FTC Launches Crackdown on Deceptive AI Claims and Fraudulent Businesses

FTC sues five AI outfits - and one case raises questions

From allegations of lying about capabilities to fake reviews. Plus: Biden AI robocaller finally fined $6M The FTC has made good on its promise to crack down on suspected deceptive AI claims, announcing legal action against five outfits accused of lying about their software's capabilities or using it to break the law. Two of the cases have already been settled. The other three are choosing to take the matter to court, the US regulator said. All five were targeted by the consumer watchdog in its so-called Operation AI Comply. Those three entities that want to take this matter to trial - Ascend Ecom, Ecommerce Empire Builders, and FBA Machine - were all accused of offering some variation of a scheme that promised customers high earnings in exchange for setting up and managing an online storefront that utilized their AI. In each case, the FTC said, the claims were unlawfully false, and victims lost millions after paying for inventory, training, and the use of ready-made e-commerce shops, in the hopes of earnings that never materialized. Ascend Ecom, Ecommerce Empire Builders, and FBA Machine each have court orders against them, halting their operations, while proceedings against them continue. "Using AI tools to trick, mislead, or defraud people is illegal," FTC boss Lina Khan said this week. "The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books," she added. "By cracking down on unfair or deceptive practices in these markets, The FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected." Of the two organizations that settled their cases with the FTC, you may recognize one of them: DoNotPay, which early last year canceled plans to use an AI to defend a man in court after the outfit's CEO was threatened with jail for practicing law in California without a license. A few months after that stunt, DoNotPay was sued by a customer who claimed the robot lawyer wasn't "a robot, a lawyer, nor a law firm," and that its services were generally garbage, with turnaround times being far too long; documents delivered incomplete; and one person inadvertently having to pay a fine they were trying to use the AI to fight. That's generally what the FTC concluded too, with the agency alleging DoNotPay couldn't deliver on its promises to generate documents or sue without a lawyer because it "did not conduct testing to determine whether its AI chatbot's output was equal to the level of a human lawyer, and that the company itself did not hire or retain any attorneys." DoNotPay settled with the FTC for $193,000, with a pledge to send out letters to all customers who used it between 2021 and 2023 to warn them about its limitations, and a promise to stop advertising its services as a substitute for legal help without evidence. The biz told The Register it was glad to have resolved the matter with the FTC, telling us it hadn't admitted any wrongdoing in having done so. "The complaint relates to the usage of a few hundred customers some years ago (out of millions of people), with services that have long been discontinued," a DoNotPay spokesperson told us. While four cases in the FTC announcement were decided without dissent from the regulator's commissioners, the leadership was split on the matter of Rytr, a startup that sells an AI writing tool. The decision to authorize a complaint against the company was made in a 3-2 vote by the board of commissioners. Rytr, which offers its machine-learning software for a variety of use cases, at one point allowed users to generate detailed testimonial reviews with its tools, and that's what the FTC takes issue with. "Rytr's service generated detailed reviews that contained specific, often material details that had no relation to the user's input, and these reviews almost certainly would be false for the users who copied them and published them online," the FTC said. It's no surprise the commission would take action against AI-generated product reviews: The FTC proposed a rule that would ban them last year, and that rule goes into effect next month. For now, the startup was accused by the regulator of "violating the FTC Act by providing subscribers with the means to generate false and deceptive written content for consumer reviews." Former FTC chief technologist Neil Chilson disagreed with the watchdog's decision in the Ryter case, telling The Register he was concerned it would harm innovation in the AI space. "The FTC offers no evidence that Rytr users actually did harm consumers," Chilson argued. "And it blames Rytr for hypothetical bad acts of users." Chilson cited the two dissenting FTC commissioners, who he said agree with his take that the decision sets a precedent for punishing developers of new technology for misuse, even though the developer wasn't the cause of the harm. "The FTC undermines the credibility of its legitimate anti-fraud work by engaging in such unnecessary, wasteful, and illegal overreach," Chilson opined. The agency argued in its complaint [PDF] against Rytr that the biz did have a pretty cut-and-dry "testimonial and review" use-case programmed right into it that allowed a user to choose the tone, add certain keywords, and export the copy - which in the watchdog's view would break the rules banning AI-generated product reviews. In addition, the FTC made note of a number of actual uses of Rytr to that end. "Records show that at least some of its subscribers have utilized the Rytr service to produce hundreds and in some cases thousands of reviews," the commission said. "One subscriber generated hundreds of reviews for, among numerous other services, specific garage door repair companies," the complaint continued, while another user "generated over 83,000 reviews for various specific packing and moving services." Chilson responded to that aspect of the FTC's complaint by saying the federal agency offered no actual evidence of those reviews, and that the approach taken in this case by the Feds is significant. This ... could implicate any business that creates tools that users misuse "The complaint blames Rytr for hypothetical bad acts of Rytr users. This is an attempt to break new legal ground that goes far beyond 'fake reviews' and could implicate any business that creates tools that users misuse," Chilson told us. Rytr wasn't fined under the terms of its settlement with the FTC, nor did it admit to any wrongdoing, but did agree to cease offering similar services. As of writing, the option to generate testimonials and reviews in Rytr is missing. Chilson said the startup had already eliminated the ability for customers to write reviews prior to the settlement, making the terms of the deal something Rytr couldn't help but accept. "The FTC wanted it to be very easy for Rytr to accept this settlement; they didn't want a court to review this fringe theory," Chilson said. We've reached out to the FTC to learn more about its reasoning behind the Rytr lawsuit. Rytr had no comment. ®

