The Justice Department has accused the former CEO of shopping startup Nate with fraud. Albert Saniger has been indicted and is accused of using human labor, but telling investors and customers the work was done with artificial intelligence.
Startup tech company Nate promised consumers easier shopping with the help of artificial intelligence. But the Justice Department says there was no miracle tech behind the checkout app’s transactions. Instead, they were handled by humans in the Philippines and Romania.
Officials at the U.S. Attorney’s office have indicted Albert Saniger, the former CEO of Nate, for defrauding investors with misleading statements about the firm.
“Albert Saniger misled investors by exploiting the promise and allure of AI technology to build a false narrative about innovation that never existed.,” said Acting U.S. Attorney Matthew Podolsky in a statement. “This type of deception 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.”
The indictment comes after a 2022 report in The Information that claimed the company used human labor instead of AI.
The Nate app marketed itself as a simplified shopping experience for consumers, letting them “skip the checkout” process. The indictment gives an example of if a consumer found a pair of sneakers they wanted, they could open the Nate app and just click “buy.”
The company had said the transaction was completed by AI, but the indictment says the technology Saniger bought from a third party “never achieved the ability to consistently complete e-commerce purchases.” The actual automation, Justice Department officials say, was “effectively zero percent.”
Instead, Saniger allegedly hired hundreds of overseas contractors to complete purchases for the app. The company also used bots to automate some transactions, the indictment claims.
Saniger faces one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of wire fraud, which also carries a maximum sentence of 20 years in prison.
This story was originally featured on Fortune.com