AI and DEI at Core of Commission’s Latest Offering Fraud

Offering fraud actions typically are one of the largest categories of cases filed by the Commission. The sales pitch used by those running the schemes are usually crafted to attract investors to step forward and put their money into the enterprise. The enterprise has typically been crafter to attract certain types of investors. The scheme is often the product of the schemer’s imagination, ranging from a simple business transaction to a more complex operation. All are designed to give the investor what he or she may want – quick profits, a long-term investment, tickets to an upcoming, attractive event or credit for participating in a worthwhile event. The Commission’s latest case in this area combined AI, or artificial intelligence, with DEI, or diversity, employment and inclusion goals of enterprises, to draw investors, SEC v. Raz, Civil Action No. 24 civ 4466 (S.D.N.Y. Filed June 11, 2024).

Named as defendant in this action is Ilit Raz, a 39 year old citizen and resident of Israel who founded Joonke Diversity Inc., a Delaware corporation, in 2016. As CEO of the company from founding through June 2023, she was charged with overseeing the build-out of the firm’s platform. Defendant Raz was thus responsible for helping diverse and underrepresented job candidates find employment and assist companies meet their DEI goals. Central to implementing this goal was the use of AI data to identify and solve unconscious gender and racial bias issues within companies.

One key to her obligations as the program evolved was the so-called silver medalist job candidates. Job candidates in this category were supposedly underrepresented but had made it to the final point of a company’s hiring process but did not get an offer. Ms. Raz claimed to use technology such as AI to connect these job candidates with a position and facilitate their job search and help the firm meet its goals.

Defendant claimed she tapped into implementing the firm’s DEI goals and those of employment seekers such as those of the Silver Medalists to raise at least $21 million in equity investments from a number of investors by early 2023. The claims were false. Yet they appeared to have validity based in part on the false documents she created to support them.

When the fraudulent scheme began to emerge, CEO Raz tapered off the operations of Joonke. Ultimately, she had the firm file for bankruptcy in May 2024. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). A parallel action has been filed by the U.S. Attorney’s Office for the Southern District of New York. See Lit. Rel. No. 26020 (June 11, 2024).