Builder.ai, a once-hyped British tech startup backed by Microsoft and the Qatar Investment Authority, has filed for bankruptcy in a scandal that’s shaking the AI world. Far from delivering revolutionary artificial intelligence, the company reportedly relied on hundreds of Indian software engineers to secretly do the work AI was supposed to handle.

Marketed as a platform that could generate custom software in days or weeks with minimal human input, Builder.ai sold itself as the next big thing in app development. Microsoft even pumped money into the project, joining Qatar’s sovereign wealth fund in backing what was sold as a $1.5 billion tech unicorn. But it was all smoke and mirrors.

According to a bombshell Bloomberg report, the company wasn’t deploying bleeding-edge AI to build apps—it was outsourcing the labor to more than 700 engineers at VerSe Innovation, an Indian social media firm. These human workers created code behind the scenes while Builder.ai’s promotional materials misled investors and clients into thinking it was all the work of artificial intelligence.

The financial side of the story is even more troubling. Between 2021 and 2024, Builder.ai and VerSe allegedly engaged in “round-tripping,” a shady accounting tactic where two companies invoice each other for roughly equal amounts to inflate their revenue books. Sources say that in many cases, no real products or services were delivered—just fabricated transactions to boost the illusion of growth. Bloomberg’s investigation found Builder.ai collected nearly $60 million in payments from VerSe over four years, only to send nearly identical sums right back to them and their marketing subsidiary, Quark Media Tech.

VerSe cofounder Umang Bedi denies any wrongdoing, calling the accusations “absolutely baseless and false,” and claims they are “defamatory and irresponsible.” But authorities in both the U.S. and the U.K. are now probing the operation.

The unraveling came quickly. Just last week, one of Builder.ai’s creditors, Viola Credit, seized $37 million from the company’s accounts after it failed to meet debt obligations. That left only $5 million in cash, which is currently stuck in India due to legal restrictions—unavailable even for employee payroll, according to CEO Manpreet Ratia. Most of the company’s workforce has now been laid off.

This spectacular collapse is a harsh lesson for investors who bought into flashy claims about AI. Back in 2023, Builder.ai was still securing major investments, including an equity stake from Microsoft tied to a strategic partnership. Two months ago, the company was still defending its numbers—hiring auditors and trying to reassure nervous backers after whistleblowers raised red flags about inflated sales projections.

But the red flags go back even further. A 2019 Wall Street Journal report raised early doubts, quoting insiders who said Builder.ai was more of a labor-heavy tech services shop than an AI firm. One former employee described it simply: “All engineer, no AI.”

In the end, it wasn’t advanced algorithms or machine learning that powered Builder.ai—it was human labor, misdirection, and financial gymnastics. Investors thought they were betting on the future. What they got was a reminder that in Silicon Valley, not everything that glitters is gold—or even AI.