FTC cracks down on misleading AI-powered business schemes in new initiative - SiliconANGLE

FTC cracks down on misleading AI-powered business schemes in new initiative The U.S. Federal Trade Commission has announced a crackdown on companies allegedly making deceptive artificial intelligence claims and schemes, including robot lawyer startup DoNotPay Inc. The crackdown, named "Operation AI Comply," has seen the FTC take action against multiple companies that are alleged to have relied on AI as a way to supercharge deceptive or unfair conduct that harms consumers. The cases announced today include actions against a company promoting an AI tool that allows customers to create fake reviews, action against what the FTC calls "a company claiming to sell 'AI Lawyer' services," referring to DoNotPay and multiple companies claiming that they could use AI to help consumers make money through online storefronts. "Using AI tools to trick, mislead, or defraud people is illegal," FTC Chair Lina M. Khan said in a statement. "The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books. By cracking down on unfair or deceptive practices in these markets, FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected." The allegations against DoNotPay - a venture capital-funded startup - include that the product failed to live up to its claims that the service could substitute for the expertise of a human lawyer. The FTC claims in its complaint against the company that it promised a service that would allow consumers to "sue for assault without a lawyer" and "generate perfectly valid legal documents in no time" and that the company would "replace the $200-billion-dollar legal industry with artificial intelligence." The complaint then alleges that DoNotPay could not deliver on these promises, did not conduct testing to determine whether its AI chatbot's output was equal to the level of a human lawyer and that the company did not hire or retain any attorneys. DoNotPay is also alleged to have offered a service to check small business websites for law violations based on a consumer's email address and that if violations found were unaddressed, it could cost a business $125,000 in legal fees. The complaint alleges that the service was not effective. The complaint is not going to court, however, with DoNotPay agreeing to a proposed Commission order to settle the charges against it. The settlement will require the company to pay $193,000 and provide a notice to consumers who subscribed to DoNotPay between 2021 and 2023 warning them of the limitations of the law-related features of the service. The settlement will also prevent the company from making further claims about any ability to substitute lawyers without evidence to back it up. The FTC also took action against e-commerce company Ascend Ecom LLC, alleging that the company falsely promised consumers thousands of dollars in passive income through "cutting-edge" AI-powered tools. Ascend Ecom is alleged to have charged consumers tens of thousands of dollars to start online stores but failed to deliver on its promises. The FTC claims the scheme defrauded consumers of at least $25 million and a federal court has temporarily halted the operation while the case proceeds. In addition, the FTC filed a complaint against another e-commerce company called Ecommerce Empire Builders, which is accused of misleading consumers with promises of creating AI-powered e-commerce businesses. The company allegedly charged consumers up to $35,000 for storefronts, but many reported earning little to no income. The FTC claims EEB has resisted refund requests and a court has also placed this scheme under a receiver while the case is ongoing. Other companies targeted include AI-writing company Rytr LLC for generating false online reviews and another e-commerce company called FBA Machine for promising guaranteed income through AI-powered online storefronts.

