In a case roiling Silicon Valley and beyond, Albert Saniger, founder and former chief executive of shopping app Nate, has been indicted for defrauding investors through false representations about artificial intelligence features.
The worst part? The investors were deceived that it's an AI-powered shopping app when it's actually operated by call center workers in the Philippines.
A $50 Million Illusion: Investors Misled by AI Hype
Introduced seven years ago, Nate was hailed as a groundbreaking universal shopping cart app, where the user could shop from any online store using just one tap. Investors were enticed by the promise that the app utilized top-of-the-line AI to speed up the checkout process, all the way to entering shipping and billing information.
Albert Saniger allegedly raised over $50 million on the strength of these assertions. However, the US Department of Justice has uncovered that these AI capabilities were never actually active.
Rather than intelligent algorithms, actual human beings were behind the scenes, manually performing the very steps the app was designed to automate.
Manual Labor Masquerading as Machine Learning
According to Digital Trends, although Nate did purchase third-party AI technology and employed data scientists, the fundamental functionality it touted never functioned consistently.
Saniger knowingly hid this from investors and continued to market the app as a revolution in AI-driven online shopping, the US Attorney's Office reports.
At the busiest shopping times, the company even employed engineering teams to construct bots to help with transactions. But this was not the seamless, autonomous AI technology that had been promised.
Hundreds of Filipino call center contractors were allegedly contracted to manually process transactions, imitating the behavior of AI and fooling users and investors similarly.
Customers believed they were experiencing advanced automation, but it was all being accomplished by human hands from start to finish.
"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," stated Acting US Attorney Matthew Podolsky.
In 2023, the Federal Trade Commission (FTC) warned businesses, urging them to exercise restraint in hype over AI benefits. Saniger's case will be a test case and a warning to other tech startups tempted to ride the AI wave without backing it up with substance.
Following Saniger's charges, startups selling untested technology in the name of AI might have tougher times ahead. Trust is the real money in today's digital economy for online shoppers—and losing it can cost more than any app.
