Fintech Founder Charged with Fraud: AI App Revealed as Human-Powered

Allegations of Fraud Against Nate Founder

Albert Saniger, the individual who established and previously led Nate – an AI-powered shopping application designed to provide a streamlined checkout process – has been formally accused of investor fraud. This information was disseminated via a press statement released by the U.S. Department of Justice on Wednesday.

Nate's Funding and Promises

Established in 2018, Nate successfully secured over $50 million in funding from various investors, including prominent firms like Coatue and Forerunner Ventures. A recent funding round, a $38 million Series A, was finalized in 2021 with Renegade Partners taking the lead.

Nate initially advertised that its application would allow users to make purchases from any online retailer with a single click, leveraging the power of AI. However, the Department of Justice’s Southern District of New York contends that the reality differed significantly.

The Role of Human Contractors

Contrary to claims of full automation, Nate reportedly relied extensively on a large workforce of human contractors stationed at a call center in the Philippines. These contractors were responsible for manually processing purchases.

Misleading Investors About Automation

Saniger allegedly secured substantial venture capital by asserting that Nate’s platform could execute online transactions “without human intervention,” with exceptions only for infrequent instances where the AI encountered difficulties. Despite acquiring AI technology and employing data scientists, the DOJ asserts that the app’s actual automation rate was effectively 0%.

Prior Reporting on Nate's Practices

The extensive use of human contractors by Nate was previously brought to light through an investigation conducted by The Information in 2022.

Current Status and Lack of Response

Attempts to obtain a comment from Saniger were unsuccessful. He is presently identified as a managing partner at Buttercore Partners, a New York-based venture capital firm, which also did not respond to inquiries.

Nate's Financial Difficulties and Sale of Assets

According to the DOJ’s indictment, Nate experienced financial insolvency and was compelled to divest its assets in January 2023, resulting in “near total” losses for its investors. Albert Saniger’s LinkedIn profile reflects a change in his role, indicating he was no longer CEO as of 2023.

Broader Trend of AI Exaggeration

Nate is not an isolated case of a startup allegedly overstating its AI capabilities. Reports indicate that a drive-through software company marketed as “AI”-driven also heavily relied on human operators in the Philippines, as detailed by The Verge in 2023.

Furthermore, Business Insider recently reported similar practices at EvenUp, an AI legal tech company valued at over $1 billion, where human workers performed a significant portion of the tasks.