I recently came across new developments in the Joonko case, which reminded me of some entrepreneurial friends around me. Some work in AI, while others are exploring other frontier technologies. Their products are still being iterated, and their business models are still being validated, yet fundraising, hiring and finding customers already require them to constantly explain: what we are doing, how far we have come, and how much room for growth remains.
I understand this optimism; many worthwhile endeavors cannot, at the outset, produce definitive proof of success. But when handling financing and equity disputes, we also see that some early descriptions that were not clearly articulated may become the focus of dispute between the parties years later.
For entrepreneurs, legal preparation can be very concrete: make business representations stand up to verification, and ensure that the liabilities one signs match one's own judgment. In this way, when facing market uncertainty, one can feel more secure.
I. Talk about the future when fundraising, verify the past upon exit
September 11, 2026, the U.S. Department of Justice announced that the founder of AI recruitment companyJoonkoIlit Raz has pleaded guilty tosecurities fraudPleading guiltyShe was previously indicted in June 2024.
According to the facts disclosed in the announcement, in her 2021 and 2022 financings, Raz misrepresented information such as customer numbers, customer identities and revenue, facilitatingapproximately USD 27 million in investmentIn 2023, when the investor requested verification of the data, she providedforged bank documents and purchase ordersThis notice discloses the progress of the guilty plea; the specific sentencing remains for the court to decide.
This case has made me pay more attention to the period after financing.
When financing goes smoothly, everyone is willing to discuss growth and valuation; by the time of the next financing round, an IPO, an acquisition or an exit, it becomes necessary to verify item by item whether the customers of that time actually paid, whether the revenue was actually realized, and exactly what stage the technological capabilities had reached.
I tend to understand it asthe lag of legal risk: disputes may be seeded at the time of financing and only surface in concentrated form during subsequent verification or at exit. If statistical methodologies and disclosure materials are put in order while cooperation is going smoothly, verification will be much easier later on, and it will also be easier to preserve the trust of both parties.
The business plans, due diligence materials, emails and WeChat records of that time may all become important evidence for explaining what the parties agreed.
II. Explaining the business clearly is also a way of demonstrating value
customer data
Suppose a company has 80 enterprise users, of which 20 have already paid and the rest are still on trial or conducting proof of concept. Describing these developments separately is enough to show that the product is gaining attention; writing it directly as "80 paying customers" would, however, alter the facts.
Similarly, a business unit of a central state-owned enterprise having tested a product and the group entering into formal procurement are different stages of cooperation. Setting out clearly the cooperating entity and the progress made also makes it easier for investors to assess the likelihood of commercialization.
Revenue basis
Contract value, revenue recognized for accounting purposes and amounts actually received reflect different circumstances. Annual and monthly recurring revenue require disclosure of the calculation basis and cannot directly replace accounting revenue; this is especially so where one-off delivery and subscription services are mixed together.
Technical description
Does "self-developed" refer to foundation model training, model fine-tuning, or developing applications based on third-party models? Which version and scenario does the internal testing correspond to? All of this work may create value, and accurately explaining what the team has completed better helps investors understand the company's advantages.
When preparing financing materials, one may presentcompleted results, paths currently being validated and future projections separatelythereby both preserving growth expectations and ensuring that each judgment is supported by evidence.
The "true, accurate and complete"standard in the agreement, however, needs to be applied to specific scope: which materials are covered, as of what time, how disclosed exceptions are handled, and whether a materiality standard is set. Working papers for key data, forecast assumptions and corrected versions should also be retained, reducing the room for conflicting accounts later.
III. How to negotiate repurchase depends on the conditions and also on who pays
An investor's demand for repurchase does not necessarily mean that the founder is at fault. Failure to list on schedule or failure to meet performance targets may both trigger a pre-agreed exit mechanism.
After receiving the demand, we must first check the contract: whether the trigger conditions are satisfied, whether the information discrepancies reach the agreed standard, whether the relevant matters were validly disclosed, whether there is any cure period, and whether the repurchase right is exercised within the agreed period and in the agreed manner.
Next, it is necessary to distinguish whether the company or the founder personally bears the obligation.
The Minutes of the Ninth National Courts' Civil and Commercial Trial Work Conference distinguish thevalidity and actual performance of valuation adjustment agreements.In the absence of other grounds for invalidity, an agreement cannot be held invalid merely because the company promised to repurchase; however, requiring the company to actually repurchase also requires review of rules such as capital maintenance and capital reduction.The Minutes are not a judicial interpretationand cannot be directly used as a basis for adjudication, but their adjudicative approach still has reference value.
Where the founder personally and independently bears the repurchase obligation, that is a different matter. Even if all the financing proceeds are invested in research and development, salaries and computing power, the founder will not be exempted from personal debt meeting the agreed conditions merely because "the money did not go into his own pocket."
