In a significant case highlighting deception in the tech industry, the founder of shopping app Nate has been charged with fraud for misrepresenting human labor as artificial intelligence technology. This case underscores growing concerns about truthful representation in the AI sector as investors and consumers increasingly scrutinize claims made by tech startups.
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| Customer service representatives actively engaged in processing transactions, highlighting the human aspect behind claims of AI technology |
The Fraudulent AI Claims
Albert Saniger, the 35-year-old founder and former CEO of shopping app Nate, has been indicted by the Department of Justice on charges of securities fraud and wire fraud. Each charge carries a potential maximum sentence of 20 years in prison. According to the indictment, Saniger repeatedly claimed that his e-commerce app utilized sophisticated AI technology to complete online purchases automatically. In reality, the app relied primarily on hundreds of human workers operating from call centers in the Philippines and Romania who manually processed transactions.
How the Nate App Operated
Launched in 2018, the Nate app marketed itself as a universal shopping cart that simplified online shopping. It promised users they could skip the checkout process on any retail website with just a single tap. The app was supposed to use AI to automatically enter billing and shipping information and confirm purchases. However, the DoJ investigation revealed that the technology Saniger acquired from a third party never achieved the ability to consistently complete e-commerce purchases, with the actual automation rate being effectively zero percent.
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| A smartphone displaying a digital product, reflecting the online shopping experience that the Nate app aimed to simplify with its touted AI technology |
The Scale of the Deception
The fraud was substantial in scale. According to sources cited in a 2022 investigation by The Information, during 2021, between 60% and 100% of transactions were handled manually rather than automatically. Despite this reality, Saniger continued to assure investors that Nate did not use dumb bots and only relied on human intervention in edge cases where the AI supposedly failed. In fall 2021, Saniger directed his engineering team to develop bots to automate some transactions, which were then used alongside the manual teams—still not the sophisticated AI technology that had been promised to investors.
Financial Impact and Consequences
Saniger's fraudulent claims helped Nate raise over USD 50 million from investors since its launch, including USD 38 million in 2021 alone. Acting U.S. Attorney Matthew Podolsky emphasized the broader impact of such deception, stating that it not only victimizes innocent investors, it diverts capital from legitimate startups, makes investors skeptical of real breakthroughs, and ultimately impedes the progress of AI development. By January 2023, Nate had run out of money and was forced to sell its assets, resulting in near total losses for investors.
A Pattern in the Industry
This case is not isolated. In December 2023, Presto Automation, which describes itself as one of the largest labor automation technology providers in the industry, revealed in an SEC filing that almost three-quarters of orders taken by its fast-food voice-ordering products were actually processed by off-site human agents in places like the Philippines. This was despite previous claims that 95% of orders received by its drive-thru chatbots were handled without human intervention. These incidents highlight a concerning pattern of misrepresentation in the tech industry, particularly around AI capabilities.
Legal Proceedings and Industry Implications
The charges against Saniger represent a significant moment for accountability in the tech sector. As artificial intelligence continues to attract massive investment and public interest, this case serves as a warning to companies that might be tempted to exaggerate their technological capabilities. The outcome of this case could establish important precedents for how claims about AI technology are evaluated and verified in the future, potentially leading to more stringent standards for transparency and honesty in tech marketing and investment pitches.