In the 18th and 19th centuries, a chess-playing automaton dubbed the Mechanical Turk mesmerised Europe’s ruling classes.
For the best part of a century, the Turk toured the continent’s palaces and salons, checkmating a roster of illustrious opponents that included Napoleon Bonaparte and Benjamin Franklin.
Two centuries before IBM’s Deep Blue bested Garry Kasparov across a gruelling six-match series, this robotic chess player put a slew of revered grandmasters through their paces, to the delight of well-heeled spectators.
But it was a lie.
Rather than a proto-form of artificial intelligence, the Mechanical Turk was nothing more than a sophisticated parlour trick. A human sequestered inside a cabinet operated the machine, with a succession of chess masters secretly powering the Turk to victory over the years.
In the telling of some commentators, the recently bankrupt Builder.ai bears the hallmarks of a modern-day Mechanical Turk.
Armed with funding from the likes of Microsoft, OpenAI’s chief backer, Builder.ai promised through the magic of AI to make the process of building apps and websites “as easy as ordering a pizza”. Instead, the tech company once valued at well over $1bn collapsed last month. It’s the first major corporate scandal of the AI boom.
Over on social media slop-swamp X.com, posts confidently asserting that the tech firm imploded after revelations that its AI was really just “700 engineers in India” have been widely shared (the specific claim around 700 Indian programmers seems to have originated in this post from a Swiss crypto-enthusiast called Bernhard Engelbrecht with no notable record of tech reporting).
In reality, however, Builder.ai’s extensive use of developers was no secret.
Sachin Dev Duggal, Builder.ai’s founder and self-proclaimed “chief wizard”, was upfront about the fact that his business made use of what he called “human-assisted AI”. And way back in 2019, when the company was still called Engineer.ai, the Wall Street Journal cast a sceptical eye at just how much of its coding work was attributable to AI, alleging “the company relies on human engineers in India and elsewhere to do most of that work” (Duggal’s company rebranded to Builder.ai after the WSJ’s exposé).
Illustrious backers including the Qatar Investment Authority and Insight Partners happily poured hundreds of millions of dollars into the business later on, apparently with full knowledge that human developers were doing at least some of the heavy lifting.
While serious question marks remain around the efficacy of Builder.ai’s artificial intelligence, the revelations that really prompted its nosedive into insolvency were instead around allegations of artificial revenue.
A run of stories from the Financial Times and Bloomberg has laid bare how Builder.ai imploded shortly after informing its backers that it had overstated sales by as much as four times. Critically, an internal investigation found evidence of potentially bogus sales, with the probe raising concerns around the legitimacy of sales booked through third-party intermediaries who sold Builder.ai’s products.
This also seems to be the tip of the iceberg. From mainFT’s recent dissection of the suspected revenue inflation techniques:
Now, interviews with former employees and documents seen by the Financial Times suggest that Builder.ai is suspected of using a broader range of methods to inflate some of its revenues, including improperly booked discounts, tiny upfront deposits and seemingly circular transactions with key customers.
“It’s an ocean,” said one former employee, referring to the breadth and depth of questionable revenue recognition practices in which the firm allegedly engaged.
(Lawyers acting for Duggal, who stood down as CEO in February, said there were “serious inaccuracies” in the points the FT had put to him for comment.)
Builder.ai’s problems also stemmed from a more prosaic source common to any bankruptcy: debt.
On top of a $50mn loan from a syndicate of tech-focused lending firms — which promptly called a default after learning of the scale of the planned revenue restatements — Builder.ai owed even more money to operational creditors such as cloud providers.
Amazon Web Services alone was owed $88mn, while the AI firm had also racked up an unpaid bill with Microsoft in the region of $30mn (AWS actually filed a bankruptcy petition against Builder.ai in Indian courts back in January over its outstanding bill).
AWS and Microsoft both feature on the list of creditors Builder.ai’s main US holding company disclosed when filing for Chapter 7 in Delaware last week. The list also comprises lots of names you might expect to feature in the bankruptcy filings of a delinquent tech company, such as “Google Cloud EMEA Limited” and “Figma, Inc”.
Others are more eyebrow-raising. From mainFT again:
The creditor list also included: Tel Aviv-based private intelligence firm Shibumi Strategy; top US litigation law firm Quinn Emanuel; and Sitrick Group, a Los Angeles-based public relations firm specialising in so-called “crisis communications”.
All three firms were hired after the Financial Times reported last year that Builder.ai’s co-founders, including its chief executive Sachin Dev Duggal, were embroiled in criminal investigations in India, according to people with direct knowledge of the matter.
Blimey.
If you were wondering how common it is for tech start-ups to turn to corporate spies and spinners when confronted with negative newspaper coverage, a senior former employee of Builder.ai assured the FT that “working with international professional advisers is perfectly normal practice for a successful billion-dollar technology company operating in multiple jurisdictions”.
