During an all-hands meeting earlier this year at data labeling startup Mercor, its then 22-year-old billionaire CEO Brendan Foody pulled up a slide with a single word: fraud.

An employee had embezzled company funds, he told his staff of more than 200. The person had since been fired. There would be no tolerance for this behavior, Foody said, according to four people familiar with the meeting.

Foody didn’t identify the employee or disclose the amount stolen at the meeting. But Forbes has learned that the culprit was an early hire and lead manager on the Anthropic account, one of the company’s most important, where Mercor’s contractors create training data to help build Claude. Multiple former Mercor employees said the manager had recruited his brother and father as “experts” and sent them hundreds of thousands of dollars in so-called bonus payments. He was reported in late December after it was discovered that contractors were paid more than the amount billed to Anthropic for multiple data generation projects, two sources said. Anthropic was not aware of the incident, they added.

Mercor eventually recovered the fraudulent bonus payments and it did not end up costing customers any money, Mercor spokesperson Heidi Hagberg told Forbes. The former Anthropic account lead, whom Forbes is not identifying, declined to comment for this story. Anthropic declined to comment.

It’s just one episode in what more than a dozen former employees describe as a series of operational mishaps at Mercor, a fast-growing startup that has recruited 50,000 highly-skilled experts—PhDs, lawyers, bankers, scientists and programmers—to create training data for big AI labs like OpenAI. It’s been hugely successful so far: In September 2025, Mercor’s annualized revenue run rate crossed $1 billion, or $83.3 million in monthly revenue, according to a person familiar with the company.

Founded in 2023 by three longtime friends who met on the high school debate team, Mercor has become a poster child for booming Silicon Valley AI startups run by unusually young, unusually wealthy founders. The three cofounders — Foody, CTO Adarsh Hiremath, and board chairman Surya Midha — were 22 years old when they became the world’s youngest self-made billionaires in October, after raising $350 million from storied VCs like Felicis, Benchmark and General Catalyst at a $10 billion valuation, Forbes reported.

Mercor employees suspected that North Korean operatives had worked for the company by using stolen credentials to skirt identity checks, multiple sources told Forbes.

Mercor employees suspected that North Korean operatives had worked for the company by using stolen credentials to skirt identity checks, multiple sources told Forbes.

Beyond the fraud incident, Mercor has suffered from a number of security problems in recent months, according to interviews with five former staffers. One example: As early as November 2024, and continuing until recently, Mercor employees suspected that North Korean operatives had worked for the company by using stolen credentials to skirt identity checks, multiple sources told Forbes. In a number of instances, the suspected operatives produced data for American AI labs such as Anthropic, the sources said. Internally, they were referred to as “NKs,” one former employee said, and were known to be among the best at the code-writing tasks contractors were asked to do.

“They would work 80 hours a week and produce the cleanest code,” this person told Forbes.

One of the first people employees suspected was a project lead who “everybody trusted a lot and was given a lot of responsibility,” another former Mercor employee said. Employees used fraud detection systems to confirm their suspicions. He was later fired.

One former Mercor employee described looking at one of the video interviews that experts record when they are onboarded onto the platform, expecting to find a person working from a home office, as many experts did. But instead, the person was working in a drab office, with many other people visible in the background who were wearing the same black, over-the-ear headphones. When he looked at another interview for another contractor, he saw the same scene from a different vantage point.

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Former employees said Mercor tried to address the issue by testing a trio of different screening companies and establishing a three-person fraud team. Employees also created and circulated an internal guide on how to identify the so-called “NKs,” one of the sources said. The company now works with identity verification software firm Persona to conduct these checks.

“Multiple frontier labs have said we have industry leading fraud detection. That is because we have invested heavily in our fraud-detection processes and team, including around-the-clock monitoring and IP-blocking, to prevent and detect any misuse of our platform,” Hagberg said.

The North Korean issue is industry-wide: For years North Koreans have tried to infiltrate American companies via remote jobs, sending millions of dollars back home to fund illegal weapons programs, CNN reported in August. That has trickled into the data labeling industry too. At Mercor, former employees expressed concern that the suspected North Koreans would have been able to see what kinds of training data frontier AI labs prioritize — information the labs guard as proprietary trade secrets.

A senior executive patrols the office at 9 p.m. taking notes of who's not at their desks, two former employees told Forbes.

A senior executive patrols the office at 9 p.m. taking notes of who's not at their desks, two former employees told Forbes.

Mercor has also faced a more severe security breach that could cost it at least one major client. In early April, the company said it was among the thousands of companies targeted in a massive hack linked to open source project LiteLLM. Meta told Forbes that its work with Mercor is “paused” while the social media giant investigates the breach. Now, other frontier labs, including OpenAI, are evaluating their work with the startup as they investigate whether their proprietary training data was exposed, multiple sources told Forbes. OpenAI declined to comment.

