Albert Saniger, the founder and former CEO of Nate, an AI shopping app that promised a "universal" checkout experience, has been charged with defrauding investors, according to a press release from the U.S. Department of Justice. The charges allege that Saniger misled investors about the app's automation capabilities, claiming that it could transact online without human intervention, when in reality, the app relied heavily on hundreds of human contractors in a call center in the Philippines.

Nate, founded in 2018, had raised over $50 million from investors like Coatue and Forerunner Ventures, with its most recent funding round being a $38 million Series A in 2021 led by Renegade Partners. The app's promise of a single-click checkout experience from any e-commerce site was touted as a revolutionary feature, thanks to its AI technology. However, the DOJ's Southern District of New York alleges that the app's actual automation rate was effectively 0 percent, with human contractors completing transactions manually.

The investigation by The Information in 2022 had already raised suspicions about Nate's heavy usage of human contractors, but the extent of the deception was not fully revealed until now. Saniger's claims of AI-powered automation were instrumental in securing millions in venture funding, and the DOJ alleges that he knowingly misled investors about the app's capabilities.

Saniger did not respond to a request for comment, and his current role as a managing partner at New York VC firm Buttercore Partners did not respond to a request for comment either. The DOJ's indictment reveals that Nate ran out of money and was forced to sell its assets in January 2023, and Saniger's LinkedIn profile indicates that he was no longer CEO as of 2023.

This is not an isolated incident, as other startups have also been accused of exaggerating their AI capabilities. For example, an "AI" drive-through software startup was found to be powered largely by humans in the Philippines, as reported by The Verge in 2023. More recently, Business Insider reported that an AI legal tech unicorn, EvenUp, used humans to do much of its work.

The implications of this case are far-reaching, highlighting the need for greater transparency and accountability in the startup ecosystem. As AI technology continues to be touted as a solution to various industry problems, it is essential that investors and consumers are not misled by false claims of automation. The DOJ's charges against Saniger serve as a warning to startups that exaggerate their capabilities, and a reminder that the truth will eventually come to light.

In the broader context, this case raises questions about the role of venture capital firms in due diligence and the responsibility of startup founders to accurately represent their technology. As the tech industry continues to evolve, it is crucial that we prioritize transparency, accountability, and ethical business practices to maintain trust and credibility.