Israeli AI Startup CEO Pleads Guilty to Securities Fraud in US

Ilyt Raz, the Israeli founder and CEO of AI company Joonko, pleaded guilty to securities fraud in a Manhattan court on Friday, September 11. The plea marks the conclusion of a high-profile case involving Israeli high-tech.

According to the U.S. Department of Justice, the 40-year-old Raz admitted to orchestrating a fraudulent scheme that defrauded investors out of approximately $27 million between 2021 and 2022. The maximum penalty for this offense is 20 years in prison, though the final sentence will be determined by a federal judge. A sentencing date has not yet been set.

Joonko, founded in 2016 with offices in Tel Aviv and New York, marketed itself as an AI-powered platform designed to help U.S. employers find candidates from underrepresented groups, including women, minorities, and veterans. The company's narrative, which combined AI, diversity hiring, and rapid growth, resonated with investors. In September 2022, Joonko announced a $25 million funding round led by Insight Partners, with participation from Target Global, Kapor Capital, and Vertex Ventures Israel, bringing its total claimed funding to over $38 million.

Prosecutors allege that Raz significantly inflated Joonko's client numbers, revenue, and candidate database. While Raz claimed over 200 clients in early 2023, she later admitted to having closer to 30 actual clients, with at least half not paying for the service. Similarly, reported revenue figures were vastly exaggerated, with actual revenue for 2021 estimated at under $100,000, a stark contrast to the millions claimed. The fraud was uncovered in early 2023 when the board struggled to access financial records, leading to Raz's eventual confession and resignation.

Further investigation revealed the use of fabricated bank statements, purchase orders, and forged electronic signatures to deceive investors. One investor received a falsified bank statement showing a balance of over $5 million, when the actual amount was significantly less. The SEC also claimed Raz received millions in compensation and stock. In May 2024, Joonko filed for bankruptcy protection in Delaware, with insufficient assets to fully reimburse investors.

Federal prosecutor Jamie MacDonald stated that startup fraud harms investors and hinders other entrepreneurs, leaving victims with millions in losses. Raz initially faced charges of wire fraud as well, but her guilty plea was solely for securities fraud, with the status of the additional charge yet to be clarified.