Israeli startup Promai has filed a lawsuit against its former CEO, Erez Ben Eshay, accusing him of fraud and forgery.

The company is seeking 10 million shekels (US$2.7 million) in damages, claiming Ben Eshay forged documents, including contracts with firms like Boeing and Medtronic, using ChatGPT.

Promai alleges that these fake contracts led to the spending of 20 million shekels (US$5.38 million) on products that were never ordered.

Ben Eshay is accused of misrepresenting himself as a test pilot and reserve officer to gain Dr. Goren-Bar’s trust.

Based on these claims, he received 12% of the company’s shares and became CEO, causing significant financial and operational damage.

Ben Eshay’s attorneys have denied the allegations, calling them “entirely baseless and completely fabricated.”

🔗 Source: Calcalist

🧠 Food for thought

1️⃣ Trust exploitation through personal relationships amplifies fraud damage in startups

The Promai case follows a well-documented pattern where personal relationships become vehicles for deception in business settings.

Similar to Theranos, where Elizabeth Holmes leveraged personal connections to raise initial funding of nearly $6 million and build a prestigious board of directors that lent credibility to her claims 1, the alleged fraudster at Promai used a romantic relationship with the founder to gain both trust and equity.

This exploitation of personal relationships appears particularly damaging in startup environments where formal governance structures may be less established, allowing individuals with malicious intent to bypass standard vetting processes.

FBI data shows CEO fraud caused nearly $13 billion in losses between 2013-2018, demonstrating how trust in authority figures remains a persistent vulnerability in business operations 2.

The allegations that Ben Eshay fabricated military credentials mirrors tactics seen in other fraud cases, where impressive but fabricated backgrounds create an aura of competence and trustworthiness that discourages scrutiny.

2️⃣ Resource misallocation through fake contracts creates compound damage

The alleged fabrication of contracts with Boeing and Medtronic represents a particularly destructive form of startup fraud that affects both current operations and future potential.