“Nearly every customer has been business-as-usual and has continued to start new projects with us throughout our third-party investigations,” Mercor spokesperson Hagberg said. She said Mercor’s security team is conducting an investigation with external parties and has moved to remedy the breach.

The startup has also been hit with at least six lawsuits from contractors alleging Mercor’s negligence led to the exposure of private data like Social Security numbers, full names and other customer data, according to federal court filings. Mercor declined to comment on ongoing litigation.

The stakes are high for Mercor: AI labs have a slew of options for data labelers, and can switch quickly to new providers. There’s Scale, whose former CEO, Alexandr Wang, previously held the title of the world’s youngest self-made billionaire; Invisible Technologies, valued at more than $2 billion in September 2025; Surge, whose founder Edwin Chen is the youngest billionaire on the Forbes 400 list; Turing AI, which raised $110 million in July at a $2.2 billion valuation. Even newer entrants like micro1, which crossed $300 million in annualized revenue this month, and Handshake, which has more than $850 million in annualized revenue per a source familiar, are quickly gobbling up market share.

‘The intensity might not be for everybody’

As Mercor scaled from less than 40 employees a year ago to almost 300 today, former employees said the company’s culture dramatically shifted. Employees describe an intense “996” work culture, where it's common to work at least 9 a.m. to 9 p.m. six days a week. Priorities and project scopes shift quickly. Timelines are often compressed and unrealistic. A senior executive patrols the office at 9 p.m. taking notes of who's not at their desks, two former employees told Forbes. And after an abrupt change in pay structure for some project leaders, the company suffered a wave of departures, multiple sources said.

“We don’t mandate hours, we expect people to work hard and match the pace of our customers who are the most consequential companies in the world,” Mercor spokesperson Hagberg said. “The intensity might not be for everybody and that’s okay.”

The shift appears to have begun in May 2025, when Mercor hired Sundeep Jain, Uber’s former product chief, as its first president to build out the business. Jain was responsible for overseeing new hires and management processes as well as finding better ways to track and report data to clients, the cofounders told Forbes in September.

In a recent internal talent survey seen by Forbes, Mercor leadership asked employees to anonymously rat out colleagues, asking "Who on the team do you think lowers the bar?"

In a recent internal talent survey seen by Forbes, Mercor leadership asked employees to anonymously rat out colleagues, asking "Who on the team do you think lowers the bar?"

When Jain took over, internal structures and processes changed. In October, he altered the compensation structure for Mercor’s strategic project leads (SPLs), who manage budgets and recruit experts for data labeling projects. Four sources said that of Mercor’s 30+% profit margin on its data labeling projects, SPLs had been rewarded with 5% in cash and 10% in equity. Instead of commissions tied to revenue, SPLs would now be paid bonuses based on performance reviews, according to multiple former employees.

Under the new system, high performers made more money while low-performers made less, a standard way to incentivize employees at many fast-growing startups, Mercor spokesperson Hagberg said.

But several SPLs viewed the new performance-review system as arbitrary and unfair. Some said they received less commission than they were promised, according to multiple sources.

“Mercor's compensation is in the 99th percentile, according to a leading compensation consulting company. It has always been consistent with compensation shared on offer letters,” Hagberg said.

Several months after Jain arrived, cofounder and chief operating officer Midha stepped away from day-to-day operations, transitioning to the role of chairman of the board in October 2025. Recently, Mercor cofounder and CTO Hiremath was promoted to Co-CEO. The company has said that he will be leading a newly established enterprise offering that helps companies build agents for their internal workflows.

Two former employees told Forbes that Foody and Hiremath have had many disagreements, are rarely seen speaking to each other and work from offices on different floors.

“Brendan and Adarsh are best friends and have been since high school. They talk every day. They have a shared vision and a shared purpose,” Hagberg said.

Executives also encouraged a cutthroat culture: In a recent internal talent survey, Mercor leadership asked employees to anonymously rat out colleagues, asking "Who on the team do you think lowers the bar?", noting that only “ABS,” an acronym referring to the first initials of Hiremath, Foody and Jain, would see the answers, according to a copy of the survey viewed by Forbes. They also asked which employees raised the bar, a source said.

At least one former employee landed a cushy exit. Two sources told Forbes the former employee accused of siphoning money has already received investment from BoxGroup for a new venture that would create a fully autonomous company in the marketing realm. Just on the idea alone, BoxGroup invested $1.5 million, one source said. The firm did not respond to a request for comment.

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