AI Investment Fraud Scheme Uncovered
The Department of Justice has charged the founder of a tech company with defrauding investors after it was discovered that their AI shopping app was not what it seemed. The app, created by Nate, promised users a seamless one-click checkout experience on any e-commerce website without human intervention, allowing them to store their credit card and shipping information with the company. However, prosecutors claim that the company relied almost entirely on human workers to complete checkouts, rendering the automation claims false.

The Truth Behind Nate’s Automation Claims
According to the indictment, Nate’s actual automation rate was effectively zero. Instead of using artificial intelligence to complete transactions, the company employed hundreds of human contractors in a call center in the Philippines. This revelation raises questions about the company’s true intentions and whether the term "AI" was misused to describe their operations. Nate raised over $50 million between 2018 and 2021, which has left investors reeling.

Initial Reports and Investigation
The Information first reported on the allegations against Nate and its CEO, Albert Saniger, in 2022. The report highlighted the difficulties faced by the company in developing software that could process transactions automatically on retailer sites without human aid. As a result, a significant percentage of transactions, ranging between 60% and 100%, were handled manually throughout 2021.

Excerpts from the Report
According to sources with direct knowledge of the technology:

To process transactions automatically on retailer sites without the aid of humans, Nate’s software needed to figure out how to locate specific buttons on the page, such as the one that adds an item to a shopping cart, without getting blocked by trackers on the site that look for automated bots.

As a result, throughout 2021, the share of transactions Nate handled manually ranged between 60% and 100%.

When Paul Hudson from Glade Brook went to order a pair of Levi’s jeans from the denim maker’s website using Nate’s checkout, Saniger wrote in a corporate Slack channel called “vip-notificaitons-for-albert” to alert colleagues that a transaction needed processing right away.

The AI Industry’s Reliance on Human Labor
Many companies in the AI field still rely on humans to some degree, especially to validate data generated by algorithms, with the hope that AI will eventually take over entirely. Notable startups like Scale AI and EvenUp have been known to rely on human labor to label data and correct AI-generated outputs. The most successful AI startups have focused on creating tools, while mainstream adoption of AI by enterprises remains uncertain due to concerns about reliability.

Nate’s Downfall
Nate’s demise was likely due to its explicit claim that humans were rarely used in the checkout process, which was found to be false. The company may have attempted to "fake it till you make it" but ultimately ran out of time to develop a working product. Entering a crowded market dominated by Amazon and other established players like Shopify, which offers its own one-click checkout products, made it challenging for Nate to grow its business.

Consequences and Potential
Nate, which still exists, relied heavily on commissions to grow its app, offering influencers a cut of sales generated through their promotions. Interestingly, Nate may have been onto something with its product, as companies like Amazon, OpenAI, and Google have recently introduced "agents" that can perform tasks like online shopping. While these products are still in their infancy and have received criticism for being slow, expensive, and buggy, they have the potential to automate arduous tasks and increase accessibility for demographics like the elderly.

Investor Responsibility
No sympathy should be shown to Nate’s private investors, who are seasoned venture capitalists expected to conduct extensive due diligence before making investments. The venture capital model is based on the expectation of home runs, with most investments going to zero.

Charges and Penalties
Saniger faces one count of securities fraud and one count of wire fraud, each carrying a maximum sentence of twenty years in prison.