Builder.ai fraudster Sachin Dev Duggal

What was the builder.ai fraud?

1. The “AI-Washing” and Technological Misrepresentation

The Claim:
Builder.ai marketed itself as a “no-code” AI platform that could build custom apps “as easy as ordering pizza.” Its flagship feature was an AI assistant named “Natasha,” which was presented as an intelligent project manager and coder that could automate a significant portion of the software development process. The company claimed its AI could build 80% of an app automatically.

The Alleged Reality:
According to numerous reports and a lawsuit from a former executive:

• “Natasha” was largely a facade. Internal company slang reportedly referred to Natasha as “A Guy In India,” highlighting the reliance on human labor.
• The platform did not generate functional code on its own. Instead, it often produced basic, non-functional templates or outlines.
• The bulk of the actual coding, debugging, and integration work was performed by an army of over 700 human engineers based in India, working for an associated company called Assembly Lines.
• The “AI” was allegedly used for more basic tasks like breaking down a project into components and assigning tickets to human engineers, rather than the sophisticated, autonomous code generation it was marketed as.

Why This is a Problem:
This is a classic case of “AI-washing”—exaggerating the capabilities of AI to attract investment in a hot market. Investors like Microsoft, Insight Partners, and the Qatar Investment Authority poured in over $450 million based on the promise of a scalable, AI-driven platform, not a traditional software outsourcing firm with a high human labor cost.

2. Financial Misconduct and Revenue Inflation

The Claim:
In 2022, Builder.ai secured a $45 million debt financing round from Israeli lender Viola Credit. To obtain this loan, companies must demonstrate strong financial health and revenue.

The Alleged Reality:
In May 2024, The Wall Street Journal reported that Viola Credit had sued Builder.ai, alleging it discovered the company had provided “materially misleading” financial statements.

• Builder.ai reportedly told Viola it had achieved $22.8 million in revenue for the first half of 2022.
• However, an investigation by Viola allegedly found the true figure was closer to $123,000—an inflation of over 18,000%.
• This alleged inflation was a key factor in Viola’s decision to lend the money. Upon discovering the discrepancy, Viola moved to seize control of Builder.ai’s accounts.

The Aftermath and Fallout

The revelations triggered a cascade of problems for the company:

1. Investor and Lender Crisis: The relationship with its major lender broke down completely, creating a severe cash flow crisis.
2. Leadership Changes: In February 2024, co-founder Sachin Dev Duggal moved from the CEO role to Chief Wizard (a titular role), and the company appointed a new CEO.
3. Mass Layoffs and Operational Cuts: The company underwent significant layoffs and scaled back its operations drastically to conserve cash.
4. Intense Scrutiny: The case became a poster child for the dangers of AI hype and the lack of due diligence during the peak of the tech investment boom. It drew comparisons to other high-profile startup frauds like Theranos and WeWork, though on a different scale.

Builder.ai’s Defense

Builder.ai has fought back against these allegations. The company:

• States that its AI is real and is used to automate the “scut work” of software development, making human engineers more efficient.
• Argues that the reliance on human experts for complex tasks is a feature, not a bug, and that this was never hidden from sophisticated investors who conducted due diligence.
• Claims the lawsuit with Viola Credit is a contractual dispute and that the lender acted in “bad faith.”
• Maintains that its financial reporting was accurate and complied with standards.

Conclusion

The “Builder.ai fraud” refers to the sweeping allegations that the company systematically misled investors and clients about the capabilities of its AI technology and the state of its finances. While the company denies any wrongdoing, the scandal has severely damaged its reputation, led to a financial crisis, and serves as a cautionary tale about the potential for deception in the highly competitive and richly funded world of AI startups. The outcome of its legal battles with Viola Credit and others will ultimately determine the final verdict on these allegations.