US FTC is cracking down on deceptive AI schemes

The agency has announced several law enforcement actions against operations that use AI hype or sell AI tech that can be used in deceptive ways. The US Federal Trade Commission (FTC) is targeting companies that have used AI to boost deceptive or unfair conduct that harms consumers. As part of what it calls Operation AI Comply, the agency has announced five specific cases that expose AI-related deception, one of which is against UK-based DoNotPay, an online legal service which claims to offer a 'robot lawyer' service. Other cases are against companies claiming AI can help consumers make money through online storefronts. "Using AI tools to trick, mislead or defraud people is illegal," said FTC chair Lina M Khan. "The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books. By cracking down on unfair or deceptive practices in these markets, FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected." In the case against DoNotPay, the FTC said the company's service "didn't live up to the hype" and has ordered the company to stop misleading people and pay $193,000. Ascend Ecom is a group of companies that, according to the FTC, used deceptive earnings claims to convince people to invest in 'risk-free' business opportunities supposedly powered by AI but failed to honour money-back guarantees when things went sour. Another two companies, Ecommerce Empire Builders and FBA Machine, also promise that customers can earn money by investing in online stores or business opportunities powered by AI. The FTC also claimed that Ecommerce Empire Builders makes clients sign contracts to prevent them from writing negative reviews. The fifth case involves Rytr, a US-based company that sells and AI writing tool for generating online reviews. The FTC's complaint states that it is used to generate thousands of false reviews. Rytr has agreed to a proposed settlement prohibiting the company - or anyone working with it - from advertising or selling any service promoted for generating reviews. The crackdown comes as AI deception continues to infiltrate much of the online world. A study published in July 2023 showed that these advanced systems can trick people into believing false information better than humans can. As the US election draws near, AI deepfakes have also appeared across social media platforms and can prove to be very effective in spreading misinformation. These capabilities for scamming combined with the AI hype that is currently happening, means companies see the opportunities to use AI to supercharge their offering, even if it's no more than 'AI washing'. The FTC's latest cases are just part of the agency's work to combat AI-related issues in the marketplace from every angle. Last month, it banned the creation or purchase of fake reviews, including false AI-generated reviews. "We're checking to see whether products or services actually use AI as advertised, if so, whether they work as marketers say they will," it said in a statement. "We're examining whether AI and other automated tools are being used for fraud, deception, unfair manipulation, or other harmful purposes." Don't miss out on the knowledge you need to succeed. Sign up for the Daily Brief, Silicon Republic's digest of need-to-know sci-tech news.

Federal Trade Commission Targets Fraudulent Artificial Intelligence (AI) Businesses In New Initiative

DoNotPay agrees to pay $193,000 for falsely marketing itself as a robot lawyer capable of replacing human legal services. The Federal Trade Commission (FTC) is intensifying its efforts to combat deceptive practices linked to artificial intelligence through a new initiative called Operation AI Comply. The initiative targets companies that misuse AI to engage in misleading conduct that harms consumers. FTC Chair Lina M. Khan emphasized that using AI tools for deception is illegal and no exemptions exist for such practices under existing laws. The commission aims to create a fair environment for honest businesses while protecting consumers from fraudulent schemes. Also Read: Nvidia Faces Antitrust Probe Over Market Dominance As DOJ, FTC Crack Down On AI Powerhouses: Report. Among the cases highlighted in the enforcement sweep is the DoNotPay incident. This company marketed itself as offering the world's first robot lawyer, promising to help users generate valid legal documents and file lawsuits without needing a human lawyer. However, the FTC's complaint revealed DoNotPay could not substantiate these claims, lacking the necessary testing and legal expertise. The company has agreed to settle, which includes a payment of $193,000 and a commitment to refrain from making unsupported claims about its services. Another prominent case involves Ascend Ecom, in which the FTC alleged that it defrauded consumers of at least $25 million by falsely claiming its AI-powered tools could help them earn substantial passive income through online storefronts. The scheme's operators, William Basta and Kenneth Leung, charged consumers significant fees to set up online stores, promising substantial returns that rarely materialized. Additionally, the FTC charged Ecommerce Empire Builders (EEB), led by Peter Prusinowski, with falsely advertising training programs and pre-built online stores, claiming participants could achieve million-dollar businesses. However, many consumers reported minimal financial returns, leading to complaints against the company. The FTC also targeted Rytr, which provided an AI writing assistant that generated fake reviews, potentially misleading consumers. A proposed order against Rytr aims to prevent further deceptive practices. The ongoing actions against these companies underscore the FTC's commitment to regulating AI, ensuring exaggerated claims do not mislead consumers. Read Next: AbbVie Says Pivotal Trial For Parkinson's Candidate Meets Its Primary Goal In Patients With Early Disease. Photo: Shutterstock Market News and Data brought to you by Benzinga APIs

