Last Christmas Eve, NewsBreak, a free app with roots in China and currently the most downloaded news app in the United States, published an alarming piece about a small-town shooting. The article, headlined “Christmas Day Tragedy Strikes Bridgeton, New Jersey Amid Rising Gun Violence in Small Towns,” described an event that never occurred. This incident highlights significant issues with the app's use of AI-generated content.

The Bridgeton, New Jersey police department posted a statement on Facebook on December 27 dismissing the article as “entirely false,” stating, “Nothing even similar to this story occurred on or around Christmas, or even in recent memory for the area they described.” This incident underscores the potential dangers of relying on AI for news content without stringent fact-checking measures.

NewsBreak, headquartered in Mountain View, California, with offices in Beijing and Shanghai, told Reuters it removed the article on December 28, four days after publication. The company stated that “the inaccurate information originated from the content source” and provided a link to the website, adding, “When NewsBreak identifies any inaccurate content or any violation of our community standards, we take prompt action to remove that content.” This response highlights the company's reactive approach to content management and the challenges of monitoring AI-generated news.

The operators of the website, findplace.xyz, did not respond to a request from Reuters for comment. The police also declined to provide further comment. This situation highlights the complexities and challenges involved in managing content sourced from multiple platforms and the necessity for robust oversight.

As local news outlets across America have shuttered in recent years, NewsBreak has filled the void. Billing itself as “the go-to source for all things local,” NewsBreak claims to have over 50 million monthly users. It publishes licensed content from major media outlets, including Reuters, Fox, AP, and CNN, as well as information obtained by scraping the internet for local news or press releases, which it rewrites with the help of AI. This strategy, while innovative, has led to several issues regarding content accuracy and integrity.

In at least 40 instances since 2021, the app’s use of AI tools affected the communities it strives to serve. NewsBreak published erroneous stories, created stories under fictitious bylines, and lifted content from its competitors, according to a Reuters review of previously unreported court documents related to copyright infringement, cease-and-desist emails, and a 2022 company memo registering concerns about “AI-generated stories.” These issues raise questions about the ethical implications of AI in journalism.

Reuters spoke to seven former NewsBreak employees, including five who said most of the engineering work behind the app’s algorithm is carried out in its China-based offices. The former employees requested anonymity, citing confidentiality agreements with NewsBreak. This information reveals the significant role that offshore operations play in the app's development and maintenance.

Two local community programs assisting disadvantaged people told Reuters they were impacted by erroneous stories produced by NewsBreak’s AI. On three occasions in January, February, and March, Food to Power, a Colorado-based food bank, said it had to turn people away because NewsBreak stated incorrect times of food distributions. The charity complained to NewsBreak in a January 30 email to NewsBreak’s general customer support email address, which Reuters reviewed. The charity said it received no response, highlighting the app's deficiencies in addressing user concerns promptly.

Harvest912, a charity in Erie, Pennsylvania, emailed NewsBreak about two inaccurate, AI-based news stories which said it was holding a 24-hour foot-care clinic for homeless people, asking the outlet to “cease and desist” erroneous coverage. “You are doing HARM by publishing this misinformation — homeless people will walk to these venues to attend a clinic that is not happening,” Harvest912 told NewsBreak in a January 12 email seen by Reuters. This situation underscores the critical need for accuracy in information disseminated to vulnerable populations.

In response to Reuters’ questions, NewsBreak said it removed all five articles about the charities after learning they were erroneous and that the articles were based on incorrect information on some of the charities’ web pages. Without providing a reason to Reuters, NewsBreak added a disclaimer to its homepage in early March, warning that its content “may not always be error-free.” This disclaimer reflects the company's acknowledgment of its content challenges and the steps it is taking to mitigate them.

NewsBreak generates revenue by showing ads to its users, who are predominantly female, above the age of 45, without college degrees, and live in suburban or rural parts of the U.S., according to the seven former employees and a 2021 company presentation reviewed by Reuters. This demographic information provides insight into the app's target audience and the potential impacts of its content on this group.

