A recent Law 360 story by Jeff Montgomery, “Joonko Ex-CEO Sues in Del. for Legal Fees Related to Probe”, reports that the former CEO of AI-powered employee recruitment venture Joonko Diversity Inc. has sued the company for legal fee advancement in Delaware's Court of Chancery, alleging corporate failure to cover attorney expenses that total more than $300,000 and are still rising, related to still-under-wraps investigations. The suit from former CEO and company founder Ilit Raz accuses the company of refusing to advance the money despite obligations established in its bylaws, an indemnification agreement and Delaware law.
Joonko has been in the news amid reports of alleged misconduct by Raz. A June statement by Joonko's board reported the discovery of "misstatements in financial reporting" and asserted that Raz was "was found to have engaged in egregious, unethical and fraudulent conduct, which caused harm to the company and its shareholders," according to media reports in 2023.
Government documents on the existence, targets or purpose of any investigations are not currently available, and parts of the suit are redacted. But an attorney letter sent Jan. 12 to Chancellor Kathaleen St. J. McCormick, seeking expedited handling of the advancement suit, said Raz continues "to incur attorneys' fees and costs by reason of her position as former chief executive officer of the company in connection with ongoing and active government investigations and proceedings."
An Aug. 31 email from Ilon Band, Joonko's chief operating officer, to Raz's counsel with Norton Rose Fulbright said, "Given the circumstances, we do not believe that under the terms of the indemnification agreement the company is obligated to pay the invoices you forwarded. Attached for your reference is the company's D&O Insurance (recently expired)." The email was addressed to Kevin J. Harnisch, head of Norton Rose white-collar practice and co-head of its regulation, investigations, securities and compliance practice.
"You explained that the company is (refusing to pay) because of Ms. Raz's alleged misconduct despite the fact that you are unaware of any precedent supporting the company's position," Harnisch wrote in reply Oct. 20. "The company's posture leaves us little choice but to file suit to vindicate Ms. Raz's right to advancement."
Joonko, with offices in New York and Tel Aviv, markets itself as the developer of a "transparent diversity recruiting layer" used on top of cloud-based human resources and recruiting software. The company's website said its system and services enabled recruiters "to passively source top diversity candidates who've been qualified by a two-steps validation process to make sure you receive the best fits for the roles you are looking for."
The company incorporated in Delaware in July 2016 and completed a $17 million equity offering in early 2022, according to SEC records. A $25 million series B issue was reported the same year, led by Insight Partners. Target Global, Kapor Capital and Vertex Ventures Israel also were described as supporting.
In the Jan. 12 letter to Chancellor McCormick, M. Paige Valeski of Young Conaway Stargatt & Taylor LLP wrote, "As a result of the company's unjustified delay" on the advancement demand, "Ms. Raz faces imminent, irreparable, and non-monetary injury. In her motion to expedite, Ms. Raz is seeking a final hearing on the merits in February 2024, subject to the court's availability."