Builder.ai faces federal investigation in U.S. while navigating insolvency

Builder.ai, the UK-based artificial intelligence startup once valued at over $1 billion, is now the subject of an active investigation by the U.S. Department of Justice, even as it undergoes insolvency proceedings in the United Kingdom. The probe, led by the U.S. Attorney’s Office for the Southern District of New York, centers on allegations of financial misreporting, revenue inflation, and potential misrepresentation to investors. Subpoenas were issued before the insolvency filing, but officials have confirmed the investigation is still ongoing.

The company’s financial downfall has already triggered regulatory alarm in Europe and now appears poised to expand across borders. According to multiple reports, U.S. prosecutors are focused on Builder.ai’s internal accounting practices and customer contracts, specifically in relation to provisional revenue figures that were later dramatically restated. As investigators sift through internal data and correspondence, the legal and reputational risks surrounding Builder.ai’s collapse continue to mount.

What Sparked the U.S. Probe Into Builder.ai’s Financial Conduct?

The investigation was reportedly initiated after whistleblowers flagged inconsistencies in Builder.ai’s revenue recognition practices to U.S. authorities. Subpoenas issued by the U.S. Attorney’s Office demanded access to the company’s internal financial records, customer agreements, and executive communications. The investigation’s primary focus is whether Builder.ai materially misrepresented financial data in investor communications—especially those involving U.S.-based stakeholders and tech partners such as Microsoft and Amazon.

Builder.ai’s General Counsel, Adi Vinyarsh, confirmed in internal memos that the company was required to preserve all potentially relevant documents in compliance with the subpoenas. This suggests the investigation is active, with federal prosecutors continuing to assess whether the company or its leadership breached U.S. securities laws or regulatory disclosures.

How Did Restated Revenues Impact the Company’s Viability?

The legal probe coincides with a dramatic restatement of Builder.ai’s financials that significantly altered its business outlook. Preliminary financial disclosures for 2023 had placed revenues at approximately $180 million. However, after an internal audit initiated by incoming CEO Manpreet Ratia, those figures were revised down to $45 million. Similarly, 2024 forecasts were adjusted from $220 million to just $55 million—a near 75% reduction that invalidated prior growth assumptions.

These revelations triggered defaults on existing debt agreements, including $85 million owed to Amazon Web Services and $30 million to Microsoft Azure. With only $7 million in cash reserves reported by March 2025, Builder.ai rapidly became illiquid. Efforts to secure emergency funding failed as news of the revenue restatements and federal probe spread, spooking investors and suppliers alike.

Why Is This Investigation So Significant for AI Startups?

The ongoing investigation has placed Builder.ai at the center of a broader reckoning for AI startups globally. The firm was widely seen as a flagship in the low-code/no-code software development market, offering AI-generated app-building tools to non-developers. Backed by top-tier investors and large cloud providers, it embodied the sector’s narrative of scalable automation and rapid customer acquisition.

However, its collapse and legal entanglements reveal how fragile these high-valuation narratives can be when decoupled from audited, sustainable business models. Venture capital firms are now reassessing their exposure to startups operating at the intersection of high infrastructure dependency and opaque financial governance.

Analysts note that Builder.ai’s business model—heavy on cloud consumption and upfront sales projections—may have encouraged risky revenue practices, such as recognizing income from contracts not yet fulfilled. If the ongoing probe confirms this, the implications could stretch beyond Builder.ai, prompting audits at other AI startups with similar growth trajectories.

What Do Institutional Investors Say About the Builder.ai Fallout?

Investor sentiment has turned sharply critical. Institutions like the Qatar Investment Authority, which led several late-stage rounds in Builder.ai, have yet to publicly comment on the implications of the restated financials and ongoing legal investigation. However, insiders suggest private reviews are underway, particularly focusing on oversight failures and the company’s long-delayed response to governance red flags.

Microsoft, a strategic investor and technology partner, is reportedly evaluating potential contractual and financial exposure, given that Builder.ai’s Azure integration was positioned as a core feature in marketing and investor decks. According to legal experts, if Builder.ai is found to have misled these partners using inflated financials, further claims could arise from affected stakeholders.

Could This Investigation Result in Criminal Charges?

Legal observers caution that the issuance of subpoenas and the ongoing nature of the investigation do not automatically imply guilt. However, the trajectory of similar U.S. probes suggests a range of possible outcomes—from civil enforcement actions and monetary penalties to criminal indictments against responsible executives.

Given Builder.ai’s broad U.S. footprint and investor base, prosecutors are likely to pursue any violations of the Foreign Corrupt Practices Act (FCPA), securities law breaches, or deceptive practices in fundraising disclosures. If wrongdoing is substantiated, it could lead to precedent-setting penalties for AI-focused startups operating across borders.

Lawyers familiar with DOJ procedures believe that the U.S. may also coordinate with UK regulators, especially if Builder.ai’s board-level governance failures are found to have spanned both jurisdictions.

What Happens Next in the Insolvency Process and Legal Fallout?

As insolvency administrators work to stabilize what remains of Builder.ai’s operations, they must also navigate the complexities of an unresolved legal investigation. Buyers for its core assets—ranging from proprietary AI tools to enterprise customer accounts—may hesitate to move forward unless indemnified from future legal liabilities.

The outcome of the U.S. investigation will likely influence whether these assets retain value or are discounted due to risk. Administrators are expected to prioritize securing recoveries for creditors, particularly unsecured vendors and laid-off employees. Analysts expect interest from private equity firms and rival SaaS companies, but only after legal clarity improves.

Builder.ai’s downfall has already begun influencing term sheets and boardroom dynamics across the AI startup ecosystem. Going forward, investors are likely to demand mandatory third-party audits, enhanced internal controls, and clear revenue recognition protocols—lessons born from the unraveling of a unicorn that promised AI-powered simplicity but collapsed under financial complexity.