What the Joonko Guilty Plea Means for Startup Founders

Ilit Raz, the founder and former chief executive of AI startup Joonko, raised approximately $27 million after telling investors about customers the company never had and revenue it never actually earned. When an investor subsequently asked for verification, she provided a forged bank statement and fake purchase orders.

Last month, Raz entered a guilty plea to federal securities fraud. She faces up to 20 years in prison.

Entrepreneurs raising capital must pitch investors on the future potential of their businesses. However, Raz’s case highlights the personal risks of misrepresenting a company’s achievements, and investors are increasingly willing to bring those claims to court.

According to Cornerstone Research, plaintiffs filed 15 AI-related securities class actions in just the first half of 2026, nearly equaling the 16 filed throughout all of 2025. When describing customers, revenue, and traction, the boundary between future potential and present-day facts is critical.

Where ‘puffery’ crosses the line into securities fraud

The core issue is not whether a pitch sounds ambitious or optimistic, but whether its factual statements mislead investors. Knowingly misrepresenting metrics that influence an investor’s decision can expose a founder to personal liability.

Prior to presenting a pitch deck, founders should carefully examine four key areas where these distinctions frequently become blurred:

• LOIs and pilots: Classifying soft, nonbinding letters of intent or unpaid test runs as “signed enterprise contracts” or “committed recurring revenue.”
• Customer counts: Portraying informal trial accounts or free pilot users as active, paying customers to exaggerate user growth.
• Traction and churn: Leaving out significant customer losses in a way that distorts growth claims, or treating one-time project fees as recurring revenue.
• Product capabilities: Describing human-assisted workflows as fully autonomous AI systems, or claiming proprietary technology that the business does not actually own.

From a legal standpoint, the central question is whether an omission or misstatement is material. Would a reasonable investor consider that information significant when making an investment decision?

To be clear, an inaccurate figure does not automatically constitute securities fraud. Nonetheless, false representations regarding customer contracts, retention, or recurring revenue can expose founders to securities-fraud allegations.

An ambitious forecast is one issue; a false assertion about existing revenue or current customers is entirely different. The latter can carry personal exposure for founders, with no assurance that directors and officers (D&O) insurance will cover the consequences.

Where D&O coverage may stop

Founders dealing with investor claims typically look to D&O insurance for protection. Yet defending against a fraud allegation is not the same as covering established misconduct. Applicable law and the specific wording of the policy dictate where that protection ends.

In a court-approved settlement with Joonko from June 2025, Raz reportedly agreed to give up claims against the company’s D&O policies. Even so, that does not clarify whether an insurer previously paid for her legal defense or denied coverage altogether.

Three specific policy provisions warrant close attention:

• The fraud exclusion: D&O policies routinely exclude losses stemming from criminal conduct, deliberate fraud, or improper personal profit. Standing alone, allegations do not typically trigger these exclusions.
• Final adjudication: Insurers may advance defense costs while litigation is ongoing. A conviction or guilty plea can trigger an exclusion, but the exact threshold—including whether all appeals must be exhausted—depends on the policy wording.
• Repayment provision: Certain policies permit insurers to reclaim advanced defense expenses if the claim is ultimately excluded. Founders must verify whether repayment is mandatory and under what specific conditions.

While D&O insurance can support founders through investor disputes, it is not a guaranteed safety net for proven fraud. Founders must understand the exact circumstances under which coverage can cease and whether they might be required to repay advanced legal fees.

Practical steps for founders before presenting metrics

Before sharing any pitch deck, build an accessible internal guide for your team that outlines your math. Define clearly what constitutes a paying customer, how letters of intent and pilots are categorized, and how churn and recurring revenue are measured. Apply those definitions consistently.

Collaborate with legal and finance advisors to tie material claims back to supporting records, such as executed invoices, contracts, accounting records, and customer-status reports. Keep projections entirely separate from current results, and document the baseline assumptions behind all forecasts.

Avoid confusing cash collected with annual recurring revenue (ARR); they belong in separate categories. Clearly demonstrate how the company calculates recurring revenue, keeping it distinct from pipeline opportunities, one-time fees, and contracted commitments that are not yet live. Keep in mind that contracted ARR and standard ARR are distinct metrics and should never be used interchangeably.

Finally, date your figures and update any material changes before investors rely on them to make decisions. If your team cannot substantiate a customer claim or explain the calculation behind a specific number, resolve that discrepancy before showing your deck.

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

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