US DOJ to target pre-IPO artificial intelligence frauds, top attorney says
By Chris Prentice
NEW YORK (Reuters) — The U.S. Justice Department's top prosecutor in San Francisco is targeting artificial intelligence (AI) and other tech start-ups that defraud investors before they go public, he told Reuters.
Ismail Ramsey, who became U.S. attorney for the Northern District of California a year ago, said his office is uniquely positioned to crack down on tech start-ups that mislead investors on the path to initial public offerings (IPOs) given his proximity to Silicon Valley venture and angel investors.
«These 'fake it til you make it' pre-IPO frauds erode the integrity of public and private financial markets,» he told Reuters in an interview.
To generate interest in a prospective offering, entrepreneurs may be tempted to mislead investors about key information, including customer reach, revenue base and product readiness, he said.
High-profile examples of such frauds by start-ups include Theranos, whose founder Elizabeth Holmes and president Ramesh «Sunny» Balwani were convicted of deceiving Silicon Valley investors about the start-up's blood-testing technology, or uBiome Inc, a San Francisco start-up whose co-founders were charged with defrauding investors about its ability to expand clinical tests to monitor gut health.
Private companies typically receive less public and regulatory scrutiny, and the onus is on investors to do their due diligence. The evidence needed for prosecutors to pursue these cases can be harder to unearth, as such companies are not required to publish disclosures.
AI will be a key focus, said Ramsey. Investor excitement around AI stocks such as Nvidia (NASDAQ:NVDA) has helped push U.S. markets to new highs in recent months.
«As with any such emerging technologies, AI is
Read more on investing.com