FTC targets deceptive AI claims in new crackdown

The Federal Trade Commission (FTC) announced Wednesday it has taken action against five companies it said used or sold artificial intelligence technology in "deceptive and unfair ways." The crackdown by the FTC is part of a new law enforcement sweep called "Operation AI Comply," according to the agency. In this instance, the five companies "relied" on AI to "supercharge deceptive or unfair conduct," the FTC said. "Using AI tools to trick, mislead, or defraud people is illegal," FTC Chair Lina Khan said in a statement. "The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books." False claims related to AI are becoming more common in the marketplace as businesses seize on the hype around the emerging technology, the FTC said. Businesses are increasingly luring consumers into "bogus schemes" by making them believe their lives will be easier with automation and problem-solving, the agency added. Rytr, one of the businesses named in the FTC release, allegedly marketed and sold an AI "writing assistant" with multiple services, including a feature it claimed gave consumers unlimited, detailed reviews based on generic or limited input. These reviews often did not relate to the consumer's input, but included false, deceptive information to lure potential customers into buying the product. The company was also accused of offering a service to "pollute the marketplace" with fake reviews that would hurt both consumers and competitors. A proposed settlement for the FTC complaint would prohibit Rytr from advertising or selling services focused on making consumer reviews or testimonials. "By cracking down on unfair or deceptive practices in these markets, FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected," Kahn said. DoNotPay, another business, boasted "the world's first robot lawyer," using AI. It allegedly claimed the service would allow consumers to sue without a lawyer and "generate perfectly valid legal documents in no time." According to the FTC's complaint, the company did not test its system against human lawyers and failed to meet its promises. The company agreed to settle with the FTC and pay $193,000. The settlement prohibited the company from making claims about its ability to replace a human professional without evidence, the agency said. "DoNotPay is pleased to have worked constructively with the FTC to settle this case and fully resolve these issues, without admitting liability," a company spokesperson told The Hill. "The complaint relates to the usage of a few hundred customers some years ago (out of millions of people), with services that have long been discontinued." Three of the cases involved businesses claiming AI could help consumers make passive income through online storefronts. They are currently suspended while proceedings play out in federal court, according to the FTC. These businesses included Ascend Ecom, which defrauded consumers of at least $25 million in a scheme charging each customer tens of thousands of dollars to start and supply an e-commerce store, the FTC said. Ecommerce Empire Builders, another business, frauded customers into participating in training programs costing up to $2,000 to help consumers create "AI-powered" e-commerce stores with the claim consumers could make millions in profits. The business also allegedly offered a more hands-off option for tens of thousands of dollars, though the promised profits failed to materialize, the FTC said. The fifth business, FBA Machine, which formerly ran under the name Passive Scaling before consumers sought refunds and lawsuits, alledgedly defrauded customers more than $15.9 million. The business allegedly claimed it used "AI-powered" tools to help "price store products and maximize profits," the FTC said. Consumers were told they could run a 7-figure business" through their online storefronts and were falsely guaranteed refunds if they did not make back their initial investments. The Hill reached out to the businesses for comment.

