The Federal Trade Commission recently announced five enforcement actions under the Operation AI Comply program against companies that have relied on artificial intelligence to falsely position themselves as innovative, which misleads customers.

Deceptive AI claims and schemes take advantage of the cultural hype around merging technology to peddle products that can be used unfairly. Another term for this practice, seen in the SEC context, is AI washing, where firms overhype the ability of AI in their products to make their products seem cutting-edge as a means to attract new clients and grow their portfolios. The promises made by such companies may entice investors and consumers alike.

“Using AI tools to trick, mislead, or defraud people is illegal,” said FTC Chair Lina M. Khan in the commission’s press release. “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.”

Companies such as the ones mentioned below take advantage of the hype surrounding AI, luring consumers into bogus schemes, and providing AI powered tools that can provide sound legal advice, generate passive income, or create authentic customer reviews.

DoNotPay

DoNotPay, a U.K.-based company, is facing an FTC complaint for allegedly misleading consumers about its AI-powered legal services. The company claimed its online subscription platform acted as a “world’s first robot lawyer” and an “AI lawyer,” capable of generating “ironclad” legal documents for U.S. legal matters.

Additionally, DoNotPay promised small businesses it could scan websites for legal violations and prevent costly legal issues. The FTC alleged that DoNotPay’s claims were unsubstantiated. The company lacked evidence to support its claims of attorney-quality output and failed to adequately test its chatbot’s effectiveness. To settle the FTC complaint, DoNotPay agreed to pay a $193,000 fine and notify its subscribers about the limitations of its legal services.

The company is also prohibited from making future claims about its ability to replace professional services without providing supporting evidence.

Ascend Ecom

Ascend Ecom, an online business scheme, allegedly defrauded consumers out of at least $25 million by falsely promising AI-powered tools that would generate substantial passive income from online storefronts. The reality for most consumers was far different: depleted bank accounts and hefty credit card bills with little to no profit.

Since 2021, the scheme has operated under eight different names, enticing consumers to invest tens of thousands of dollars in online stores on platforms like Amazon, Walmart, Etsy, and TikTok. Ascend’s deceptive marketing claimed its proprietary software and AI would guarantee business success.

The FTC received numerous complaints from victims who were pressured to modify or delete negative reviews. Ascend also frequently failed to honor its promised “guaranteed buyback,” using threats to withhold it as leverage against those who shared negative experiences online.

In response, a federal court issued a temporary restraining order halting the scheme and appointing a receiver to oversee its operations.

Ecommerce Empire Builders

Ecommerce Empire Builders defrauded consumers by falsely promising AI-powered tools that would generate substantial passive income from online storefronts. Despite charging thousands of dollars for training programs and pre-built stores, the company failed to deliver on its promises.

EEB’s marketing materials claimed consumers could “Skip the guesswork and start a million-dollar business today” using AI-powered strategies. The FTC alleges EEB has no evidence to support these claims, and numerous consumers reported minimal to no profits. The company’s CEO, Peter Prusinowski, allegedly misused consumer funds, up to $35,000 per store, for personal enrichment instead of investing in the promised business growth.

In response, the FTC filed a complaint, leading to a federal court order halting EEB’s operations and appointing a receiver.

Rytr

Rytr, an AI writing assistant service, faced an FTC complaint for misleading consumers about its capabilities. The company claimed its service could generate detailed, authentic consumer reviews, but often produced irrelevant and potentially deceptive content. Subscribers who copied and published these AI-generated reviews risked deceiving potential consumers.

The FTC alleges Rytr’s service contributed to a flood of fake reviews online, harming both consumers and honest businesses. Rytr violated the FTC Act by providing tools for creating deceptive content and engaged in unfair business practices by promoting a service that polluted the marketplace.

To settle the complaint, Rytr agreed to a proposed order that prohibits the company from advertising or selling any service designed to generate consumer reviews or testimonials. This action aims to prevent future instances of misleading consumers with AI-generated content.

Passive Scaling/FBA Machine

Passive Scaling/FBA Machine, a business opportunity scheme, promised consumers that they were guaranteed to make an income through AI-powered storefronts. The scheme, operating under various names, including Passive Scaling and FBA Machine, cost consumers over $15.9 million in deceptive earnings claims that rarely materialized.

The scheme enticed consumers with promises of a “7-figure business” and shared supposed testimonials of clients earning over $100,000 monthly. Sales agents falsely assured consumers of a “risk-free” venture and guaranteed refunds for those who didn’t recoup their initial investments, which often ranged from tens of thousands to hundreds of thousands of dollars.

Following the FTC’s complaint, a federal court issued a temporary restraining order halting the scheme and appointing a receiver.

The FTC’s actions against companies like DoNotPay, Ascend Ecom, and Rytr highlight the ongoing challenges of regulating AI-powered services and protecting consumers from deceptive marketing practices. These cases underscore the importance of holding companies accountable for misleading claims about their products and services, particularly when promoting AI-powered solutions. By ensuring transparency and accountability in the business world, the FTC is working to protect consumers from fraudulent schemes and create a more trustworthy marketplace.