On April 9, 2025, in the case of Securities Exchange Commission v. Albert Saniger (Saniger),[1] the U.S. Securities and Exchange Commission (the SEC) charged Alberto Saniger Mantinan, former CEO of Nate, Inc., a privately held technology startup, with fraudulently soliciting investments in Nate during two rounds of fundraising from the spring of 2019 through December 2022.
Mr. Saniger was charged with defrauding investors by making false and misleading statements pertaining to Nate’s use of artificial intelligence (AI) thereby propelling the sales of Nate’s stock and raising $42 million from investors.
We know that Canadian securities regulators pay attention to legal developments south of the border, and the Saniger case promises to be no exception. As the Saniger case may stand to influence how to disclose the use of AI when trying to raise capital and investments, for example in a prospectus of a public company, businesses must ensure that their representations to investors are well-founded and are appropriately reflecting the reality.
Factual Background
In July 2020, Nate launched an app called “nate” (the Nate App) that claimed to streamline the online shopping experience of e-customers by using AI.
Nate and the Nate App distinguished themselves from other e-commerce companies and apps thanks to the Nate App being marketed as uniquely capable of intelligently and quickly completing retail transactions using proprietary AI technology. Mr. Saniger pitched the Nate App as capable of completing 10,000 transactions per day without any human involvement.[2] Given the Nate App’s marketing as entirely automated and scalable, the Nate App proved itself extremely popular among investors.
However, as Mr. Saniger knew or recklessly disregarded, the Nate App was in fact not powered by AI. Rather, it relied on hundreds of overseas contract workers to input virtually all orders placed by users.[3]
The SEC alleges that Nate and Mr. Saniger personally profited from this unlawful scheme while the aftermath of Nate’s collapse in 2023 left investors with near-total losses, totaling tens of millions of dollars.[4]
Charges and Reliefs Sought
The SEC’s civil complaint charged Mr. Saniger of securities and wire fraud, the whole in violation of Section 17(a) of the 1922 Securities Act, Section 10(b) of the 1934 Securities Exchange Act and Rule 10b-5 thereunder.[5]
Among other reliefs, the SEC seeks to permanently prohibit Mr. Saniger from serving as an officer and director of any company subject to reporting obligations under the Securities Act or the Securities Exchange Act, the disgorgement of all ill-gotten gains Mr. Saniger has received, plus prejudgment interest, and civil money penalties.[6]
Canadian Consequences: Regulatory Inquiries and Securities Class Actions
In Ontario, sections 126.1(1) and 126.2(1) of the Ontario Securities Act (OSA)[7] may be broad enough to capture deceitful conduct such as the alleged conduct of Mr. Saniger.[8] Indeed, a person is prohibited thereunder from making a statement that they know or reasonably ought to know is misleading or untrue and that would reasonably be expected to have a significant effect on the market price or value of a company’s securities.
A Saniger-like case could also likely be captured by the Québec Securities Act (QSA)[9], the language of which is similar to that under the OSA.Indeed, section 199.1 of the QSA precludes a person from engaging in any act, practice or course of conduct if they know or ought reasonably to know that such act, practice or course of conduct creates or contributes to a misleading appearance of trading activity or perpetrates a fraud on any person.
The word “fraud” used in section 199.1(2) of the QSA[10] has recently been defined by the Court of Québec as akin to the criminal law offence of fraud. Thus, as in Ontario, the challenge lies with the prosecuting regulator to prove the alleged defrauder’s guilty mind beyond a reasonable doubt, thereby discharging a high burden of proof.[11]
In brief, the Saniger case epitomizes exaggerated claims regarding AI capabilities. Canadian businesses do not need to ride the wave of AI technologies at all costs, however revolutionary they may be, as it might come with heightened legal exposure.
Although the above provisions can certainly serve as a basis for regulatory inquiries, filing of securities class actions is also becoming increasingly active in Canada, precisely in a context where investors are claiming misrepresentations by organizations. Insofar as AI technologies come with potential pitfalls, significant legal action against those who use or manufacture solutions integrating AI is also expected to increase.
The lesson to learn for marketing AI tools is clear: prudence and transparency towards investors as well as the general public are of the utmost importance as regulatory scrutiny by our Canadian watchdogs is on the rise.
The authors wish to thank Florence Jarry, articling student, for her contribution in authoring this publication.
[1] SEC v Albert Saniger, 25-cv-02937 (Southern District of New York April 9, 2025) [SEC Complaint].
[2] Ibid.
[3] See SEC Complaint, supra note 1.
[4] Ibid.
[5] See SEC Complaint, supra note 1.
[6] Ibid.
[7] RSO 1990, c S.5 [OSA].
[8] See for example Pomroy (Re), 2024 ONCMT 10.
[9] RLR1 c V-1.1 [QSA].
[10] Ibid.
[11] See Autorité des marchés financiers c. Goyette, 2022 QCCQ 2872.