The founder of the shopping app nate has been charged with fraud after telling investors it used AI – when it was actually run by workers in the Philippines.
Adam Saniger, 35, faces years in prison if found guilty of lying about nate’s use of in-house artificial intelligence (AI) when in reality the app was operated by hundreds of call center workers.
According to the indictment, the defendant “engaged in a scheme to defraud investors and prospective investors in his start-up Nate, Inc. by making materially false and misleading statements about the company's use of proprietary AI and its operational capabilities.”
Saniger founded the e-commerce company in 2018 and marketed it as a universal shopping cart app designed to simplify online shopping. He claimed it allowed users to “skip the checkout” on retail websites by reducing the process to a single tap.
For example, if a user found a pair of sneakers on an e-commerce site, they could open the nate app and tap “buy.” The app claimed its AI would handle everything else – selecting the size, entering billing and shipping information, and completing the purchase.
However, this was all a facade. Transactions made through the app were manually completed by contractors in a call center in the Philippines and, at times, by bots, according to court documents. The company also established a backup call center in Romania.
Saniger did license AI technology from a third party and hired data scientists to develop it, but the system never took off and the actual automation rate “was effectively zero,” the Department of Justice (DoJ) said.
Prosecutors allege that Saniger took steps to conceal the true nature of the manual work from investors and most employees, instructing those who were aware not to discuss it.
He also required contractors on the manual teams to remove any mention of nate from their social media profiles.
Further, to prevent investors from becoming suspicious about the existence or quality of nate's technology, Saniger directed the contractors in the Philippines to prioritize transactions made through the app by investors and prospective investors.
According to the indictment, Saniger raised more than $40 million from multiple investors, partly because of false claims about his company’s AI technology.
“As alleged, Albert Saniger misled investors by exploiting the promise and allure of AI technology to build a false narrative about innovation that never existed,” Acting US Attorney for the Southern District of New York, Matthew Podolsky, said.
“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. This Office and our partners at the FBI will continue to pursue those who seek to harm investors by touting false innovation,” Podolsky said.
Saniger was charged with 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.
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