SEC Charges CEO with $21M "AI-Washing" Fraud at Recruiting Startup Joonko

The Securities and Exchange Commission recently charged Ilit Raz, CEO and founder of the now-defunct artificial intelligence recruitment startup Joonko, with defrauding investors out of at least $21 million.

According to the SEC's complaint, Raz made numerous false and misleading statements to raise money for Joonko, which claimed to use AI to help companies find diverse job candidates matching their diversity goals.

The SEC alleges Raz lied to investors that Joonko had over 100 customers including Fortune 500 companies, fabricating testimonials praising the company's effectiveness. Raz also allegedly misled investors that Joonko had over $1 million in revenue and was working with more than 100,000 active job candidates on its platform.

"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 Enforcement Division. "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."

When one investor grew suspicious, the SEC claims Raz provided falsified bank statements and forged contracts to conceal the fraud. The alleged scheme fell apart in mid-2023 when the investor confronted Raz, who admitted to lying about Joonko's revenue, customers and bank records.

The SEC's complaint, filed in U.S. District Court for the Southern District of New York, charges Raz with violating antifraud provisions of federal securities laws. It seeks financial penalties, disgorgement of ill-gotten gains, and a bar against Raz from serving as a public company officer or director.

In a parallel action, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against Raz related to the alleged fraud.

"It is critical for investors to beware of companies exploiting the fanfare around artificial intelligence to raise funds," Grewal cautioned.

Joonko had marketed itself as using AI to help employers identify qualified but overlooked job candidates from underrepresented backgrounds. The startup launched in 2021 amid heightened interest in using technology to promote diversity, equity and inclusion in hiring.

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