June 14, 2024
The founder and former CEO of Joonko Diversity, a New York City-based AI-powered job platform that connected clients with job candidates from diverse backgrounds, has been charged with securities fraud and wire fraud for allegedly defrauding investors and misleading them about core aspects of the company.
The SEC’s complaint, filed June 11 in the US District Court for the Southern District of New York, alleges Ilit Raz, founder and former CEO of the now-shuttered artificial intelligence recruitment startup, defrauded investors of at least $21 million by making false and misleading statements about the quantity and quality of Joonko’s customers, the number of candidates on its platform and the company’s revenue.
Joonko raised a $25 million series B funding round in 2022 led by Insight Partners with participation from investors including Target Global, Kapor Capital and Vertex Ventures Israel, The Wall Street Journal reported. The company said it had raised over $38 million since it was founded in 2016. Kapor Capital declined to comment, while Insight, Target Global and Vertex Ventures Israel didn’t respond to the Journal’s requests for comment.
The SEC charged 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 parallel action, the US Attorney’s Office for the Southern District of New York also announced criminal charges against Raz on June 11. Raz, an Israeli citizen, is charged with one count of securities fraud and one count of wire fraud, each carrying a maximum sentence of 20 years in prison.
Joonko filed for bankruptcy protection in the US Bankruptcy Court for the District of Delaware on May 24.
According to the SEC’s complaint, Joonko claimed to use artificial intelligence to help clients find diverse and 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 provided investors with fabricated testimonials from several companies expressing their appreciation for Joonko and praising its effectiveness.
Raz also allegedly falsely told investors that Joonko had earned more than $1 million in revenue and was working with more than 100,000 active job candidates, and he provided an investor with falsified bank statements and forged contracts when the investor became suspicious. According to the complaint, the scheme fell apart in mid-2023 when the investor confronted Raz, who admitted to forging bank statements and contracts and lying about Joonko’s revenue and number of customers.
“We allege that Raz engaged in an old school fraud using new school buzzwords like ‘artificial intelligence’ and ‘automation,’” said Gurbir Grewal, director of the SEC’s Division of Enforcement in a press release. “As more and more people seek out AI-related investment opportunities, we will continue to police the markets against AI-washing and the type of misconduct alleged in today’s complaint. But at the same time, it is critical for investors to beware of companies exploiting the fanfare around artificial intelligence to raise funds.”