By the Constantine Cannon Whistleblower Lawyer Team

This year, we’ve been tracking the notable spike in enforcement actions concerning AI washing or other AI-related fraud. These types of schemes generally involve an individual or company allegedly deceiving investors with misstatements or omissions about AI use or capabilities to make the company appear better than it is.

Another such enforcement action came this month when the government announced charges against Albert Saniger, the former CEO of e-commerce company Nate, Inc. (“nate”), for securities fraud in connection with allegedly “false and misleading statements about nate’s use of proprietary AI technology and its operational capabilities.”

Nate was an online shopping cart app that sought to reduce the tedious online checkout process for customers to a “single tap.”  As alleged in the government’s indictment, Saniger represented to investors that the nate app “… used AI technology to intelligently and autonomously complete customers’ merchandise orders across e-commerce websites,” and that “except for certain ‘edge cases’ in which the AI failed … the nate app was fully automated based on AI.”  However, according to the government, Saniger knew the company “was not powered by advanced AI technology that would differentiate it” and that “transactions processed through nate were … manually completed by contractors … and … by bots.”  The government further claims that Saniger allegedly concealed that reality from investors and colleagues, including by restricting access to an automation rate dashboard, telling employees to keep the automation rate a secret, and asserting that the automation data was a “trade secret.”

In commenting of on the announcement of the indictment, Acting U.S. Attorney Matthew Podolsky captured many of the harms that flow from this type of alleged misconduct: “…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.”

Constantine Cannon partner Dan Vitelli, one of our attorneys who has been tracking the recent rise in AI-related enforcement actions, stated: “There’s a been a noticeable surge in government enforcement actions alleging AI-washing. When communicating with investors, it’s crucial that individuals and companies tell the truth and not cross the line by providing material misrepresentations or omissions about the company—that includes with respect to its use of AI.”

The Role Whistleblowers Play in Uncovering Securities Fraud

Whistleblowers play a critical role in exposing fraud. Under the SEC Whistleblower Program, whistleblowers are encouraged to report information about violations of U.S. securities laws. Eligible whistleblowers who provide the SEC with information that leads to an SEC enforcement action may receive up to 30% of the monetary recovery.

Our Firm Helps Securities Fraud Whistleblowers

Contact us to learn more about our work in this area or if you have information on potential securities fraud. We will connect you with an experienced member of the Constantine Cannon whistleblower team for a free and confidential consultation.

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United States Attorney’s Office, Southern District of New York Press Release

Read Former CEO of e-Commerce App nate Charged with Securities Fraud for Allegedly False Claims About AI at constantinecannon.com