The company launched in the U.S. in 2015 as a subsidiary of Yidian, a Chinese news aggregation app. Both companies were founded by Jeff Zheng, the CEO of NewsBreak, and the companies share a U.S. patent registered in 2015 for an “Interest Engine” algorithm, which recommends news content based on a user’s interests and location. The shared technology between the companies points to a significant overlap in their operational frameworks.

NewsBreak told Reuters that the patent was assigned by Zheng to both companies because “some of the concepts were developed from Jeff’s time at Yidian” and that NewsBreak is “U.S.-based” and “U.S.-invested.” The shared patent has “absolutely no bearing on the company and its operations,” NewsBreak said in written responses to Reuters, describing the technology referenced in the patent as “outdated.” This explanation seeks to reassure stakeholders of NewsBreak's operational independence.

A May 2022 company memo from a NewsBreak consultant to Zheng, reviewed by Reuters, raised concerns about NewsBreak’s use of AI tools to republish stories from local news sites under five fictitious bylines. “I cannot think of a faster way to destroy the NewsBreak brand,” Norm Pearlstine, former Executive Editor at the Wall Street Journal and the Los Angeles Times, who was working at the time as a consultant to NewsBreak, wrote in the memo to Zheng.

In an interview after NewsBreak gave him permission to speak with Reuters, Pearlstine said he learned of the practice from a NewsBreak colleague. “I question the legality of creating fake accounts using content publishers put behind their paywalls. If I had learned about the practice while at the LA Times, I would have instructed our lawyer to seek a restraining order and sue for damages,” wrote Pearlstine, whose six-month consulting role at NewsBreak in 2022 consisted of advising the company about U.S. editorial businesses.

Pearlstine, who confirmed the memo was authentic, attributed the lapse to a lack of journalistic experience. “A fair number of people on the staff were either new to journalism or new to the U.S. market. That was part of the reason I felt I had to be very direct and very explicit in explaining why I thought this was important,” he told Reuters. This statement underscores the importance of experienced personnel in maintaining journalistic standards.

NewsBreak said the news stories referenced in Pearlstine’s memo were a “limited experiment in three U.S. counties” to aggregate third-party content and that the effort was disbanded after producing ten articles. The company denied going behind paywalls and said it used “snippets” of articles that were publicly visible to produce complete news stories using OpenAI.

OpenAI told Reuters its policies prohibited using its technology to mislead people. This policy highlights the ethical considerations that come with the use of AI in content creation.

In 2022, Patch Media, which operates digital local news feeds in every U.S. state, reached a $1.75 million settlement in a lawsuit against NewsBreak for copyright infringement, according to court documents reviewed by Reuters. The lawsuit alleged that NewsBreak republished Patch’s news stories without permission or credit. This settlement underscores the legal risks associated with content aggregation practices.

Patch did not respond to a request for comment. NewsBreak said the settlement was not an admission of wrongdoing. This stance reflects the complexities of legal settlements and their implications for business practices.

Emmerich Newspapers, which operates newspapers in Mississippi, Arkansas, and Louisiana, reached a 2021 settlement with NewsBreak in a lawsuit alleging copyright infringement related to NewsBreak’s use of Emmerich’s content without permission. NewsBreak said the settlement was “amicable.” This resolution highlights the ongoing legal challenges faced by the company.

Another copyright lawsuit is ongoing. The two parties are “embroiled in additional lawsuits which we are vigorously defending against,” NewsBreak said. This ongoing litigation underscores the contentious nature of intellectual property disputes in the digital age.

Wyatt Emmerich, the company’s president, said the lawsuit against NewsBreak involved “verbatim copying of content.” He added: “What worries me in the future is that news aggregators could use artificial intelligence to slightly rewrite our stories, which would make proving copyright infringement much more difficult. I have witnessed instances of this happening already on news aggregation sites.” This concern points to the evolving challenges in protecting intellectual property in the age of AI.

NewsBreak is a privately held start-up, whose primary backers are private equity firms San Francisco-based Francisco Partners and Beijing-based IDG Capital, NewsBreak told Reuters. The backing of these major equity firms provides insight into the financial and strategic foundations of the company.

