On 11 June 2024 the U.S. Securities and Exchange Commission accused Joonko founder Ilit Raz of forging bank statements and customer contracts to raise at least 21 million dollars, calling it “old-school fraud” dressed in artificial-intelligence buzzwords, according to SEC.gov.

The case echoed a pattern regulators see whenever early-stage investors skip disciplined checks: if the people, the paper, and the numbers are not verified together, forged evidence can look convincing enough to unlock real money.

Key Points on Broad-Spectrum Due Diligence

  • High-profile frauds show forged documents can pass when background and people checks lag.
  • Formal criminal and regulatory record searches catch disqualifying histories before funds move.
  • Direct bank pulls and contract files beat revenue screenshots every time.
  • Customer calls and live-data demos expose shaky traction behind glossy decks.
  • Modeling future dilution reveals hidden costs of SAFE stacks and side letters.
  • Structured workflows surface red flags long before funds leave an account.

The Limits of Surface-Level Screening


Angel groups often work from pitch decks, cap-table spreadsheets, and references supplied by founders. Those materials help assess product fit, but they reveal little about prior enforcement actions, bankruptcies, or undisclosed entities that can scuttle a deal once funds are wired.

FINRA’s 2023 examination report noted repeated failures by firms to show any documented investigation of private-placement issuers, even when red flags surfaced, as summarized by FINRA.

HeadSpin investors learned that lesson in 2024 when former chief executive Manish Lachwani received an 18-month sentence after inflating revenue by more than 100 million dollars, a scheme that relied on doctored metrics that survived only limited review, according to Business Insider.

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Criminal and Regulatory Record Checks


Founders shape strategy, steward funds, and determine governance. That influence makes a past securities bar, fraud conviction, or bankruptcy a material financial risk.

A 2015 Investor Alert warns that promoters may fabricate or exaggerate credentials and urges investors to verify licenses and disciplinary histories through official databases, per Investor.gov.

“Do not trust someone with your investment money just because he or she claims to have impressive credentials or experience, or manages to create a 'buzz of success' around himself or herself.”

– SEC Office of Investor Education and Advocacy, 2015

Practical checks include PACER for federal dockets, state-court portals, SEC and CFTC enforcement databases, and FINRA BrokerCheck. Angels in group syndicates often pool resources to order third-party background reports, a practice the Angel Capital Association has endorsed since 2014 on its website.

Refusal to authorize a check, hidden gaps in a résumé, or quick pivots across multiple entities are early signs something may be off. The SEC’s PAUSE list, last updated in 2023, flags firms that use inaccurate information to solicit investors and cautions that fraudsters often mimic legitimate websites, according to SEC.gov.

Testing Documents and Financial Claims


Paper claims demand paper evidence. In the Joonko complaint, forged bank statements appeared authentic until investigators pulled records directly from the bank. A similar direct-download approach would have exposed the mismatch before term sheets were signed.

Source documents—full monthly statements, signed customer contracts, payroll runs, and tax filings—let investors reconcile invoicing schedules with money actually received. Screenshots or cropped PDFs invite manipulation because metadata and transaction histories are hidden.

Independent access matters as much as the files themselves. Read-only views into Stripe or NetSuite accounts turn a trust exercise into a binary match: numbers align or the deal pauses.

If founders hesitate to grant such access, syndicates can insist on a neutral auditor. The extra step costs far less than unwinding an investment after a regulator steps in.

Looking Beyond Screenshots to Real Usage


Strong revenue figures mean little if customers rarely log in. Calling reference customers and channel partners tests whether paid pilots convert to renewals, while also surfacing integration challenges that never appear in a deck.

Live product demonstrations using investor-chosen data expose latency or stability issues that edited videos hide. CRM exports and usage logs then triangulate reported churn and support volume.

Patterns across those datasets reveal whether free trials are counted as paying users or whether bookings represent non-binding letters of intent. Misalignment at this stage often foreshadows larger gaps in audited financials.

Valuation Hygiene and Dilution Math


Early-stage valuations can drift from fundamentals when vanity post-money numbers, undisclosed SAFEs, or insider side letters stack up. Modeling dilution across future rounds shows how a modest seed raise can halve an angel’s eventual stake.

Option-pool size, vesting schedules, and liquidation preferences all feed that model. A smaller pool today can force an expensive top-up later, effectively transferring value from current holders to new hires or insiders.

FINRA found that many intermediaries fail to document how they tested private-placement valuations, a gap the regulator flagged as a recurring weakness in its 2023 report.

For angels, the fix is straightforward: link valuation to realistic revenue multiples, market size, and capital needs—not social proof of who else might join the round.

Building a Repeatable Workflow


Experienced syndicates start with a desktop scan that cross-references LinkedIn histories with corporate filings and news archives. Obvious mismatches surface before time-consuming analysis begins.

Once a term sheet circulates, formal criminal checks and source-document pulls run in parallel with customer reference calls. This keeps momentum while evidence accumulates.

Just before wiring funds, investors repeat a court-docket sweep and verify bank instructions. The extra pass reduces the chance a last-minute filing or redirected account derails the close.

Cost-Benefit and Red Flags


Background reports cost a few hundred dollars; a fraud write-off can erase a seven-figure stake. Enforcement actions against AI-themed scams underline that technical jargon does not lower people risk.

Common red flags include founders who resist reasonable checks, revenue claims based on screenshots, shifting entity structures with no clear purpose, and urgent pressure to wire funds before documents arrive.

Treating any one flag as a reason to pause aligns with institutional risk practice. Deals that fail under scrutiny generally save investors more than the diligence ever costs.

Broad-spectrum due diligence is not a delay tactic; it is insurance against shell-game valuations and recycled buzzwords. Angels who verify people, paper, and performance together stand a better chance of funding real companies rather than expensive illusions.

As AI-era headlines keep regulators busy, disciplined checks remain the investor’s first defense. The workflow is simple; the alternative is explaining to a portfolio why forged statements slipped through unnoticed.

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