FTC takes action against DoNot Pay and other companies for misleading AI advertising.

• The Federal Trade Commission has launched a campaign against "misleading AI advertising and practices" by five companies, including legal services provider DoNotPay.
• The FTC's five enforcement cases demonstrate how companies and startups are exploiting the hype surrounding AI to deceive consumers into fraudulent schemes.
• It is illegal to use AI tools to deceive or defraud individuals, as FTC Chair Lina Khan stated in a statement.

The Federal Trade Commission on Wednesday announced a crackdown on "deceptive AI claims and schemes" by three business opportunity ventures and two companies, including the legal services firm DoNotPay.

The FTC's five enforcement cases demonstrate how companies and startups are exploiting the hype surrounding AI to deceive consumers into fraudulent schemes.

It is illegal to use AI tools to deceive or defraud individuals, as FTC Chair Lina Khan stated in a statement.

"The FTC's enforcement actions demonstrate that AI is not exempt from the laws, and by cracking down on unfair or deceptive practices in these markets, the FTC is ensuring that businesses and innovators can compete fairly and consumers are protected."

The FTC accused DoNotPay of not meeting its claim of being "the world's first robot lawyer" in a complaint.

The FTC stated that while DoNotPay claimed its service would enable customers to sue someone for assault without a lawyer and produce legal documents quickly, the company did not verify whether its AI chatbot's output was equivalent to that of a human lawyer.

The FTC stated that DoNotPay's service, which claimed to check small business websites for federal and state violations using only an email address, was not effective in detecting these potentially costly violations.

The FTC charged DoNotPay with wrongdoing, but the company agreed to settle the charges by paying $193,000 and informing consumers about the limitations of its law-related features.

The FTC stated that the proposed order would prevent the company from making unsubstantiated claims about its ability to replace any professional service.

The FTC announced on Wednesday that it is suing a business opportunity scheme that has operated under various names, including Ascend Ecom, Ascend CapVentures, and ACV Nexus. The scheme has been run by two individuals named William Basta and Kenneth Leung.

In a lawsuit filed in Los Angeles federal court, the FTC alleges that the Ascend scheme has defrauded consumers of at least $25 million by making deceptive earnings claims to convince them to invest tens of thousands of dollars each in an e-commerce business opportunity.

"The suit alleges that since 2023, the defendants have been deceiving consumers with their sales pitch, claiming their business model is powered by AI. They promise consumers will quickly earn thousands of dollars in passive income through sales on e-commerce platforms such as Amazon.com and Walmart.com."

The suit alleges that consumers who invested in the scheme did not receive the promised gains, leaving them with empty bank accounts and high credit card balances.

As a result of the lawsuit, a judge has temporarily halted the scheme and placed it under the control of a receiver, according to the FTC.

The FTC filed a second lawsuit in June in New Jersey federal court against an opportunity scheme that operated under the names Passive Scaling and FBA Machine. The scheme allegedly defrauded customers out of around $16 million through deceptive claims of guaranteed income from online storefronts that used AI-powered software.

The FTC has accused Ecommerce Empire Builders of falsely advertising its ability to help consumers build an "AI-powered Ecommerce Empire" through its training programs, which cost nearly $2,000, or by purchasing a "done for you" online storefront for tens of thousands of dollars, in a third lawsuit filed in Pennsylvania federal court.

The FTC has placed the scheme under the control of a receiver, as ruled by a judge, similar to the Ascend case.

The FTC alleges that the scheme promises consumers the potential to earn millions of dollars, but the profits do not materialize, according to the complaint.

A judge has appointed a receiver to oversee the scheme in question, as with the other two lawsuits, according to the FTC.

The FTC accused Rytr, an AI writing assistant company, of generating testimonials and customer reviews for sale.

The FTC stated that the service produced reviews that contained specific, often significant details that were not related to the user's input, and these reviews were likely to be false for users who copied and published them online.

The agency stated that many AI-generated reviews contained misleading information that could deceive potential buyers when making purchasing decisions.

Rytr has agreed to settle the case through a consent order, which prohibits the company from providing services that generate consumer reviews or testimonials.