A fintech startup, nate, which claimed to leverage artificial intelligence to revolutionize online shopping, has come under fire for allegedly defrauding investors. Federal prosecutors revealed that the company relied heavily on manual labor rather than the promised AI capabilities, leading to severe financial repercussions for investors.

Background on nate

Founded in 2018 by Albert Saniger, a 35-year-old entrepreneur from Barcelona, Spain, nate introduced an app designed to simplify the online checkout experience through a supposed AI-driven method that required just a single tap. It boasted the ability to process transactions in under three seconds using custom-built “deep learning models.”

Despite these extravagant claims, an indictment filed in the Southern District of New York indicates that the app was essentially a facade, relying instead on numerous overseas workers to manually handle transactions.

Allegations of Misrepresentation

According to federal authorities, Saniger misled investors by presenting exaggerated claims about the app’s automated capabilities. He instructed employees to conceal the company’s dependence on overseas labor, asserting that nate could achieve up to 10,000 transactions daily through AI.

The indictment highlights that the reality was starkly different; transactions were primarily processed by call center agents in the Philippines and later in Romania when a natural disaster disrupted operations in the former location. To ensure investor confidence, priority was given to transactions from investors to avoid drawing suspicion during low activity periods.

Consequences of the Alleged Fraud

The fallout from these practices has left investors facing significant financial losses, with many facing near-total investment wipeout after the company’s collapse in 2023. The U.S. Department of Justice described the situation as a deceptive scheme that compromised the integrity associated with Saniger’s position.

The case raises critical questions about the broader implications of artificial intelligence in business, especially as AI investment surged to $109.1 billion last year and is projected to reach a staggering $4.8 trillion by 2033, according to the United Nations trade and development arm.

The Reality of AI in Business

While AI is often viewed as a fully automated solution, the reality is more nuanced. Nate’s case reflects a growing trend where companies exploit low-cost human labor to supplement their AI systems. For instance, reports have surfaced about ‘digital sweatshops’ in the Philippines that support major AI firms like Meta and Microsoft.

Official Responses

CBS News reached out to both the U.S. attorney’s office and Albert Saniger for comments regarding the allegations. As investigations continue, the implications for the fintech sector and AI adoption are under scrutiny.