Lessons for Founders from the Joonko Guilty Plea

By Kyle Jeziorski

Ilit Raz, the founder and former chief executive of AI startup Joonko, secured approximately $27 million in funding by falsely claiming the business possessed clients it never served and revenue it never actually generated. When an investor later requested verification, she provided a fabricated bank statement along with fraudulent purchase orders.

Last month, Raz entered a guilty plea to federal securities charges and faces a maximum prison sentence of 20 years.

Startup creators seeking capital must pitch investors on future enterprise potential. However, Raz’s situation highlights the direct personal consequences of misrepresenting corporate milestones, and backers are showing an increased willingness to pursue those claims in court.

Plaintiffs filed 15 artificial intelligence-related securities class actions during just the opening half of 2026, coming close to the 16 cases filed across the entirety of 2025, according to data from Cornerstone Research. When outlining clients, income, and business momentum, the line separating future possibilities from current realities remains critical.

Where ‘puffery’ crosses the line into securities fraud

The core issue centers not on whether a presentation sounds ambitious or optimistic, but on whether its factual assertions mislead backers. Knowingly distorting metrics that influence an investment decision can leave a founder personally liable.

Prior to unveiling a pitch presentation, entrepreneurs need to carefully examine four distinct operational categories where these boundaries frequently blur:

• LOIs and pilots: Designating tentative, nonbinding letters of intent or unpaid evaluation phases as “committed recurring revenue” or “signed enterprise contracts.”
• Customer counts: Labeling free evaluation users or informal trial accounts as active, paying clients to artificially boost growth figures.
• Traction and churn: Concealing substantial customer departures in a manner that distorts expansion claims, or classifying one-time project fees as ongoing revenue.
• Product capabilities: Portraying human-managed workflows as fully automated AI systems, or asserting ownership of proprietary technology the business does not possess.

From a legal standpoint, the core inquiry is whether an inaccurate statement or omission is material. Would a prudent investor deem that specific information significant when choosing to invest?

To be clear, an incorrect figure does not automatically constitute securities fraud. Nonetheless, false assertions regarding client agreements, ongoing income, or customer retention can subject founders to securities-fraud litigation.

A lofty forecast is one matter, whereas a fraudulent assertion regarding active clients or revenue is entirely different. The latter option can expose founders to personal liability, with zero certainty that directors and officers insurance will cover the resulting damages.

Where D&O coverage may stop

Founders targeted by investor claims typically turn to directors and officers (D&O) insurance for defense. Yet, fighting a fraud accusation differs fundamentally from covering established wrongdoing. Policy terminology and relevant laws dictate where that protection ceases.

Under a court-approved settlement regarding Joonko reached in June 2025, Raz reportedly agreed to drop claims concerning the corporate D&O policies. Even so, that agreement does not clarify whether an insurance provider previously funded her legal defense or rejected coverage outright.

Three specific policy clauses require close evaluation:

• The fraud exclusion: D&O policies routinely exclude financial losses stemming from intentional fraud, criminal behavior, or improper personal enrichment. Mere allegations generally do not activate these exclusions.
• Final adjudication: Insurance providers might advance legal defense expenses while litigation moves forward. A guilty plea or formal conviction can trigger an exclusion, though exact policy language establishes the precise threshold, including whether all appeals must conclude first.
• Repayment provision: Certain policies permit carriers to reclaim advanced legal defense funds if the underlying claim ultimately gets excluded. Founders must verify whether reimbursement is mandatory and under what conditions.

While D&O insurance assists founders during investor disputes, it does not serve as a guaranteed safety net for confirmed fraud. Creators must recognize when coverage terminates and whether they might be forced to reimburse advanced legal expenses.

Practical steps for founders before presenting metrics

Before distributing a pitch deck, establish an accessible internal guide detailing your mathematical calculations. Define precisely what constitutes a paying user, how pilots and letters of intent are categorized, and the methodology behind recurring income and customer churn. Apply those standards uniformly.

Collaborate with legal and financial advisors to tie substantive claims to verifiable documentation, such as executed agreements, billing records, accounting books, and client-status logs. Keep future projections separate from present achievements and document the underlying assumptions behind every forecast.

Avoid confusing annual recurring revenue with collected cash; they do not belong in the same category. Demonstrate transparently how the business computes ongoing income and differentiates it from isolated fees, sales pipelines, and contracted agreements that are not yet operational. Bear in mind that ARR and contracted ARR represent distinct metrics and should never be used interchangeably.

Finally, include dates on all figures and refresh material statistics before investors depend on them for decision-making. If your team cannot articulate the math behind a metric or validate a client claim, address the discrepancy before unveiling your presentation.

Investors may believe in your vision, but regulatory authorities will examine your math.

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Frequently Asked Questions

What led to the legal action against former Joonko CEO Ilit Raz?

Ilit Raz raised approximately $27 million by falsely telling investors that her startup had customers and revenue it never actually earned, later providing a forged bank statement and fake purchase orders when asked for proof.

Can an inaccurate pitch deck metric automatically trigger securities fraud charges?

An inaccurate figure does not automatically establish securities fraud, but false claims regarding customer contracts, recurring revenue, or client retention can expose founders to personal liability if they are material to an investor’s decision.

Does D&O insurance always cover founders facing fraud allegations?

No. While D&O policies may advance defense costs during litigation, they typically feature fraud exclusions that can be triggered by a guilty plea or conviction, and some policies require founders to repay advanced legal fees if the claim is excluded.

What is the difference between ARR and cash collected?

ARR (annual recurring revenue) and cash collected are distinct metrics that should never be used interchangeably. Founders must clearly separate ongoing subscription income from one-time fees and unfulfilled pipeline commitments.

How are AI-related securities class actions trending?

According to Cornerstone Research, plaintiffs filed 15 AI-related securities class actions in just the first half of 2026, which nearly matches the 16 cases filed throughout the entire year of 2025.

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Kyle Jeziorski is the market-facing and client leader at Founder Shield, the innovation arm of The Baldwin Group, with eight years invested in the boutique broker and more than a decade in the insurance industry. Before Founder Shield, he worked at Marsh on the FINPRO team focusing on management liability in the large private and public space. A graduate of Saint Joseph’s University’s risk management and insurance program, Jeziorski has focused his entire career helping clients navigate through an ever-changing risk environment.

Illustration: Dom Guzman