PYMNTS MonitorEdge May 2024

SEC, US Attorney Charge Joonko Founder Ilit Raz With Fraud

SEC, Securities and Exchange Commission

The founder of a now-closed artificial intelligence (AI) recruitment startup called Joonko is facing charges from both the Securities and Exchange Commission (SEC) and the United States Attorney’s Office for the Southern District of New York.

Ilit Raz has been charged with fraud, the two agencies said in separate press releases issued Tuesday (June 11).

The agencies’ complaints allege that Raz raised money for Joonko by making false claims about the number of customers the company had, the number of active job candidates it was working with and the amount of revenue it earned, according to the releases.

When confronted by a suspicious investor, Raz allegedly provided false bank statements and forged contracts, they added.

The SEC’s complaint charges Raz with violating the antifraud provisions of the federal securities laws, according to the agency’s press release. It seeks a permanent injunction, civil money penalties, disgorgement with prejudgment interest and an officer-and-director bar.

“We allege that Raz engaged in an old school fraud using new school buzzwords like ‘artificial intelligence’ and ‘automation,’” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in the 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.”

The U.S. Attorney for the Southern District of New York charged Raz with one count of securities fraud and one count of wire fraud, according to its press release. Each of these counts carries a maximum sentence of 20 years in prison.

“Raz’s now-bankrupt company allegedly left victim investors with millions of dollars in losses,” U.S. Attorney Damian Williams said in the release. “Entrepreneurs tempted to artificially inflate revenues to solicit investments should be warned that this Office keeps a watchful eye of funding rounds and will continue to protect market investors.”

In other recent cases involving allegations of fraudulent claims about AI usage, the SEC said in March that it charged two investment advisors with marketing that they were using AI in certain ways when, in fact, they were not.

In those cases, Delphia and Global Predictions agreed to settle charges by the SEC and pay a total of $400,000 in civil penalties.