FTC crackdown on DoNotPay and others is warning for all AI-powered companies

Join our daily and weekly newsletters for the latest updates and exclusive content on industry-leading AI coverage. Learn More The Federal Trade Commission (FTC) is sending a clear message to companies riding the wave of artificial intelligence: deceptive practices will not be tolerated, and companies found to be perpetrating them will face various legal and regulatory actions. As part of its new enforcement initiative, "Operation AI Comply," the agency in charge of protecting U.S. consumers from unfair business practices today announced it is taking action against five companies accused of using AI in ways that mislead or harm. The cases highlight the agency's commitment to ensuring that AI-marketed products and services provide real value and don't exploit consumers by promising result they can't deliver. DoNotPay forced to back down from claims of offering AI-powered lawyers Among the companies targeted is DoNotPay, known for its prior bold claims of being the "world's first robot lawyer," and which said it would use OpenAI's GPT-3 and GPT-4 models to power an AI assistant that could negotiate down consumers' bills as well as even file "one-click lawsuits" against robocall spammers. The FTC's complaint alleges that the company misled consumers by promising legal services that could replace traditional lawyers. Despite marketing itself as an AI-powered alternative to the $200-billion-dollar legal industry, DoNotPay's offerings fell short. The FTC found that the company failed to test whether its AI chatbot's legal advice matched the expertise of a human lawyer and did not employ any actual lawyers. As a result, DoNotPay has agreed to a settlement requiring it to pay $193,000 and notify affected customers about the limitations of its services. Last year, DoNotPay CEO Joshua Browder posted on X that the company had received "threats from State Bar prosecutors" and was at risk of being put in jail if he followed through with a plan to bring an AI-powered lawyer via smart glasses into court: Already, today, visiting the DoNotPay website and X social account show that the company has shifted its messaging away from offering itself as the first robot or AI-powered lawyer to "Your A.I. consumer champion." Ascend Ecom cited for misleading consumers to set up unprofitable e-commerce storefronts Another case involves Ascend Ecom, an online business opportunity scheme that promised consumers significant passive income through AI-enhanced e-commerce stores. The FTC alleges that the company, which operated under various names including Ascend Ecom and ACV Nexus, charged consumers tens of thousands of dollars for storefront setups on platforms like Amazon and Walmart, often with additional costs for inventory. Despite claiming to use AI to maximize profits, most consumers saw little to no return on their investments. A federal court has temporarily halted the operation and placed it under the control of a receiver while the case proceeds. Redditors caught onto the scam and warned one another of it several months ago: The Ascend Ecom website has since been taken offline. Ecommerce Empire Builders (EEB) cited in another misleading AI-powered e-commerce scheme Ecommerce Empire Builders (EEB) was similarly charged with promoting "AI-powered" e-commerce solutions, enticing consumers with promises of million-dollar businesses through expensive training programs and "done-for-you" online stores. The FTC claims that EEB's CEO, Peter Prusinowski, used consumers' money to enrich himself while failing to deliver on the company's promises. Many customers ended up with little or no income from the stores they purchased, and faced resistance when attempting to get refunds. The ongoing case is also under court supervision. The EEB website has since been taken down and only a redirect page remains. AI writing assistant Rytr slammed for inaccurate reviews The crackdown also reached Rytr, a company that marketed an AI writing assistant that could, among other uses, generate consumer testimonials and reviews -- starting at $7.50/month According to the FTC, Rytr's service produced detailed customer reviews for products based on limited user input, which were likely to be false or misleading, or even entirely phony. The proposed order from the FTC would prevent Rytr from promoting or selling any service related to generating consumer reviews. The Rytr website has since been taken offline. FBA Machine hit for defrauding consumers more than $15.9 million for online storefronts In a separate action, the FTC targeted FBA Machine, which allegedly lured consumers with claims of guaranteed income through online storefronts powered by AI. The scheme, operated by Bratislav Rozenfeld, promised substantial returns and risk-free investments but left many customers in financial distress. The FTC alleges that the scheme defrauded consumers of over $15.9 million. This case, like others, is currently being adjudicated in federal court. FBA Machine's website remains online and the company is still offering services at this time. Operation AI Comply underscores the FTC's broader effort to regulate AI-marketed products, ensuring that companies do not exploit the excitement surrounding artificial intelligence to peddle ineffective or deceptive services. FTC Chair Lina M. Khan emphasized that there is no "AI exemption" from existing consumer protection laws. "Using AI tools to trick, mislead, or defraud people is illegal. The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books," she stated. The FTC is inviting public comments on the proposed settlements with DoNotPay and Rytr, which are available on Regulations.gov. These actions are a significant warning to AI-powered companies: if a product or service is marketed as AI-driven, it must deliver clear and measurable benefits rather than vague promises or ambiguous outputs. The agency's message is unmistakable: AI hype cannot replace genuine value and accountability in the marketplace.

