Builder.ai Faces Legal Scrutiny

US prosecutors requested financial documents from AI firm Builder.ai shortly before its collapse, suggesting potential legal issues. The company, which offered an AI-driven platform for app development, faced scrutiny after an internal investigation revealed overstated sales figures. Revenue forecasts for 2024 were revised from $220 million to $55 million, and 2023 figures dropped from $180 million to $45 million. This led lenders to call a default on a $50 million loan, prompting Builder.ai to file for insolvency.

The investigation focused on potentially inflated revenues involving resellers, raising concerns about the legitimacy of reported sales. The board ousted founder Sachin Dev Duggal in March, appointing Manpreet Ratia as CEO and commissioning an independent audit. The audit confirmed the significant revenue overstatement, leading creditors to seize a substantial portion of the company's cash. Builder.ai's collapse highlights the risks associated with unaudited financial claims and the importance of due diligence in the rapidly evolving AI sector.

The incident has sparked debate about 'FOMO investing', where investors back hyped technologies without sufficient scrutiny. Experts criticise the failure to properly examine customer contracts and pricing structures, leading to collapses like Builder.ai's. The company's downfall serves as a cautionary tale for investors in the AI market.