Are You Falling for AI Scams? Insights from the FTC’s Latest Cases
The recent Federal Trade Commission (FTC) crackdown on AI-related deceptive practices extends beyond the high-profile case of DoNotPay’s “robot lawyer” to include several companies making dubious claims about AI-powered online business opportunities. This broader sweep, dubbed “Operation AI Comply,” highlights the regulator’s growing concern over the misuse of AI hype in various sectors.
AI-Powered E-commerce Schemes
The FTC’s actions targeted multiple companies that allegedly exploited AI buzz to promote get-rich-quick schemes in the e-commerce space:
Ascend Ecom
This company marketed AI tools claiming to help consumers generate “thousands of dollars a month in passive income through online storefronts”[2]. However, the FTC found that these promised profits failed to materialize for most users. As a result:
- The FTC’s case against Ascend Ecom is ongoing
- A federal court has issued an order to temporarily suspend the operation
- The company has been placed under a receiver’s control
Ecommerce Empire Builders (EEB)
Similar to Ascend Ecom, EEB focused on selling AI tools purportedly designed to assist users in creating lucrative online storefronts. The FTC’s investigation revealed:
- EEB claimed in social media ads that clients could earn substantial monthly incomes
- The FTC complaint alleges that the company lacked evidence to support these assertions
- Many customers reported that stores purchased from EEB generated little to no income
- The company was reluctant to issue refunds, often denying them or providing only partial returns
A court order has been obtained against EEB, mirroring the action taken against Ascend Ecom[2].
Automation Empire FBA
This company allegedly defrauded consumers of approximately $15.9 million by promising income through AI-generated storefronts[2]. The FTC has also temporarily halted this operation through a court order.
AI Writing Tools and Deceptive Practices
The FTC’s crackdown also extended to companies providing AI writing tools that could potentially be used for deceptive purposes:
Rytr
This company promoted its AI writing assistant as a means to produce product reviews. The FTC’s investigation led to a settlement with Rytr, resulting in:
- A prohibition on advertising, promoting, or selling any service intended to generate consumer reviews or testimonials
- This case marks an aggressive expansion of FTC enforcement, as it targets a tool that could potentially be misused rather than direct false advertising[3]
Implications for AI Companies and Marketers
The FTC’s actions send a clear message to companies leveraging AI in their products or marketing:
- Claims about AI capabilities must be substantiated and realistic
- AI tools that could potentially be used for deceptive practices may face scrutiny, even if that’s not their intended purpose
- The FTC is actively monitoring the AI space for consumer protection issues
In light of these developments, the commission advises the public to approach unverified AI marketing claims with skepticism. As stated by the FTC, “AI tools can serve as a useful starting point, but be wary of assertions that they can entirely replace a professional”[2].
This crackdown underscores the need for companies to be transparent and accurate in their AI-related claims, especially when promising financial gains or revolutionary capabilities. As the AI landscape continues to evolve, we can expect further regulatory attention to ensure consumer protection in this rapidly advancing field.
Citations:
[1] https://www.nbcnews.com/tech/internet/ftc-announces-crackdown-deceptive-ai-businesses-rcna172699
[2] https://www.pcmag.com/news/shocker-a-robot-lawyer-chatbot-isnt-as-good-as-the-real-thing
[3] https://www.arnoldporter.com/en/perspectives/blogs/consumer-products-and-retail-navigator/2024/09/ftc-unveils-expanded-crackdown-on-ai-abuses
[4] https://www.cnbc.com/2024/09/25/ftc-crackdown-ai-claims-donotpay-companies.html
[5] https://www.ftc.gov/news-events/news/press-releases/2024/09/ftc-announces-crackdown-deceptive-ai-claims-schemes
[6] https://www.ftc.gov/business-guidance/blog/2024/09/operation-ai-comply-continuing-crackdown-overpromises-ai-related-lies
[7] https://www.cbsnews.com/news/robot-lawyer-wont-argue-court-jail-threats-do-not-pay/
[8] https://www.politico.com/newsletters/digital-future-daily/2023/01/09/my-lawyer-the-robot-00077085