FTC announces crackdown on 'deceptive AI' businesses

The Federal Trade Commission building in Washington, D.C., on March 29.Francis Chung / POLITICO via AP file The Federal Trade Commission is taking action against companies it says have used artificial intelligence to deceive the public. The agency on Wednesday described five actions it had taken against companies it said were involved in various types of "deceptive or unfair conduct that harms consumers." The alleged schemes included promoting an AI tool that enabled customers to create fake reviews, advertising an AI lawyer that couldn't live up to real-world attorneys and failing to deliver on promises made about AI-assisted e-commerce businesses. The agency said it was going after the companies under its new law enforcement sweep: Operation AI Comply. "Using AI tools to trick, mislead, or defraud people is illegal," FTC Chair Lina M. Khan said in a statement. "The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books." One of the companies singled out by the FTC, DoNotPay, claimed to offer an AI service billed as the "world's first robot lawyer." The company said its service allowed customers to "sue for assault without a lawyer" and quickly generate legal documents with AI. The company's website says it uses artificial intelligence "to help consumers fight against large corporations and solve their problems, like beating parking tickets, appealing bank fees, and stopping robocallers." "DoNotPay's goal is to level the playing field and make legal information and self-help accessible to everyone," the site says. Its subscription service costs $36 every two months, with older subscribers being "grandfathered in to cheaper plans," the website says. The FTC said DoNotPay's service failed to live up to its claims and wrote in a complaint against the company that it "did not conduct testing to determine whether its AI chatbot's output was equal to the level of a human lawyer, and that the company itself did not hire or retain any attorneys." A spokeswoman for the company said in a statement Wednesday that DoNotPay "worked constructively with the FTC to settle this case and fully resolve these issues, without admitting liability." "The complaint relates to the usage of a few hundred customers some years ago (out of millions of people), with services that have long been discontinued," the spokeswoman said. The FTC also filed a complaint against an online company that provides AI writing assistance tools. Rytr violated the FTC Act when it provided subscribers with the means to generate deceptive and false written content for consumer reviews, the agency said. The company -- which offers three different subscription plans that go up to $24.16 per month -- could not immediately be reached for comment. The FTC filed a proposed order to the company that would prevent it from marketing or selling any service that generates or promotes consumer reviews or testimonials. The federal agency also went after several schemes that allegedly claimed to use AI to help consumers make money. According to the FTC, Ascend Ecom allegedly promised that its AI-powered tools would help consumers quickly earn thousands of dollars a month in passive income by opening online storefronts. The FTC alleges that the scheme defrauded consumers of at least $25 million. The website and Facebook page for Ascend Ecom appears to have been removed. "The complaint notes that, while Ascend promises consumers it will create stores producing five-figure monthly income by the second year, for nearly all consumers, the promised gains never materialize," the FTC said. "Consumers are left with depleted bank accounts and hefty credit card bills." Ascend allegedly pressured consumers to delete or change negative reviews and "unlawfully threatened" to withhold a supposed guaranteed buyback for those who failed to comply, the news release states. Another alleged scheme, Ecommerce Empire Builders, gave consumers the false hope that they could build an AI-powered e-commerce empire by participating in its training program costing around $2,000 or purchasing a "done for you" online storefront that cost tens of thousands of dollars, according to the FTC. The federal agency said the company's CEO allegedly used the money from consumers "to enrich himself while failing to deliver on the scheme's promises of big incomes by selling goods online." Ecommerce Empire Builders could not immediately be reached for comment. Khan, the FTC Chair, said that by going after companies that use unfair or deceptive AI tools, the FTC "is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected."

FTC Targets AI Companies for Exaggerating Their Tech in Latest Consumer Protection Sweep - Decrypt

The U.S. Federal Trade Commission is putting companies on notice -- if businesses try to fool customers by overstating what their AI can do, they'll face serious consequences. Also known as AI washing, the FTC announced Tuesday it had filed complaints against five companies that it said used the hype around AI to target consumers with deceptive offers. "Using AI tools to trick, mislead, or defraud people is illegal," said FTC Chair Lina Khan. "The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books." AI washing refers to a marketing scheme where companies exaggerate or make false claims about their products or services and the use of artificial intelligence. They attempt to make a product seem more advanced or innovative than it actually is. The companies named by the FTC include DoNotPay, which offers an AI-powered robot lawyer service; Ascend Ecom, touting AI-powered tools to help consumers quickly earn passive income. There was also Ecommerce Empire Builders, which claimed to help consumers build an "AI-powered Ecommerce Empire" for a fee starting at $2,000. Also named in the FTC's document was Rytr, a free generative AI writing platform, a tool to generate fake customer reviews that were used to "pollute the marketplace," the agency alleged. Another company, FBA Machine, formerly known as Passive Scaling, promised consumers they could operate a "seven-figure" business, citing testimonials that said clients generated over $100,000 a month in revenue." The FTC claimed that the scheme cost consumers over $15.9 million based on deceptive earning claims. A federal judge issued a temporary cease-and-desist order against Ascend Ecom, Ecommerce Empire Builders, and FBA Machine, putting the companies under the control of a court-ordered receiver. Further actions against DoNotPay and Rytr are pending, the FTC said. "DoNotPay is pleased to have worked constructively with the FTC to settle this case and fully resolve these issues, without admitting liability," a DoNotPay spokesperson told Decrypt. "The complaint relates to the usage of a few hundred customers some years ago, out of millions of people, with services that have long been discontinued." Decrypt has reached out to the other four companies involved but is yet to receive a response. The DoNotPay spokesperson noted that the company retained Maneesha Mithal, former Associate Director at the FTC, as outside counsel, who they said was "incredibly helpful in handling this matter." Since the launch of ChatGPT in 2022 and the proliferation of AI tools online, regulators have stepped up efforts to curb the technology's use in scams and other forms of cybercrime. In March, the U.S. Securities and Exchange Commission charged the U.S. branch of the Toronto-based Delphia and San Francisco-based Global Predictions with breaking regulations related to marketing over making what the agency said were false and misleading claims about their AI capabilities and regulatory status, respectively. Both companies were fined a total of $400,000 in penalties and issued a cease-and-desist order. "Global Predictions cooperated fully with the inquiry and is pleased to put this behind us," Global Predictions co-founder and CEO Alexander Harmsen told Decrypt at the time. "Additionally, we have clarified across our marketing how exactly we use AI," he said.

