SEC Charges Joonko Founder with Fraud, "AI-Washing"

SEC Charges Founder of AI Hiring Startup Joonko with Fraud

The Securities and Exchange Commission today charged Ilit Raz, CEO and founder of the now-shuttered artificial intelligence recruitment startup Joonko, with defrauding investors of at least $21 million by making false and misleading statements about the quantity and quality of Joonko’s customers, the number of candidates on its platform, and the company’s revenue.

According to the SEC’s complaint, Joonko claimed to use artificial intelligence to help clients find diverse and underrepresented candidates to fulfill their diversity, equity, and inclusion hiring goals. To raise money for Joonko, the complaint alleges that Raz falsely told investors that Joonko had more than 100 customers, including Fortune 500 companies, and provided investors with fabricated testimonials from several companies expressing their appreciation for Joonko and praising its effectiveness. Raz also allegedly lied to investors that Joonko had earned more than $1 million in revenue and was working with more than 100,000 active job candidates. When an investor grew suspicious of Raz’s claims, Raz allegedly provided the investor with falsified bank statements and forged contracts in an effort to conceal the fraud. According to the complaint, the scheme unraveled in mid-2023 when the investor confronted Raz, who admitted to forging bank statements and contracts and lying about Joonko’s revenue and number of customers.

SEC Appoints Erica Y. Williams to a Second Term as PCAOB Chairperson

The Securities and Exchange Commission today announced the appointment of Erica Y. Williams to a second term as Chairperson of the Public Company Accounting Oversight Board (PCAOB) beginning on Oct. 25, 2024, and running through Oct. 24, 2029.

“I thank Erica for her leadership and am pleased that she will continue to serve as Chairperson of the PCAOB,” said SEC Chair Gary Gensler. “I also thank the PCAOB staff and the Board for their diligent work to ensure that public company financial disclosures can be trusted by investors.”

Joonko

My sense has always been that, if you are a public company, everything is securities fraud: You have to be scrupulously truthful in all of your public communications, and if investors can find the slightest arguable misstatement they will sue you for securities fraud. And if you are actually lying about your customers and revenue, you will go to prison.

At private startups, on the other hand, the rules have usually been a bit laxer. Not as a legal matter, but as a practical matter. Fewer people see your statements, for one thing…. Also, your stock does not trade continuously, so nobody can say “I was deceived by that interview you did and bought your stock.” ….

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But my sense is also that private markets are the new public markets: As startups raise millions of dollars from institutions and individuals, and stay private longer, it does make more sense that the rules of public markets increasingly apply to private ones. These days, if you puff up your LinkedIn as a startup CEO, that can get you in just as much trouble as it would if you were a public-company CEO.

Theranos founder Elizabeth Holmes seeks to overturn fraud conviction

Lawyers for Theranos founder Elizabeth Holmes and company President Ramesh “Sunny” Balwani on Tuesday urged a federal appeals court to overturn their convictions for defrauding investors in the failed blood testing startup, which was once valued at $9 billion.

Amy Saharia, Holmes’ lawyer, told a three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco that Holmes believed she was telling the truth when she told investors that Theranos’s miniature blood testing device could accurately run a broad array of medical diagnostic tests on a small amount of blood.

Holmes, who started Theranos as a college student and became its public face, was indicted alongside Balwani, her former romantic partner, in 2018. The two were tried separately in 2022, and sentenced later that year to 11 years and three months, and 12 years and 11 months, respectively.

Private equity groups poised to own one in three top US accounting firms

Ten of the 30 largest US accounting firms could soon be in private equity hands, according to people familiar with negotiations, as at least four groups hold deal talks following this year’s sales of Grant Thornton and Baker Tilly.

The acquisitions by financial buyers of those two top-10 firms by revenue opened the floodgates to other deals, the people said, positioning private equity to increase its influence over the US accounting profession dramatically.

Activist Hedge Fund Fined for Secret Payments to Researcher

A sweeping US probe of activist short sellers has yielded its first notable punishment, while offering a rare glimpse into controversial collaborations between bearish researchers and hedge funds that place big bets against companies.

The Securities and Exchange Commission fined affiliated money managers Anson Funds Management and Anson Advisors Inc. a total of $2.25 million on Tuesday, accusing them of hiding payments to an unidentified publisher of bearish research. A hedge fund they oversaw generated more than $4 million in gains in late 2018 by collaborating with the outsider on the timing of negative reports and social media posts, the SEC said. It secretly paid the researcher $1.1 million.

WeWork Stock Probe Led to Real Estate Empire of Florida Man Jonathan Larmore

But the government’s civil case—and any hope that investors would soon get their money back—took a back seat to other proceedings. In the pre-dawn hours of March 14, more than 20 federal law enforcement agents surrounded Larmore’s house and summoned him outside with a bullhorn. According to Larmore’s legal team, they were wielding “AK-47-like” weapons. The US Attorney filed a criminal indictment later that day, laying out more details of the WeWork scheme. Larmore had spent the days before the Cole Capital press release on a madcap options-buying spree, the government alleged, bullying brokerage employees in a series of recorded phone calls. He accused one of “hijacking and stealing” from him and blustered that it was a bad idea to be “improperly holding my money.”

When asked to complete paperwork necessary for buying complicated securities, his reply was pure Larmore: “I’m on my yacht and don’t have a printer.”

US marshals had seized BBella more than a month earlier.