Joonko Founder Charged by SEC for $21M Fraudulent AI Hiring Scheme

The U.S. Securities and Exchange Commission (SEC) charged Ilit Raz, CEO and founder of now-defunct artificial intelligence (AI) recruitment startup Joonko, with defrauding investors of at least $21 million by making false and misleading statements about the number and quality of Joonko's clients, the number of candidates on the platform, and the company's revenue.

The SEC has filed a complaint in the U.S. District Court for the Southern District of New York alleging that Raz has violated the antifraud provisions of the federal securities laws and seeking a permanent injunction, civil monetary penalties, disgorgement with prejudgment interest, and an officer-and-director bar against Raz.

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. 

The complaint alleges that, in order to raise funds for Joonko, Raz misrepresented to investors that Joonko had more than 100 clients, including Fortune 500 companies, and provided investors with false testimonials from several companies expressing appreciation for Joonko and praising its effectiveness.

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. When an investor 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, the scheme unraveled 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 S. Grewal, Director of the SEC’s 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.”

AI-washing is a deceptive promotional practice that exaggerates or outright lies about a product or service's use of artificial intelligence.