For Alphaville readers who are blissfully unaware of the precise contours of what can broadly be termed the “reputational management industry”, here’s an introduction to the trio of specialists that Builder.ai brought on board after the FT began scrutinising the company last year.
First up: Quinn Emanuel. Founded by top American litigator John Quinn, Quinn Emanuel Urquhart & Sullivan LLP is one of the world’s pre-eminent litigation law firms. Entertainingly, its partners’ business cards and emails often carry the strapline: “The most feared law firm in the world”.
To give you an idea of how the firm markets itself, here’s an advert it placed in a certain salmon-pink newspaper a few years ago:
Quinn Emanuel sent a letter to the FT last year on behalf of Builder.ai and Duggal, alleging potential breaches of confidence in the course of the paper’s reporting on the tech company’s customer relations (it should be noted, however, that Quinn Emanuel is just one of several law firms that sent letters to the FT on behalf of Duggal and/or Builder.ai.)
On to Sitrick Group (which trades as Sitrick and Company). The PR firm’s founder Mike Sitrick is one of the pioneers of adversarial “crisis comms”, with this section from the bio on his firm’s website giving a flavour:
Fortune magazine called him “one of the most accomplished practitioners of the dark arts of public relations” and “The Winston Wolf of Public Relations.” “Wolf,” Fortune explained, was the fixer in Pulp Fiction. Played by Harvey Keitel, he washed away assassins’ splatter and gore. Sitrick cleans up the messes of companies, celebrities and others and he’s a strategist who isn’t averse to treating PR as combat.”
Sitrick and Company’s website helpfully breaks down the sorts of thorny issues it can deal with:
intellectual property matters, allegations of stock manipulation, wrongful termination, claims involving contract disputes, allegations of fraud and fraudulent inducement, wrongful death claims, allegations of illegal drug use and a variety of other white-collar crimes, criminal and civil cases against companies and their executives for such things as price fixing, insurance fraud, options backdating and antitrust violations, race and gender discrimination, sexual harassment, racism and even rape. We have done extensive work combating short sellers, handling product recalls, extremely sensitive environmental matters, racketeering cases, executive departures either through termination or otherwise, professional, college and high school sports issues, family disputes, and high-profile divorces.
Like Quinn Emanuel, Mike Sitrick contacted the FT in the run-up to publication of this May 2024 article on Builder.ai, raising concerns around the newspaper’s reporting process.
And finally, we have Shibumi, or “Mossad for hire” as The Times memorably dubbed it last year in an interview with one of its unnamed founders:
Mayfair on a crisp, clear morning. The demure woman I am meeting in the bar of an opulent hotel is dressed elegantly and entirely in black. Her nail polish is black, too. A flash of a gold bracelet when we shake hands hints at money.
To the waiter delivering her glass of still water, my companion might be a high-flying banker or even a minor European royal. Age? She could be 25 or 45. Appearances can be deceptive, and this woman knows all about deception.
For more than ten years she spied for Mossad, conducting undercover operations in more than 20 countries for Israel’s respected external intelligence service. These days, she runs Shibumi Strategy, a Tel Aviv-based agency she set up seven years ago to provide espionage services to businesses and high-net-worth individuals.
Saphia Fenton founded Shibumi in 2017 with fellow Israeli intelligence operative Ori Gur-Ari. In between leaving Mossad and setting up Shibumi, Fenton worked for a stint at the notorious Israeli private intelligence agency Black Cube.
This isn’t the first time Shibumi has graced the pages of the pink ‘un. Back in 2022, the FT revealed that the controversial financier (and longtime Alphaville favourite) Lars Windhorst had employed the Israeli firm to target the president of Hertha Berlin football club in a smear campaign.
The ensuing fallout saw Windhorst sell the club in disgrace, with German weekly Der Spiegel describing the affair as a “scandal that is unparalleled in the history of the Bundesliga”.
In terms of other interesting creditors, there’s at least one other corporate intelligence firm on the list (New York’s T&M USA), but we thought we would throw it open to FT Alphaville readers to see if anyone else piques your interest.
There’s the obvious proviso for any firm that collapsed in a state of chaos that its initial creditor list (which is “based on a review of the Debtor’s books and records”) is likely to be subject to change. Also, the US process will not capture all of the creditors to the wider Builder.ai group around the world.
Builder.ai should also soon file for administration in the UK, with local insolvency filings also expected at its key subsidiaries in countries such as India and Singapore. Other creditors without a claim on the US holding company should emerge in those processes.
With all that said, the full list of creditors disclosed in Delaware court last week is posted below. Drop a comment below or emails us on [email protected] or [email protected] if you spot anyone interesting.
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