FTC Cracks Down on Five Companies for Misuse of Artificial Intelligence | PYMNTS.com

The U.S. Federal Trade Commission (FTC) has taken action against five companies for allegedly using artificial intelligence (AI) in deceptive and unfair ways, according to Reuters. The cases reflect growing regulatory concerns about AI's potential to mislead consumers and violate existing laws. Three of the cases involve businesses that claimed to help consumers generate passive income through e-commerce storefronts. The FTC suspended the operations of these companies, which it said misled users about the potential earnings from AI-driven e-commerce solutions. Additionally, two settlements were reached with companies involved in AI-based services, including the popular legal service automation platform DoNotPay and the AI writing tool Rytr. Per Reuters, DoNotPay faced scrutiny for falsely claiming to provide automated legal services. The company agreed to pay $193,000 and notify customers who subscribed between 2021 and 2023 about the limitations of its AI-powered legal tool. However, DoNotPay did not admit to any wrongdoing in the settlement. According to the FTC, the company misrepresented its service's capabilities, raising concerns about the risks of consumers relying on AI-generated legal advice without full disclosure. Related: FTC's Latest Report Lays Groundwork for Stricter Data Regulations Rytr, an AI writing tool, also came under fire for offering a feature that allowed users to generate fake product reviews. The FTC alleged that some subscribers used Rytr's tool to produce thousands of misleading reviews with minimal effort. Rytr agreed to stop providing this service but, like DoNotPay, did not admit to any legal violations in the settlement. "Using AI tools to trick, mislead, or defraud people is illegal," FTC Chair Lina M. Khan said in a statement. "The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books." The two cases involving DoNotPay and Rytr exposed internal disagreements within the FTC about how to regulate AI technology. While all five commissioners supported taking action against false claims regarding AI services, the two Republican commissioners expressed concerns about the Rytr case, Reuters reported. They criticized the decision to target the company, suggesting that it may have broader implications for the future regulation of AI-driven content creation tools. The FTC's actions highlight the growing regulatory focus on the ethical use of AI in consumer-facing industries. As AI technology becomes more pervasive, the agency appears committed to ensuring that companies adhere to existing laws, regardless of the technology's complexity or novelty.

FTC Enforcement Sweep Targets Deceptive 'AI Hype' | PYMNTS.com

The Federal Trade Commission (FTC) announced five law enforcement actions that it said are part of a crackdown on deceptive artificial intelligence (AI) claims and schemes. The law enforcement sweep, dubbed "Operation AI Comply," targets companies that use "AI hype" or sell AI technology that can be used in deceptive and unfair ways, the regulator said in a Wednesday (Sept. 25) press release. "Using AI tools to trick, mislead or defraud people is illegal," FTC Chair Lina M. Khan said in the release. "The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books." One action targeted DoNotPay, a company that the FTC alleged said it offered "the world's first robot lawyer" but did not test its capabilities or hire or retain any attorneys. DoNotPay agreed to a proposed settlement that would require it to pay $193,000, warn consumers who subscribed to the service about its limitations, and not make unsubstantiated claims about its ability to substitute for any professional service, according to the release. Reached by PYMNTS, a DoNotPay spokeswoman provided an emailed statement saying: "DoNotPay is pleased to have worked constructively with the FTC to settle this case and fully resolve these issues, without admitting liability. The complaint relates to the usage of a few hundred customers some years ago (out of millions of people), with services that have long been discontinued." The FTC also filed a lawsuit against an online business opportunity scheme that has operated under many names, including Accelerated eCom Ventures, alleging that it falsely claimed its AI-powered tools would help consumers earn thousands of dollars a month by opening online storefronts. A federal court has put this scheme under the control of a receiver, and the FTC's case against the scheme is ongoing. Accelerated eCom Ventures did not immediately reply to PYMNTS' request for comment. A third action targeted Ecommerce Empire Builders, which the FTC alleges falsely claimed to help consumers build an AI-powered eCommerce business but failed to deliver the sort of income it promised in ads. A federal court has put this scheme under the control of a receiver, and the FTC's case against the scheme is ongoing. Ecommerce Empire Builders could not be reached for comment, as its website was offline. The regulator also targeted Rytr, a firm that it alleges has marketed and sold an AI "writing assistant" that could write testimonials and reviews, among other things, but generated false and deceptive content for consumer reviews. A proposed order settling this complaint would bar the company from selling services dedicated to generating reviews. Rytr did not immediately reply to PYMNTS' request for comment. The fifth law enforcement action announced Wednesday by the FTC focused on a business opportunity scheme called The FBA Machine that the regulator alleges falsely promised consumers the ability to make guaranteed income through AI-powered online storefronts. A federal court has put this scheme under the control of a receiver, and the FTC's case against the scheme is ongoing. The FBA Machine could not be reached for comment, as an email sent to the address on its website was returned as undeliverable. Some experts say AI hype has reached a fever pitch, obscuring the reality of the technology's current capabilities, PYMNTS reported in April. One of the main issues with this hype is that it creates unrealistic expectations among the public and investors.

