A fintech startup that raised $40 million on the promise of artificial intelligence capabilities was powered by human labor, allegedly defrauding millions of investors enticed by the new technology, federal prosecutors said in a statement this week.
Albert Saniger, 35, a former CEO and founder of Nate from Barcelona, Spain, was indicted in the Southern District of New York for allegedly defrauding investors and making false statements about his company’s AI capabilities.
Nate, an e-commerce company, launched the Nate app, which claimed to simplify the online shopping checkout process with a single AI-powered tap option. However, the app did not use advanced AI technology, according to the indictment.
Saniger raised more than $40 million on the promise of custom-built “deep learning models” that would allow the app to purchase goods directly from product pages in less than three seconds. While instructing employees to keep Nate’s reliance on overseas workers a secret, he pitched investors on an AI-powered product capable of 10,000 daily transactions.
Instead, the app allegedly relied heavily on overseas workers in two different countries to manually process transactions, which users mistook for automation. Meanwhile, Saniger allegedly told investors and the public that the transactions were being completed by artificial intelligence.
“Saniger allegedly abused the integrity associated with his former position as CEO to perpetuate a scheme filled with smoke and mirrors,” according to a statement from the United States Justice Department.
In the absence of technology, Saniger allegedly relied heavily on hundreds of call center workers in the Philippines, according to court documents.
When a deadly tropical storm hit the country in October 2021, according to the indictment, Nate opened a new call center in Romania to handle the backlog of customer service calls.
Investors were most likely not exposed to the lull in transactions because Saniger directed that investor transactions be prioritized to avoid suspicion.
According to the indictment, the company’s fallout in 2023 resulted in near-total losses for investors.
Last year, private AI investment in the United States increased to $109.1 billion, with the United Nations trade and development arm predicting a market share of $4.8 trillion by 2033.
AI is widely perceived to be free of human intervention, but the reality is more complicated. Nate is not the only company that has taken advantage of cheap labor in other countries to capitalize on AI.
In 2023, The Washington Post exposed ‘digital sweatshops’ in the Philippines where employees worked on content to refine American AI models for a company called Scale AI, which is used by multinational technology conglomerates such as Meta, Microsoft, and OpenAI.