Last year, Amazon was arrested for claiming that its store without cash registers was driven by AI. Nowadays, startups backed by VCs are on fire for the same thing. Using a Philippine shopping app and hidden call centre, humans were AI.
Nate, a startup founded in 2018, has raised over $50 million in funding by claiming it has built a shopping app powered by seamless AI. The company promised users can buy anything online with just one tap, and skipped checkout entirely thanks to artificial intelligence. But federal prosecutors say it was all on the front line.
ai smoke and mirror: startup Nate fakes AI with call centres in the Philippines
Instead of AI quietly processing the transaction, Nate is said to have relied on hundreds of human workers in call centres in the Philippines to manually place orders to users. The Justice Department has charged Nate’s founder and former CEO Albert Sanigar with securities and wire fraud, accusing investors of misleading and forgerying the company’s core technology.
In the indictment not sealed by the DOJ Southern District of New York, investigators say Sanigar sells investors a vision of fully automation while hiding the fact that almost every transaction was handled by hand.
The FBI assistant director for Christopher G. Raia did not thwart the statement.
“Albert Sanigar is said to have scammers investors in the manufacture of his company’s artificial intelligence capabilities, whilst secretly hiring personnel to satisfy the illusion of technology automation. Sanigar is said to have abused the integrity associated with his previous position as CEO to perpetuate a scheme filled with smoke and mirrors.”
50 million dollar fantasy
Sanigar pitched Nate as an “AI-First” universal shopping cart who worked for a retail site. The pitch was simple. Find your product online and tap “Buy” in the Nate app and AI will take care of it all.
That promise was when Saniga raised a $38 million Series A round led by Renegade Partners, with additional support from Court and Four Runner ventures.
However, prosecutors say the technology didn’t work as it was advertised. Internally, the company’s own automation dashboard reportedly showed a near-zero success rate. Nevertheless, Sanigar continued to insist that Nate was almost completely automated. Human involvement is considered a rare “edge case.”
Behind the scenes, Nate was building a hidden human labor. Hundreds of contractors from Philippine call centres, known as “purchase assistants,” have completed the transaction manually. During the peak holiday season of 2021, Sanigar instructed engineers to build bots and speed up some orders despite previously dismissing the bot as a “dam.”
Facing prison time
Sanigar, 35, is currently facing two federal charges, each sentenced to a potential 20 years. Both the FBI and the U.S. Securities and Exchange Commission are involved in the investigation. The SEC has filed a parallel civil lawsuit.
Prosecutors say Sanigar misunderstood investors raising more than $40 million for the company’s use of AI. They also claimed he was actively restricting access to internal automation metrics, informing employees that the data was trade secrets.
US lawyer Matthew Podolski summed it up like this:
“As allegedly, Albert Saniger misled investors by exploiting the promise and appeal of AI technology to build false narratives about innovations that never existed. This type of deception not only sacrifices innocent investors, but also diverts capital from legitimate startups, making investors skeptical of true breakthroughs, and hindering advances in AI development.”
This case is being handled by the Manhattan Securities Fraud Task Force and the Complex Fraud and Cybercrime Division.
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