FTC Chair Lina Khan testifies during a House Appropriations Committee Financial Services and General Government Subcommittee hearing, “Requests for the Federal Trade Commission, Fiscal Year 2025,” on Wednesday, May 15, 2024, in the Rayburn Building.
Tom Williams | Cq-roll Call, Inc. | Getty Images
of Federal Trade Commission on wednesday, Regulatory authorities Three business opportunity ventures and two corporations (including a legal services firm) are making what they call “misleading AI claims and schemes.” Not paying.
The FTC said the five enforcement cases it filed show that companies and ventures are “capitalizing on hype around ‘artificial intelligence’ and using it to lure consumers into bogus schemes.”
“It is illegal to use AI tools to deceive, mislead, or defraud people,” FTC Chairman Lina Khan said in a statement.
“The FTC’s enforcement actions make clear that AI is not exempt from current law,” Khan said. “By cracking down on unfair or deceptive practices in these markets, the FTC is ensuring that honest companies and innovators have a level playing field and consumers are protected.”
in ComplaintsThe FTC said DoNotPay, which touted its AI service as the “world’s first robot lawyer,” failed to live up to that claim.
DoNotPay said its service allows customers to sue someone for assault without a lawyer and can create valid legal documents “instantly,” but the company hasn’t tested whether its AI chatbot’s “output is comparable to the level of a human lawyer,” the FTC said in a statement.
The FTC also said DoNotPay’s service, which purportedly uses only customers’ email addresses to check small business websites for federal and state violations, was not effective in detecting potentially costly violations.
DoNotPay, which did not admit to any wrongdoing, agreed to settle the FTC’s charges by paying $193,000 and sending notices to consumers who subscribed to its service between 2021 and 2023 warning them about limitations on the service’s legal features.
“The proposed order would also prohibit the company from making claims that it can substitute for professional services without supporting evidence,” the FTC said.
In one of four other lawsuits announced Wednesday, the FTC is alleging a business opportunity scheme that has operated under names including Ascend Ecom, Ascend CapVentures and ACV Nexus. The scheme has been run by two men, William Basta and Kenneth Leon.
The FTC filed its lawsuit in Los Angeles federal court alleging that Ascend’s scheme “convinced consumers with false revenue claims to spend tens of thousands of dollars each to invest in what defendants purported to be a legitimate e-commerce, or online store, business opportunity, thereby defrauding consumers out of at least $25 million.”
“Beginning in or about 2023, Defendants have deceptively marketed their business model as powered by artificial intelligence (AI),” the complaint states. “Defendants claim that consumers can instantly earn thousands of dollars in passive income from sales at their online stores on e-commerce platforms, such as Amazon.com and Walmart.com.”
After consumers invested in the schemes, “the promised benefits never materialized, and consumers were left with dwindling bank account balances and high credit card bills,” according to the lawsuit.
The FTC said that as a result of the lawsuit, a judge issued an order temporarily suspending the scheme and placing it into receivership.
In the second lawsuit, filed privately in New Jersey federal court in June, the FTC targeted a sales scheme operating under the names Passive Scaling and FBA Machine that allegedly caused customers more than $16 million in damages by deceptively claiming guaranteed income through online storefronts that purportedly used AI-powered software.
In a third lawsuit filed in federal court in Pennsylvania, the FTC accuses Ecommerce Empire Builders of “falsely claiming to help consumers build an ‘AI-powered ecommerce empire’ by participating in training programs costing nearly $2,000 or purchasing an online storefront that ‘does it for you’ for tens of thousands of dollars.”
As with Ascend, a judge placed the plan into receivership, according to the FTC.
According to the FTC, “The scheme claimed that consumers could make millions of dollars, but the FTC’s complaint alleges that those benefits were never realized.”
As with the other two cases, a judge placed the scheme into receivership, according to the FTC.
In a regulatory complaint, the FTC targeted Rytr, a company that sells an AI writing assistant that generates testimonials, customer reviews, and more.
The FTC said the service “produced detailed reviews that contained specific and often critical content.”
These reviews contain details unrelated to user input, and to the users who copied them and published them online, these reviews are almost certainly false.”
“In many cases, subscribers’ AI-generated reviews contained information that was deceptive to potential consumers who relied on the reviews to make purchasing decisions,” the bureau said.
Rytr agreed to settle the lawsuit through a consent order that will prohibit the company from offering or selling any services that generate consumer reviews or testimonials.
