Startup founders can pitch a company’s potential, but claims about current customers, revenue and contracts carry a different weight. The Joonko case shows how misstated operating results can put a founder personally at risk.
Ilit Raz, founder and former CEO of AI startup Joonko, raised roughly $27 million after telling investors the company had customers and revenue it did not have. When an investor sought evidence, Raz sent a forged bank statement and fake purchase orders. Last month, she pleaded guilty to securities fraud and faces a maximum sentence of 20 years in prison.
The case lands amid a rise in securities litigation involving AI companies. Plaintiffs filed 15 AI-related securities class actions in the first half of 2026, close to the 16 filed during all of 2025, according to Cornerstone Research. That tally makes the distinction between forecasts and claims about present-day performance especially relevant for companies seeking capital.
When a pitch crosses into a factual claim
Optimistic language by itself isn’t the central issue. The question is whether a founder knowingly gives investors misleading information about facts that could influence their decision. A statement or omission is generally considered material if a reasonable investor would consider it important.
Several common fundraising metrics can blur the boundary between aspiration and evidence:
- Letters of intent and pilots: Soft, nonbinding LOIs or unpaid trials shouldn’t be described as committed recurring revenue or signed enterprise contracts.
- Customer totals: Free pilot users and informal trial accounts aren’t equivalent to active, paying customers.
- Growth and retention: Leaving out significant customer losses may distort a growth picture. One-time project fees also shouldn’t be presented as recurring revenue.
- Product claims: A workflow that relies on human assistance shouldn’t be portrayed as fully autonomous AI, and a company shouldn’t claim technology it doesn’t own.
An inaccurate number alone doesn’t establish securities fraud. But knowingly misstating contracts, recurring revenue or retention can expose a founder to fraud claims. A forecast about what a company may achieve is different from a false claim that it already has customers or revenue.
D&O insurance has limits
Founders facing investor claims often turn to directors and officers (D&O) insurance to help cover defense costs. Whether a policy responds depends on its language and applicable law; defending an allegation doesn’t mean established misconduct will be covered.
In a court-approved settlement with Joonko in June 2025, Raz reportedly agreed to abandon claims against the company’s D&O policies. That report doesn’t establish whether an insurer had previously paid her defense costs or denied coverage.
Three policy details can shape the outcome:
- Fraud exclusions: Policies commonly exclude losses tied to deliberate fraud, criminal conduct or improper personal profit. Allegations alone generally don’t activate these exclusions.
- Final adjudication: An insurer may advance defense costs while a case is pending. A guilty plea or conviction can trigger an exclusion, depending on the policy’s wording and any requirement to exhaust appeals.
- Repayment terms: Some policies let insurers seek reimbursement for defense costs if a claim is ultimately excluded. Founders should understand whether repayment applies and under what conditions.
D&O insurance may help during an investor dispute, but it doesn’t guarantee protection once fraud is established. The coverage terms determine when defense funding can stop and whether advanced legal fees must be repaid.
Make fundraising metrics traceable
Before a pitch deck goes out, founders should give the team shared definitions for its numbers. Set out what qualifies as a paying customer, how the company classifies pilots and LOIs, and how it calculates recurring revenue and churn. Apply those definitions consistently.
Connect material claims to records such as signed contracts, invoices, accounting data and customer-status reports. Keep projections distinct from current results, and record the assumptions behind each forecast.
Revenue measures also need clear boundaries. ARR isn’t cash collected. Recurring revenue, one-time fees, pipeline opportunities and contracted commitments that haven’t gone live are different categories. ARR and contracted ARR should be identified separately rather than used interchangeably.
Date the figures and refresh them when material changes occur before investors rely on them. If the team can’t explain a metric or support a customer claim, resolve the gap before putting it in front of investors. A credible growth story depends on both the opportunity ahead and records that support the results already reported.
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
