The US Department of Justice (DOJ) announced a criminal indictment and the Securities and Exchange Commission (SEC) announced a civil complaint against the founder and former CEO of an e-commerce technology startup.
DOJ and SEC alleged on April 9, 2025 that Albert Saniger, the founder and former CEO of Nate, Inc., made materially false and misleading statements about the startup’s artificial intelligence (AI) capabilities, which allowed Nate, Inc. to raise approximately $42 million from investors.
The parallel DOJ and SEC actions show how exaggerated claims about AI capabilities – a practice that is commonly referred to as “AI washing” – can lead to an array of charges and potential penalties for offenders. Potential investors are also encouraged to be vigilant about representations by startup companies and promoters regarding AI.
Even in the current legal and regulatory environment marked by deregulation, federal prosecutors and regulators remain focused on addressing crimes and violations involving AI.
Factual allegations and potential penalties
DOJ and SEC alleged that, from 2019 to December 2022, Saniger engaged in a scheme to defraud investors by falsely claiming that Nate, Inc.’s app, called “nate,” used advanced AI to autonomously complete e-commerce transactions. Both DOJ and SEC alleged that Saniger:
- Marketed nate as a shopping app that simplified the process of online shopping by allowing buyers to make purchases with a “single tap,” claiming to use proprietary technology to automate the process for users; in reality, the app allegedly relied heavily on manual labor from contractors in the Philippines and Romania and later on less sophisticated "bots"
- Misrepresented the app's AI capabilities to potential investors and venture capital firms during seed and Series A funding rounds, claiming nate could autonomously navigate retail websites and complete purchases
- Marketed nate’s use of AI rather than bots, which are costly and easy to detect by e-commerce platforms, as a differentiator in the e-commerce space due to its purported scalability and profitability
- Directed employees to keep the true nature of the app's operations secret, staging false transactions for investors and prospective investors to give a false impression of the app's functionality
- Raised more than $40 million from investors based on these false representations
DOJ’s indictment charged Saniger with one count each of securities fraud and wire fraud, which carry maximum sentences of 20 years in prison for each count. The indictment also gave notice of DOJ’s intent to seek criminal forfeiture of all real and personal property that constitutes or is derived from proceeds traceable to the offenses.
SEC’s complaint charged Saniger with violations of Section 17(a) (15 USC. § 77q(a)) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (15 USC § 78j(b)), along with Rule 10b-5 thereunder (17 CFR § 240.10b-5). According to the complaint, SEC seeks several remedies, including injunctive relief, civil penalties, disgorgement of profits, and prejudgment interest.
As of the time of this publication, Saniger has neither pleaded guilty nor denied the allegations.
Key insights and takeaways
The SEC and DOJ actions pose the following insights for companies using AI:
- The SEC and DOJ actions demonstrate that misrepresentations or suspected misrepresentations to investors and customers regarding AI may trigger enforcement actions and criminal investigations with a range of potential consequences, such as imprisonment, forfeiture, restitution, and civil penalties. In some circumstances, state and foreign regulators may also have jurisdiction to take criminal and/or civil action to deter AI washing.
- Companies that tout their technological capabilities are encouraged to ensure they have controls in place to vet the accuracy of their public statements and marketing. In particular, this case shows the importance of being transparent about the use of AI compared to human labor and other, more limited technologies. The promise of AI technology carries implications about cost-efficiency and scalability that may be deemed material to investors and investment decisions – even if less advanced methods can perform the services as marketed.
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