FTC cracks down on DoNot Pay, others for 'deceptive AI claims and schemes'

FTC Chairwoman Lina Khan testifies during the House Appropriations Subcommittee on Financial Services and General Government hearing titled "Fiscal Year 2025 Request for the Federal Trade Commission," in Rayburn Building on Wednesday, May 15, 2024. The Federal Trade Commission on Wednesday announced a crackdown on what the regulator called "deceptive AI claims and schemes" by three business opportunity ventures and two companies, including the legal services firm DoNotPay. The FTC said the five enforcement cases it has lodged show how the companies and ventures "have seized on the hype surrounding" artificial intelligence "and are using it to lure consumers into bogus schemes." "Using AI tools to trick, mislead, or defraud people is illegal," FTC Chair Lina Khan said in a statement. "The FTC's enforcement actions make clear that there is no AI exemption from the laws on the book," Khan said. "By cracking down on unfair or deceptive practices in these markets, FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected." In a complaint, the FTC said that DoNotPay, which touted its AI service as "the world's first robot lawyer," failed to live up to that claim. While DoNotPay said its service would allow customers to sue someone for assault without an attorney, and generate valid legal documents in "no time," the company did not test whether its AI chatbot's "output was equal to the level of a human lawyer," the FTC said in a statement. The FTC also said that DoNotPay's service that purportedly checked a small business website for federal and state violations, using only a customer's email address, was not effective in detecting those potentially costly violations. DoNotPay, which did not admit wrongdoing, agreed to settle the FTC's charges by paying $193,000 and giving consumers who subscribed to its service from 2021 through 2023 about the limitations of the service's law-related features. "The proposed order also will prohibit the company from making claims about its ability to substitute for any professional service without evidence to back it up," the FTC said. In one of the four other cases announced Wednesday, the FTC is suing a business opportunity scheme that has operated under names including Ascend Ecom, Ascend CapVentures, and ACV Nexus, which has been operated by two men named William Basta and Kenneth Leung. The FTC, in a lawsuit filed in Los Angeles federal court, alleges that the Ascend scheme has "defrauded consumers of at least $25 million" by making "deceptive earnings claims to persuade consumers to shell out tens of thousands of dollars each to invest in what Defendants claim is a surefire business opportunity in e-commerce, or online stores." "Since about 2023, Defendants' deceptive sales pitch has said their business model is powered by artificial intelligence ("AI")," the suit says. "Defendants claim consumers will quickly earn thousands of dollars in passive income, which will be generated from sales in online stores on e- commerce platforms such as Amazon.com and Walmart.com." After consumers invest in the scheme "the promised gains never materialize, and consumers are left with depleted bank accounts and hefty credit card bills," the suit says. The FTC said that as a result of the lawsuit, a judge has issued an order temporarily halting the scheme and put it under the control of a receiver.

FTC announces crackdown on deceptive AI claims and schemes

WASHINGTON, Sept 25 (Reuters) - The Federal Trade Commission said on Wednesday it was taking action against five companies that it said used artificial intelligence in deceptive and unfair ways. "Using AI tools to trick, mislead, or defraud people is illegal," said FTC Chair Lina M. Khan said in a statement. "The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books." Reporting by Doina Chiacu; Editing by David Ljunggren Our Standards: The Thomson Reuters Trust Principles., opens new tab