The Securities and Exchange Commission and the U.S. Attorney's Office for the Southern District of New York filed parallel civil and criminal charges on April 9, 2025, against Albert Saniger, founder and former CEO of e-commerce startup Nate, Inc., alleging he defrauded investors out of more than $42 million by falsely claiming the company's mobile shopping app used advanced artificial intelligence to complete purchases automatically.DOCUMENTED
The case marks one of the first parallel criminal and civil "AI washing" prosecutions brought by federal authorities, targeting exaggerated or fabricated claims about a company's actual artificial intelligence capabilities made to attract investment.DOCUMENTED
- Saniger raised more than $42 million from investors between spring 2019 and December 2022 through two funding rounds.
- Investors included venture firms Coatue, which led an $8 million seed round in 2020, and Renegade Partners, which led a $38 million Series A round in June 2021.
- The SEC and DOJ allege Nate's app did not use AI, machine learning, or neural networks to complete purchases as claimed.
- Instead, transactions were allegedly processed manually by contract workers located in the Philippines and Romania.
- Nate ceased operations in January 2023, and Saniger dissolved the company without returning funds to shareholders.
The pitch: AI that shops for you
According to the SEC's complaint, Saniger marketed Nate's mobile app as a breakthrough shopping tool that used sophisticated artificial intelligence, including machine learning and neural networks, to autonomously complete online purchases across a variety of retail platforms on a user's behalf — eliminating the need for shoppers to manually navigate checkout flows themselves. Saniger described the technology to investors and the public as working "like magic."DOCUMENTED
The complaint alleges Saniger touted this AI-driven automation as Nate's core competitive advantage over rival shopping apps, which frequently relied on simpler automated bots — a technology the complaint notes is both costly to maintain and relatively easy for e-commerce platforms to detect and block. By claiming genuine AI capability rather than bot automation, Saniger allegedly presented Nate as more scalable and durable than competitors relying on more easily-detected automation methods.DOCUMENTED
What was actually happening behind the app
According to the SEC and DOJ, the reality behind Nate's app bore little resemblance to the AI-powered automation Saniger described to investors. The complaints allege that the vast majority of purchase transactions on the Nate platform were completed manually by contract workers located overseas, primarily in the Philippines and Romania, who processed the underlying checkout steps by hand rather than through any automated AI system.DOCUMENTED
To maintain the illusion of AI-driven automation, prosecutors allege Saniger directed employees to keep the true nature of the app's operations secret and staged false transaction demonstrations for investors and prospective investors, giving them a fabricated impression of the app's actual technical functionality during due diligence and fundraising presentations.DOCUMENTED
The unraveling
Nate's fundraising success depended heavily on maintaining the AI narrative through multiple financing rounds, including an $8 million seed round led by venture firm Coatue in 2020 and a $38 million Series A round led by Renegade Partners in June 2021, with additional participation from Forerunner Ventures. In June 2022, an online news report publicly cast doubt on Nate's claimed use of AI, raising questions that the company was reportedly unable to adequately answer as it attempted to close its next funding round.DOCUMENTED
Unable to complete that pending round once scrutiny of its technology claims intensified, Nate ceased business operations in January 2023. Saniger subsequently dissolved the company through a State of California Assignment for the Benefit of Creditors, a state-level alternative to formal bankruptcy proceedings, without returning any funds to the company's shareholders — leaving investors with tens of millions of dollars in losses.DOCUMENTED
The charges
The SEC's civil complaint, filed in the U.S. District Court for the Southern District of New York, alleges violations of the antifraud provisions of the federal securities laws in connection with Saniger's solicitation of Nate stock purchases. The parallel criminal indictment brought by the U.S. Attorney's Office for the Southern District of New York charges Saniger with one count of securities fraud and one count of wire fraud, each carrying a maximum sentence of 20 years in prison, along with notice of the government's intent to seek criminal forfeiture of proceeds derived from the alleged fraud.DOCUMENTED
A warning shot on AI marketing claims
"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," said Matthew Podolsky, then Acting U.S. Attorney for the Southern District of New York, in a statement accompanying the charges.DOCUMENTED
Legal commentary on the case has framed it as a warning to venture-backed technology companies broadly: as AI-related fundraising has accelerated across the startup ecosystem, the Nate case demonstrates that regulators and federal prosecutors are prepared to bring not just civil securities charges but criminal fraud prosecutions against founders who market a product's underlying technology in terms that do not match its actual engineering — regardless of how enthusiastically the broader market has embraced similar AI-branded claims from other companies.REVIEWED
The case also illustrates a specific evidentiary challenge distinct to AI-related fraud allegations: unlike more traditional financial statement fraud, where forensic accountants can often reconstruct the true numbers from underlying records, verifying whether a product genuinely uses the AI techniques it claims to use requires technical expertise that neither typical venture investors nor even many prosecutors possess without outside assistance. The SEC's ability to bring the Nate case rested heavily on direct evidence, including internal communications and testimony from former employees describing the manual, human-powered process behind supposedly automated transactions, rather than a purely technical audit of the app's code.REVIEWED
Legal commentators tracking AI-related securities cases have noted that Nate's collapse, triggered by a single news report questioning its technology claims, illustrates how fragile an AI-washing scheme can be once outside scrutiny catches up to a company's marketing — a dynamic that likely explains why federal prosecutors have moved relatively quickly to bring criminal, not just civil, charges in this and similar AI-related fraud cases since 2025.REVIEWED
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