New Technology, Old Fraud: Artificial Intelligence Opportunities and Fraud

Welcome to the January 2025 edition of our newsletter!  In this issue, we’ll examine how new technologies can be a front for old frauds.

Irrational Exuberance and Rational Exploitation: AI and Fraud

As artificial intelligence deployment has expanded over the last two years and driven much excitement in America’s capital markets, it has also become a cipher into which investors and businesses have placed their hopes and dreams for the dawn of a new age of innovation.  For every Edison, however, there is a P.T. Barnum ready to exploit the human capacity for growth and to look over each new horizon with optimism.

While the technologies are new, thus far many instances of fraudulent behavior by AI-related companies have relied upon old techniques.  For example, earlier this month the founder of a chatbot provider, GameOn Inc., was criminally charged with using investor funds to maintain a lavish lifestyle, including paying for a wedding and other personal expense.  Additionally, Alexander Beckman issued financial statements which “often described non-existent revenue, inflated cash balances, and fake and otherwise exaggerated customer relationships.  To further the scheme, Beckman allegedly used the names of at least seven real people—including fake emails and signatures—without their permission to distribute false and fraudulent GameOn financial and business information and documents with the intent to defraud GameOn and its investors.”  Beckman and his co-defendant, Valerie Lau Beckman, reportedly raised $60 million from investors, redirecting $4 million of that amount to personal expenses.

Potential investors, as well as potential partners, can protect themselves by tuning out the buzzwords around a new technology and focusing on the company’s fundamentals as well as the reputations of its principals.  This type of deep research-driven analysis can help identify potential problems before an engagement and provide either a sense of security to enter a deal or enough caution to rightfully walk away.