Earlier this month, the Federal Trade Commission (FTC) filed suit against  a company named Automators AI, which promised consumers high returns on investment, of up to $22 million, in artificial intelligence-boosted stores on Amazon.com and Walmart.com.

The FTC’s case claims that the vast majority of the defendant’s clients did not make the promised earnings or even recoup their investment. Automators AI  has denied any wrongdoing.

This case signals that the FTC is paying close attention to the use of AI in business opportunity schemes and is willing to take action to protect consumers from deceptive practices. "The defendants preyed on consumers looking to provide for their families with promises of high returns and the use of AI to power such returns," said FTC’s Director of the Bureau of Consumer Protection, Samuel Levine. "The FTC is working to hold defendants accountable and to secure redress for their victims."

The FTC has the jurisdiction to regulate deceptive and unfair business practices and enforce the laws and regulations governing consumer protection and competition. The FTC maintains that the same regulatory and legal principles concerning deception and unfairness apply to modern, advanced technological products. 

The agency has recognized the need for regulation and oversight of AI technology as companies increasingly develop or apply AI solutions to their platforms. The FTC has decades of experience enforcing laws important to developers and users of AI. Some of these laws include:

1. Section 5 of the FTC Act. The FTC Act prohibits unfair or deceptive practices, including the sale or use of racially biased algorithms.

2. Fair Credit Reporting Act (FCRA). The FCRA comes into play in certain circumstances where an algorithm is used to deny people employment, housing, credit, insurance, or other benefits.

3. The Clayton Act: The Clayton Act prohibits anti-competitive conduct, such as price fixing or collusion. This law can be used to challenge AI systems that are used to give companies an unfair advantage over their competitors. For example, the FTC could challenge an AI system that is used to track competitors' prices and then adjust its own prices accordingly.

The Automators AI lawsuit is the first individual case the FTC has brought related to AI scams and it can serve as a warning to other companies that may be considering using AI for fraudulent business practices. Back in April 2023, the FTC warned businesses against using automated tools that have discriminatory impact or making unsubstantiated claims about AI, underlining that it would not tolerate deceptive practices and would take action to protect consumers. Companies should conduct a Business Opportunity Rule compliance check to ensure that they are operating within the law.