Example of personal liability
The company raised RMB 30 million, and the founder promised to repurchase under specified conditions at principal plus returns. Several years later, the company has only a few million yuan left; the personal liability will not automatically shrink to that amount, and it is still necessary to review the validity of the clauses, the repurchase conditions and the scope of liability.
Therefore, before signing, it is worth discussing personal liability separately: is it a repurchase obligation or a guarantee liability, is it joint and several, and is there a cap on amount and a time limit? For ordinary operations that fall short of expectations, it is possible to negotiate for a liability cap, or to limit liability to the shares held and the proceeds from disposing of equity, and to agree separately on treatment distinguishing such cases from intentional fraud and similar circumstances. How far this can be negotiated depends on the transaction terms and also requires review of the validity of the clauses.
Clarify responsibilities, which helps both parties form stable expectations and leaves room for addressing disagreements in the future.
IV. Failed projections, civil fraud and criminal liability are assessed separately
Failed business projections
Projecting revenue of RMB 100 million for next year but ultimately achieving only RMB 20 million may be a failure of business projection; it is advisable to retain the basis and key assumptions for the projection. If it is written into an agreement as an express performance commitment, contractual liability may arise even absent fraud.
Distortion of established facts
If revenue actually achieved was only RMB 2 million but investors were told it was RMB 20 million, this involves distortion of established facts. Determining civil fraud also requires examining whether there was intentional misleading and whether the investor made an erroneous transaction decision as a result.
A practical question is: had the investor known the true situation, would the investor still have invested at the same valuation and on the same terms? The fact that the project later incurred losses does not permit an inference that fraud necessarily existed at the time of financing.
The fact that the investor conducted due diligence does not mean the party providing the information is automatically exempt from liability; the investor's prior knowledge of the true situation before investing will also affect the assessment. Rescinding the transaction, pursuing liability for breach of contract and seeking damages each have their own legal conditions and require selection based on the claims and evidence.
Criminal liability
Securities fraud in U.S. cases cannot be directly equated with the crime of fraud or the crime of contract fraud under PRC law. The specific transaction structure, deceptive conduct, the process by which funds were obtained and the purpose of illegal possession all require examination. Whether funds were invested in the business and whether there were abnormal transfers are important facts for the assessment, and a conclusion cannot be drawn on only one of them.
Equity financing from a small number of specific institutions and fundraising from the unspecified public also follow different review paths.
Forging contracts, bank statements, or customer orders significantly increases risk and may also serve as evidence of subjective intent; however,the review of the constitutive elements does not end there.。
In the case published by the Supreme People's Court in which Ye Moumou was retried and acquitted of contract fraud, Ye Moumou had forged a receipt to collect rent. The retrial court, taking into account facts including that the lease agreement was valid, that the tenant actually used the shop premises, and that the tenant suffered no loss, found that Ye did not have the intent of illegal possession and acquitted him. This lease case cannot be directly applied to financing, but it reminds us that even where false materials exist, all constitutive elements must still be examined. What must be done in a dispute also includes reconstructing the course of the transaction and clearly distinguishing business risks from legal liability that should be borne.
V. Make Some Preparations in Advance So That There Are Ways to Negotiate Even When Differences Arise
For teams currently raising financing, you can start with akey metrics definition table, so that business, finance, and external materials use the same set of definitions. Then organize the main contracts, underlying data working papers, and the basis for projections. Before signing the financing agreement,specifically review personal liability once。
. This does not require turning day-to-day operations into cumbersome evidence-retention work. Being able to locate materials and having important commitments documented can already reduce considerable communication costs and is also beneficial for the next round of due diligence.
If it is discovered that previously provided data was inaccurate, you can first preserve the original materials, ascertain whether it is a statistical discrepancy, a change in projections, or a distortion of facts, then assess which commitments are involved and which transactions are affected, prepare a well-founded and traceable correction statement, and negotiate adjustments to the arrangements as appropriate.
A correction will not automatically eliminate liability that has already arisen, but identifying the problem as early as possible usually offers a better chance of finding a solution than continuing to "supplement materials."
If the investor has already requested an exit, the contractual assessment and the ability to perform must be considered together. Whether there is a basis for the repurchase request, how the amount should be calculated, what payment schedule the company can still sustain, and whether extension, equity transfer or restructuring is possible are all matters worth assessing item by item.
The investor wishes to recover its funds, while the founder wishes to preserve the business and the opportunity for continued development. Even where differences arise, these two objectives are not necessarily entirely in conflict. Lawyers can work with the founder to verify the facts and prepare a negotiation plan, and where necessary protect rights through litigation or arbitration, while at the same time seeking a practical and feasible resolution path.
I have always believed that entrepreneurship deserves encouragement, and that venture capital must also accommodate exploration and failure. Clarifying the facts and allocating responsibility is intended to give founders greater confidence when pursuing opportunities, and to leave room for adjustment when difficulties arise.
We should be optimistic about the future, but we should also make appropriate plans now.
