Two weeks after fraud allegations emerged against Israeli startup Joonko, US and Israeli investors have been informed that US authorities are interested in probing the management of the company, in which documents were allegedly forged, such as money transfer approvals, and information about bank accounts and contracts.
Such an examination will likely also focus on CEO and founder Ilit Raz who has confessed to investors, resigned from her enterprise and returned the money for the shares she sold personally.
While Joonko is seen as an Israeli startup, it is actually structured as part of a parent company incorporated in the US in Delaware, which owns a subsidiary in Israel that serves as a development center. The subsidiary employs most of the company's staff in Israel and pays taxes according to "Cost Plus" rules. Even though the Joonko's management is based in Tel Aviv, the revenue and profits are reported as a US company.
In fact most of the investors in the startup and especially those who invested in its initial years are American, so that the issue of salvaging their money from the company and a legal examination of the matter is logical.
In its seed financing round in 2019, after Joonko changed its business focus and relaunched, US funds such as Alabama Futures, Bronze Valley, Kapor Capital and Right Side Capital, according to PitchBook. In the company's most recent financing round, which closed in June 2022, additional investors from Alabama such as Redhawk Advisory and several other private investors from the state participated. The round was led by US fund Insight Partners with Israeli partner Liad Agmon joining the board.
Contracts, money transfers and receipts recorded in Delaware
Since the alleged fraud concerns a company incorporated in Delaware, where the contracts, printouts of money transfers and fake receipts were recorded, and on the basis of which investors were presented with false representations about the company's success, US authorities may be interested in such an investigation, including the Ministry of Justice through the Office of the Prosecutor of the Southern District of Manhattan - the Securities Authority the US Securities Exchange Commission (SEC) and the Federal Bureau of Investigation (FBI).
Allegations that may be checked in such an investigation include, Joonko's last financing round, in which it raised $17 million led by Insight Partners, based on the presentation of an incorrect number of customers. As far as is known, the board of directors is currently mapping the funds available to the company, and it is estimated that most of the money invested in the company cannot be returned. In the last two weeks, most of Joonko's employees were fired and an internal investigation team was appointed, which includes investors and some members of management.
Ilit Raz declined to respond.
Presumption of innocence: There have been no official complaints lodged against Ilit Raz at this juncture, so she has not been either indicted or convicted of anything and has the right to be presumed innocent.
Published by Globes, Israel business news - en.globes.co.il - on July 9, 2023.
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