SEC Charges AI-Based Startup With ‘Old School Fraud Using New School Buzzwords’

By | June 14, 2024

The Securities and Exchange Commission (SEC) this week charged Ilit Raz, CEO and founder of the failed artificial intelligence recruitment startup Joonko, with defrauding investors of at least $21 million.

According to the SEC, Raz gave investors false and misleading statements about the quantity and quality of Joonko’s customers, the number of job candidates on its platform, and the company’s revenue.

“We allege that Raz engaged in an old school fraud using new school buzzwords like ‘artificial intelligence’ and ‘automation,'” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement, urging investors to “beware of companies exploiting the fanfare around artificial intelligence to raise funds.”

According to the SEC’s complaint, Joonko claimed to use artificial intelligence to help clients find underrepresented candidates to fulfill their diversity, equity, and inclusion hiring goals.

To raise money for Joonko, the complaint alleges that Raz falsely told investors that Joonko had more than 100 customers, including Fortune 500 companies, and she allegedly provided investors with fabricated testimonials from several companies praising Joonko.

Raz also allegedly lied to investors that Joonko had earned more than $1 million in revenue and was working with more than 100,000 active job candidates.

Court documents claim that she raised as much as $27 million in two funding rounds in 2021 and 2022.

When one of the investors grew suspicious of Raz’s claims, Raz allegedly provided the investor with falsified bank statements and forged contracts in an effort to conceal the fraud. According to the complaint, in mid-2023 the investor confronted Raz, who admitted to forging bank statements and contracts and lying about Joonko’s revenue and number of customers.

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Raz with violating the antifraud provisions of the federal securities laws and seeks a permanent injunction, civil money penalties, disgorgement with prejudgment interest, and an officer-and-director bar against Raz.

In a related action, the U.S. Attorney for the Southern District of New York this week also filed criminal charges against Raz, an Israeli citizen, charging her with with securities and wire fraud.

According to her LinkedIn page, before launching Joonka in 2016, Raz had six years of experience working with startups in product management and team management positions and seven years as a software engineer and manager for the intelligence unit of the Israeli Defense Forces. She has a computer science degree and a masters in business administration.

Her LinkedIn page says that after 13 years as a woman in tech and “experiencing unconscious, and conscious, bias,” she “wanted to do something to change the status of women in tech and gender bias in the industry.” The page claims that Joonko “helps companies such as PayPal, Adidas, Nike, Atlassian, and Intuit increase their diversity recruiting efforts and holds a pool of ~120K qualified underrepresented candidates.”

On May 24, 2024, Joonko filed for bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware.

Topics Fraud InsurTech Data Driven Artificial Intelligence Education K-12

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