AI Fraudsters Rely on Traditional Fraud Techniques

The more things change, the more they stay the same. Some view AI technology as a pivotal movement for global technology. A cutting-edge opportunity that will revolutionize the way we live. I may not share all their enthusiasm, but portions of the market certainly do. Fraudsters pay attention to these trends. From the railroad to the internet, every major technological advance has seen its share of grifters masquerading as visionaries.

Fraudsters don’t even have to use the new technology to do this. They just hide behind the hype and run scams out of an old playbook. The D&O Diary recently covered such a case. A new federal class action is alleging that AI company Blaize defrauded investors. The Plaintiffs aren’t arguing this was done through quantum computing or deepfakes, just traditional fraud techniques targeting investors:

“The complaint advances a much more traditional securities fraud theory. The plaintiff alleges that Blaize created a misleading impression of growth through transactions with counterparties that allegedly lacked the operational capacity and financial resources to support the reported business opportunities, while also improperly recognizing related revenue. In that sense, the lawsuit arguably fits within the category of AI-adjacent securities litigation. Although Blaize operates in the AI sector, the allegations do not concern the company’s AI capabilities, AI governance, or AI-related disclosures. Rather, they involve familiar securities litigation issues relating to customers, revenue recognition, and growth projections.”

Ultimately, the suit revolves around Blaize’s business relationships with less-than-reputable companies. Blaize allegedly told shareholders that these relationships were generating tens of millions in revenue. In reality, Plaintiffs argue that these companies lacked any operational capacity.

Similarly, this case reminds me of a story from the ESG world. Electric truck manufacturer Nikola defrauded investors by riding the hype around electrification. The fraud in that case revolved around the electric truck manufacturer not actually manufacturing electric trucks, but rather, pushing prototypes down hills and posting the videos on YouTube. The point being that fraudsters don’t have to be tech geniuses to rip people off. Traditional fraud techniques will do.

Fraudsters like these capitalize on the fear of missing out on opportunity. They convince people that they’re the next Apple or Amazon and give investors the “opportunity” to get in on the ground floor. In the investor’s rush to act early, due diligence can get overlooked. When dealing with exciting new AI opportunities, always remember that nothing is so pressing that you can’t examine the evidence. If the company you’re dealing with can deliver what they claim to, they’ll substantiate their claims.