Albert Saniger, the founder and former CEO of Nate, an AI shopping app that promised a “universal” checkout experience, was charged with defrauding investors on Wednesday, according to a press release from the U.S. Department of Justice.

Founded in 2018, Nate raised over $50 million from investors like Coatue and Forerunner Ventures, most recently raising a $38 million Series A in 2021 led by Renegade Partners.

Nate said its app’s users could buy from any e-commerce site with a single click, thanks to AI. In reality, however, Nate relied heavily on hundreds of human contractors in a call center in the Philippines to manually complete those purchases, the DOJ’s Southern District of New York alleges.

Saniger raised millions in venture funding by claiming that Nate was able to transact online “without human intervention,” except for edge cases where the AI failed to complete a transaction. But despite Nate acquiring some AI technology and hiring data scientists, its app’s actual automation rate was effectively 0%, the DOJ claims.

Nate’s heavy usage of human contractors was the subject of an investigation by The Information in 2022.

Saniger didn’t respond to a request for comment. He is currently listed as a managing partner at New York VC Buttercore Partners, which didn’t respond to a request for comment either.

The DOJ’s indictment says that Nate ran out of money and was forced to sell its assets in January 2023, leaving its investors with “near total” losses. Albert Saniger’s LinkedIn profile indicates he was no longer CEO as of 2023.

Nate isn’t the only startup that has allegedly exaggerated its AI capabilities. For example, an “AI” drive-through software startup was also powered largely by humans in the Philippines, The Verge reported in 2023. 

More recently, Business Insider reported that an AI legal tech unicorn, EvenUp, used humans to do much of its work.

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