On Tuesday, the Securities and Exchange Commission announced it had charged Ilit Raz, founder and CEO of the Artificial Intelligence (AI) recruitment startup Joonko with fraud.
According to the SEC, Raz made false and misleading claims about the quantity and quality of Joonko’s customers, as well as the number of candidates on the platform and the company’s revenue which defrauded investors of at least $21 million. Officials with the SEC said Joonko claimed to use AI to help clients find diverse and underrepresented candidates to fulfill diversity, equity and inclusion hiring goals.
“We allege that Raz engaged in an old school fraud using new school buzzwords like ‘artificial intelligence’ and ‘automation,’” Gurbir S. Grewal, the SEC’s director of the division of enforcement. “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.”
The SEC’s complaint said Raz told investors that Joonko had more than 100 customers including Fortune 500 companies, and fabricated glowing testimonials of Joonko’s effectiveness. Raz also told investors that Joonko had earned more than $1 million in revenue and was working with more than 100,000 active job candidates. When investors grew suspicious, SEC officials said, Raz produced falsified bank statements and forged contracts to conceal the fraud. In mid-2023, the scheme unraveled when an investor confronted Raz, who admitted to forging bank statements and contracts, as well as lying about the company’s revenue and customer base.
Raz is charged with violating the antifraud provisions of the federal securities laws. The SEC is seeking a permanent injunction against him, civil money penalties, disgorgement with prejudgment interest and an officer-and-director bar against him. Raz also faces criminal charges from the U.S. Attorney’s Office for the Southern District of New York.