Francisco Partners declined to answer questions about its investment in NewsBreak. IDG did not respond to repeated emailed requests for comment. These non-responses highlight the challenges in obtaining transparency from private equity backers.

In February, IDG Capital was added to a list of dozens of Chinese companies the Pentagon said were allegedly working with Beijing’s military. IDG Capital told Bloomberg in February that it has no association with the Chinese military and does not belong on that list. NewsBreak did not comment on the finding. This development underscores the geopolitical complexities surrounding companies with ties to China.

Yidian, the Chinese aggregation company, divested from NewsBreak in 2019 because “its management team at the time did not understand the U.S. market,” Zheng said. Until then, Li Ya, the president of Phoenix New Media, a Chinese state-linked media firm that held a 46.9% stake in Yidian, had been a director at NewsBreak, according to corporate records.

Yidian continued to describe NewsBreak as its U.S. version on its website until 2021, according to The Wire China. This connection highlights the historical ties between the two companies and their strategic positioning in different markets.

Yidian in 2017 received praise from ruling Communist Party officials for its efficiency in disseminating government propaganda. Reuters found no evidence that NewsBreak censored or produced news that was favorable to the Chinese government. This distinction is crucial in understanding the operational independence of NewsBreak from its Chinese origins.

A NewsBreak spokesperson said there was no ongoing commercial relationship with Yidian. Yidian, Phoenix New Media, and Li Ya did not respond to requests from Reuters for comment. These non-responses leave questions about the current relationship between these entities.

About half of NewsBreak’s 200 employees are China-based, where they are engaged in R&D, the company said. This significant presence in China underscores the role of offshore operations in NewsBreak's development and innovation strategies.

A 2022 company roster reviewed by Reuters showed that 100 of NewsBreak’s 137 engineers at the time were based in China. This information provides insight into the company's engineering workforce distribution.

Five of the former NewsBreak employees said CEO Zheng divides his time between China and the United States. This bi-national presence of the CEO highlights the cross-border operational dynamics of the company.

Zheng, who was born in China, is a permanent resident of the United States, and his family relocated to the U.S. early last year, the company said. This personal and professional background of Zheng provides context to his leadership and strategic decisions.

Reuters found five job advertisements NewsBreak posted on Chinese job sites seeking data analysts or engineers for its Beijing and Shanghai-based offices capable of “in-depth mining” of “massive user behavior data” from the app’s U.S. users. This recruitment strategy underscores the company's focus on leveraging data analytics for its operations.

In a recent high-profile case, U.S. officials warned that TikTok, whose parent company is the Chinese firm ByteDance, could be compelled by the Chinese government to use its algorithm to control what kind of news is viewed by Americans and hand over their data. This case highlights the broader concerns about data privacy and national security associated with apps with Chinese ties.

TikTok, the most downloaded short video app globally, with 170 million U.S. users, now faces a forced sale or a U.S. ban. This development underscores the potential regulatory actions that could impact similar companies.

In response to Reuters' questions, TikTok said it was planning to offer third parties more access to examine its code and verify the app functions as intended. This move reflects efforts to increase transparency and address regulatory concerns.

Zheng told Reuters that NewsBreak complies with U.S. data and privacy laws and is maintained on U.S.-based Amazon (AWS) servers. “Staff in China only access anonymous data stored on AWS servers in the U.S.,” he said. Amazon declined to comment. This setup highlights NewsBreak's efforts to align with U.S. data privacy standards.

NewsBreak also said that as a U.S.-based business, it was not subjected to Chinese data laws. This clarification is crucial in understanding the regulatory environment in which NewsBreak operates.

Pearlstine, the former NewsBreak consultant, said NewsBreak’s ability to demonstrate it is a U.S. company was critical. “The long-term health of NewsBreak was dependent on its being perceived as a California company and that the more the leadership was in Mountain View, the better it would be for the company,” he said. This statement underscores the importance of geographic perception and leadership presence in building trust and credibility.