AI Hiring Startup Founder Charged With Criminal Securities Fraud

The founder of an artificial intelligence company aimed at helping businesses meet their diversity, equity, and inclusion goals must now contend with US securities regulators who charged her with defrauding and misleading investors.

The Securities and Exchange Commission and the US Attorney for the Southern District of New York announced parallel charges Tuesday against Ilit Raz, who served as CEO of Joonko Diversity Inc.

Joonko purported to use AI to help companies find and hire candidates that reflect a more diverse employee base. The company had offices in Israel and the US and raised about $27 million from investors in 2021 and 2022, according to the US Attorney’s Office criminal indictment.

Raz told investors that the company had hundreds of customers including Fortune 500 companies, growing annual revenue, and hundreds of thousands of active job candidates using the platform, the SEC said in its parallel civil suit, filed in the US District Court for the Southern District of New York.

But Joonko’s platform didn’t work as Raz claimed, the SEC said. It lacked a relationship with any Fortune 500 companies, and it had far fewer customers and job candidates than advertised, according to the complaint.

Her misrepresentation of the company as well as her use of fabricated documents and falsified bank statements drew millions from investors, private equity, and venture capital firms, the agency alleged.

“Raz engaged in an old school fraud using new school buzzwords like ‘artificial intelligence’ and ‘automation,’” SEC Enforcement Director Gurbir S. Grewal said in a statement.

The government’s charges come as AI plays a growing role in the way companies hire, recruit, and monitor workers.

Raz resigned as CEO in 2023 after an investigation by Joonko board members. She admitted to a representative of the board that she lied about customer numbers, revenue, and money in the company’s bank accounts, the SEC said. Joonko filed for bankruptcy in May in the US Bankruptcy Court for the District of Delaware.

Raz and Joonko couldn’t immediately be reached for comment.

The case is Securities and Exchange Commission v. Raz, S.D.N.Y., No. 1:24-cv-04466, 6/11/24.