FTC launches operation AI Comply to combat deceptive AI claims and schemes

On September 25, 2024, the Federal Trade Commission (FTC) announced a major enforcement initiative called Operation AI Comply, targeting companies that use artificial intelligence (AI) to engage in deceptive or unfair practices harmful to consumers. The operation includes five law enforcement actions against firms allegedly exploiting AI hype or selling AI technology that enables deception.

FTC Chair Lina M. Khan emphasized the agency's stance, stating, "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."

Key Enforcement Actions

DoNotPay: The "Robot Lawyer" That Wasn't

The FTC took action against DoNotPay, a company that claimed to offer an AI service dubbed "the world's first robot lawyer." According to the FTC's complaint, DoNotPay promised consumers the ability to "sue for assault without a lawyer" and "generate perfectly valid legal documents in no time." The company even claimed it would "replace the $200-billion-dollar legal industry with artificial intelligence."

However, the FTC alleges that DoNotPay failed to deliver on these promises. The complaint states that the company did not conduct testing to determine if its AI chatbot's output was equivalent to that of a human lawyer. Moreover, DoNotPay reportedly did not hire or retain any attorneys.

As part of a proposed settlement, DoNotPay has agreed to pay $193,000 and provide a notice to subscribers from 2021 to 2023 warning them about the limitations of the service's law-related features. The proposed order also prohibits the company from making claims about its ability to substitute for professional services without substantiating evidence.

Ascend Ecom: AI-Powered Online Storefronts Promise Unfulfilled

The FTC filed a lawsuit against an online business opportunity scheme operating under various names, including Ascend Ecom and ACV Partners. The scheme, run by William Basta and Kenneth Leung, allegedly defrauded consumers of at least $25 million by falsely claiming its "cutting edge" AI-powered tools would help consumers quickly earn thousands of dollars monthly through online storefronts.

According to the complaint, the operators charged consumers tens of thousands of dollars to start online stores on platforms like Amazon and Walmart, while requiring additional investments in inventory. Ascend's advertising claimed the company used proprietary software and AI to maximize clients' business success.

The FTC alleges that the promised gains never materialized for most consumers, leaving them with depleted bank accounts and substantial credit card debt. A federal court has issued an order temporarily halting the scheme and placing it under receivership.

Ecommerce Empire Builders: AI-Powered Empires That Never Materialized

The FTC charged Ecommerce Empire Builders (EEB) with falsely claiming to help consumers build an "AI-powered Ecommerce Empire" through training programs costing up to $2,000 or by selling "done for you" online storefronts for tens of thousands of dollars. The scheme, led by CEO Peter Prusinowski, allegedly promised potential millions in profits that failed to materialize.

The complaint states that EEB encouraged consumers to "Skip the guesswork and start a million-dollar business today" by harnessing the "power of artificial intelligence." However, the FTC alleges that the company lacked evidence to support its claims of $10,000 monthly earnings for clients. Numerous consumers reportedly complained that stores purchased from EEB generated little to no revenue.

A federal court has temporarily halted the scheme and placed it under receivership pending further legal proceedings.

Rytr: AI-Generated Fake Reviews

Since April 2021, Rytr has marketed an AI "writing assistant" service that included a feature for generating "Testimonial & Review" content. The FTC's complaint alleges that Rytr's service produced detailed reviews containing specific, often material details unrelated to the user's input, potentially deceiving consumers relying on these reviews for purchasing decisions.

The complaint charges Rytr with violating the FTC Act by providing subscribers with the means to generate false and deceptive written content for consumer reviews. The proposed settlement order would bar the company from advertising, promoting, marketing, or selling any service dedicated to or promoted as generating consumer reviews or testimonials.

FBA Machine: AI-Powered Software and False Income Guarantees

In June, the FTC took action against a business opportunity scheme operating under the names Passive Scaling and FBA Machine. The scheme, allegedly run by Bratislav Rozenfeld, promised consumers guaranteed income through online storefronts utilizing AI-powered software. The FTC claims the scheme cost consumers more than $15.9 million based on deceptive earnings claims.

The complaint states that when Passive Scaling failed to deliver on its promises, Rozenfeld rebranded the scheme as FBA Machine in 2023, claiming to use "AI-powered" tools for product pricing and profit maximization. The scheme's marketing materials promised a "7-figure business" and cited testimonials from supposed clients generating over $100,000 monthly in profit.

A federal court has issued an order temporarily halting the scheme and placing it under receivership pending further legal proceedings.

Broader Context and Implications

The Operation AI Comply cases build upon recent FTC actions involving AI-related claims, including:

• Automators: Another online storefront scheme
• Career Step: Allegedly used AI technology to deceive consumers into enrolling in bogus career training
• NGL Labs: Claimed to use AI for moderation in an anonymous messaging app unlawfully marketed to children
• Rite Aid: Allegedly used AI facial recognition technology in stores without reasonable safeguards
• CRI Genetics: Accused of deceiving users about the accuracy of its DNA reports, including claims of using an AI algorithm for genetic matching

Key Facts

• Operation AI Comply announced on September 25, 2024
• Five law enforcement actions included in the initial sweep
• DoNotPay agreed to pay $193,000 in proposed settlement
• Ascend Ecom allegedly defrauded consumers of at least $25 million
• FBA Machine/Passive Scaling scheme reportedly cost consumers over $15.9 million

Subscribe to our free weekly LinkedIn newsletter for a weekend roundup, or upgrade to our real-time updates for just $10/year. Get the latest marketing news and insights delivered straight to your inbox.