AI Hiring Startup Founder Admits Securities Fraud, Defrauding Investors

The founder and former CEO of Joonko Diversity, a U.S.-based artificial intelligence startup, Ilit Raz, has pleaded guilty to securities fraud. Prosecutors in the Southern District of New York allege that Raz defrauded investors out of approximately $27 million by providing false information about the company's clients and revenue. Joonko's AI product was designed to help employers find and hire candidates from diverse and underrepresented groups.

Between 2021 and 2022, Raz allegedly misled investors by inflating the number of clients and falsely claiming major global companies as clients, including a credit card issuer, a sportswear manufacturer, an online travel service, and a luxury fashion brand. These companies, in reality, had no business relationship with Joonko. Raz also presented inaccurate data regarding the company's current and projected earnings. Investors contributed about $10 million in a Series A round in June 2021 and an additional $17 million a year later.

The startup promoted its AI platform, claiming its algorithm could automatically identify, verify, and recruit top candidates from underrepresented demographics such as women, veterans, and minorities. This was presented as a technological breakthrough in human resources, aiming to eliminate manual recruitment and hiring bias, particularly as large businesses were actively seeking automated solutions for diversity, equity, and inclusion (DEI) quotas.

Raz reportedly claimed Joonko had over a hundred active corporate clients, including Fortune 500 giants like Nike and PayPal, a large database of vetted job seekers, and millions in revenue. In 2023, an investor's suspicion led to a request for bank statements. Raz allegedly provided a falsified statement showing an average account balance exceeding $5 million, when the actual balance was several million dollars lower. She also submitted fabricated customer orders with forged signatures from companies that never worked with Joonko.

Ilit Raz, 40, an Israeli citizen, faces up to 20 years in prison, with the final sentence to be determined by a judge.