Ilit Raz, founder and former CEO of the AI startup Joonko, raised roughly $27 million after telling investors the company had customers it never had and revenue it never actually earned. When an investor later asked for proof, she sent a forged bank statement and fake purchase orders.
Last month, Raz pleaded guilty to federal securities fraud. She faces a maximum of 20 years in prison.
Founders raising capital must sell investors on what their companies could become. But Raz’s case illustrates the personal stakes of misrepresenting a business’ achievements, and investors are increasingly willing to take those claims to court.
Plaintiffs filed 15 AI-related securities class actions just in the first half of 2026, nearly matching the 16 filed in all of 2025, according to Cornerstone Research. The distinction between future potential and present-day facts matters when describing customers, revenue and traction.
Where ‘puffery’ crosses the line into securities fraud
The issue isn’t whether a pitch sounds optimistic or ambitious, but whether its factual claims mislead investors. Knowingly misrepresenting metrics that matter to an investor’s decision can expose that founder to personal liability.
Before presenting a pitch deck, founders should scrutinize four key areas where those distinctions can often become blurred:
- LOIs and pilots: Labeling soft, nonbinding letters of intent or unpaid test runs as “committed recurring revenue” or “signed enterprise contracts.”
- Customer counts: Presenting free pilot users or informal trial accounts as active, paying customers to inflate user growth.
- Traction and churn: Omitting significant customer losses in a way that makes growth claims misleading, or presenting one-time project fees as recurring revenue.
- Product capabilities: Presenting human-assisted workflows as fully autonomous AI systems, or claiming proprietary technology the company does not own.
Legally, the question boils down to whether a misstatement or omission is material. Would a reasonable investor consider the information important when deciding to invest?
Let’s be clear: An inaccurate figure doesn’t automatically establish securities fraud. But false claims about customer contracts, recurring revenue or retention can expose founders to securities-fraud claims.
An ambitious forecast is one thing; a false claim about existing customers or revenue is another. The latter can expose founders personally, with no guarantee that D&O insurance will cover the fallout.
Where D&O coverage may stop
Founders facing investor claims typically look to directors and officers, or D&O, insurance for protection. But defending a fraud allegation isn’t the same as covering established misconduct. The policy’s wording and applicable law determine where protection ends.
As part of a June 2025 court-approved settlement with Joonko, Raz reportedly agreed to abandon claims against the company’s D&O policies. Still, that doesn’t clarify whether an insurer had previously funded her legal defense or denied coverage.
Three policy provisions deserve attention:
- The fraud exclusion: D&O policies commonly exclude losses arising from deliberate fraud, criminal conduct or improper personal profit. Allegations alone generally do not trigger those exclusions.
- Final adjudication: Insurers may advance defense costs while a case proceeds. A guilty plea or conviction can trigger an exclusion, but the policy wording sets the exact threshold, including whether appeals must be exhausted.
- Repayment provision: Some policies allow insurers to recover advanced defense costs if the claim is ultimately excluded. Founders should check whether repayment is required and under what circumstances.
D&O insurance can help founders during investor disputes, but it’s not a guaranteed backstop for established fraud. Founders must understand when coverage can end and whether they’ll have to pay back the legal fees their insurer advanced.
Practical steps for founders before presenting metrics
Before sharing a pitch deck, create an easily accessible guide for your team that spells out your math. Specify what counts as a paying customer, how pilots and LOIs are classified, and how recurring revenue and churn are calculated. Use those definitions consistently.
Team with finance and legal advisers to connect material claims to supporting records, including executed contracts, invoices, accounting data and customer-status reports. Keep projections separate from current results, and document the assumptions behind the forecasts.
Don’t confuse ARR with cash collected; they do not belong in the same category. Show clearly how the company calculates recurring revenue and distinguishes it from one-time fees, pipeline opportunities and contracted commitments that haven’t gone live yet. Remember that ARR and contracted ARR are distinct metrics, not to be used interchangeably.
Lastly, date the figures and update material changes before investors rely on them for decision-making. If the team can’t explain how they calculate a number or substantiate a customer claim, resolve the discrepancy before presenting your deck.
Investors might buy into your vision, but regulators will look at 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
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