying documents and inflating the company's data.
The charges indicate that Raz violated federal laws, and the SEC is now seeking civil penalties to recover the funds invested in Joonko. Gurbir S. Grewal, director of the SEC’s Division of Enforcement, described the case as "old-fashioned fraud" and expressed concern that the use of AI-related terminology could confuse investors. Meanwhile, the U.S. Attorney's Office for the Southern District of New York has launched a criminal investigation into Raz.
According to a report by Coingape, this case is part of increased oversight in the AI sector. The Federal Trade Commission and the Department of Justice plan to conduct antitrust investigations against major players in the field, including Microsoft, OpenAI and Nvidia.
Last year, Raz and several top executives left Joonko, and most of the company's employees were summoned for a hearing. This followed an investigation by the company's board and investors, which revealed that the actual number of its clients was significantly different from what had been reported to investors.