Albert Saniger, the founder and former CEO of the AI-powered shopping app Nate, has been accused of defrauding investors, according to a press release issued by the U.S. Department of Justice on Wednesday. The release alleges that Saniger made false claims about the app’s capabilities, leading to a significant loss of funds for investors.

Nate, which was founded in 2018, had managed to secure over $50 million in investments from prominent firms like Coatue and Forerunner Ventures. The company’s most recent funding round was a $38 million Series A in 2021, led by Renegade Partners. Despite this substantial investment, the company’s actual performance fell short of its promises.

The app claimed to offer a “universal” checkout experience, allowing users to make purchases from any e-commerce site with just one click, thanks to its AI technology. However, an investigation by the DOJ’s Southern District of New York revealed that the app relied heavily on human contractors in the Philippines to manually complete transactions, rather than using AI as claimed.

Saniger had allegedly raised millions of dollars in venture funding by exaggerating the app’s automation capabilities, claiming that it could transact online without human intervention, except in rare cases. However, the DOJ claims that the app’s actual automation rate was effectively 0%, despite the company’s acquisition of AI technology and hiring of data scientists.

The issue of Nate’s reliance on human contractors was first reported by The Information in 2022, which highlighted the discrepancies between the company’s claims and its actual operations. Saniger did not respond to requests for comment on the matter.

Currently, Saniger is listed as a managing partner at New York-based VC firm Buttercore Partners, although the firm did not respond to requests for comment. The DOJ’s indictment also revealed that Nate had run out of funds and was forced to sell its assets in January 2023, resulting in “near total” losses for its investors. According to Saniger’s LinkedIn profile, he was no longer serving as CEO of Nate as of 2023.

Nate’s case is not an isolated incident of a startup exaggerating its AI capabilities. For instance, The Verge reported in 2023 that an “AI” drive-through software startup was also reliant on human workers in the Philippines. Similarly, Business Insider recently reported that an AI legal tech unicorn, EvenUp, used humans to perform much of its work, despite claims of AI-driven automation.

These cases highlight the need for greater transparency and accountability in the tech industry, particularly when it comes to claims about AI capabilities. As investors and consumers, it is essential to scrutinize the claims made by companies and to demand evidence of their actual performance and capabilities.