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SEC Accuses Joonko CEO of $21M Fraud in AI Hiring Scandal

Highlights:

  • Ilit Raz charged by the SEC with defrauding investors, falsely inflating Joonko’s revenue and customer base.
  • Legal proceedings against Raz include SEC charges and a criminal case by the U.S. Attorney’s Office.
  • Erica Y. Williams continues as PCAOB Chair, promoting audit quality and investor protection till 2029.

The Securities and Exchange Commission has initiated legal proceedings against Ilit Raz, the CEO of the defunct AI recruitment firm Joonko. Raz is accused of defrauding investors with approximately $21 million and faces allegations of gross misrepresentation concerning the company’s financial health and customer engagement.

Details of the Allegations

According to the SEC, Ilit Raz falsely represented Joonko’s success in attracting more than 100 corporate clients, including some from the Fortune 500 roster, to secure investment funds. The startup, which aimed to use artificial intelligence to promote diversity in hiring, is also accused of fabricating client testimonials and revenue figures. Specifically, Raz claimed Joonko had generated over $1 million in revenue and boasted a candidate pool exceeding 100,000 active job seekers.

However, the truth surfaced when a suspicious investor prompted Raz to confess to fabricating bank statements and contracts to support his claims. This admission came after the investor challenged Raz with questions he could not evade, exposing the fraudulent exaggerations of the company’s actual performance.

Legal Consequences and Enforcement

The SEC’s lawsuit, filed in the U.S. District Court for the Southern District of New York, accuses Raz of violating federal securities laws. The commission seeks various legal remedies, including civil penalties, disgorgement of fraudulently acquired funds plus interest, and permanent injunctions to prevent Raz from serving as an officer or director of a public company.

Simultaneously, the U.S. Attorney’s Office for the Southern District of New York has launched criminal proceedings against Raz, underscoring the severity of the allegations.

SEC’s Warning Against AI-Washing

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, highlighted the misuse of AI-related terminology to perpetrate what he described as an “old-school fraud.” This case serves as a cautionary tale about the potential for emerging technologies like artificial intelligence to be exploited in investment scams. 

The SEC remains vigilant in policing the marketplace against such deceptive practices, ensuring that the burgeoning field of AI does not become a landscape for fraudulent activities.

Erica Y. Williams Reappointed as PCAOB Chair

The Securities and Exchange Commission (SEC) has confirmed Erica Y. Williams as Chairperson of the Public Company Accounting Oversight Board (PCAOB) for another term starting October 25, 2024. This decision marks Williams’ second consecutive term, extending through October 24, 2029. SEC Chair Gary Gensler expressed his satisfaction with Williams’ past leadership and anticipated further contributions to the PCAOB’s mission under her continued guidance.

SEC Chief Accountant Paul Munter also praised Williams, looking forward to advancing the board’s initiatives to enhance audit standards and improve overall audit quality, thus bolstering investor protection. Williams, expressing gratitude for the renewed trust, committed to furthering the board’s mission alongside her colleagues and the PCAOB staff.

Williams brings a robust background in regulatory and legal affairs to her role. Before her initial appointment to the PCAOB, she was a litigation partner at Kirkland & Ellis LLP and held significant positions at the SEC, including Deputy Chief of Staff.

Additionally, she served in the Obama administration, focusing on economic policy. She is an alumna of the University of Virginia, enhancing her credibility. Consequently, her role at the PCAOB is crucial for overseeing audits of public companies and broker-dealers under the Sarbanes-Oxley Act of 2002.

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