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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.
The five companies impacted are:
- DoNotPay – Claimed to offer AI-powered legal services but failed to deliver on its promises.
- Ascend Ecom – Promoted an AI-based e-commerce scheme, misleading consumers about potential earnings.
- Ecommerce Empire Builders (EEB) – Allegedly deceived consumers with promises of high income from AI-powered online stores.
- Rytr – Marketed an AI writing assistant for generating potentially false consumer reviews.
- FBA Machine – Operated a deceptive scheme promising guaranteed income through AI-enhanced online storefronts.
More on their alleged actions below:
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.”
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.
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