Episode Details

what are the penalties for ai washing under ftc and sec rules

On January 16, 2025, the Federal Trade Commission voted 5 to 0 to finalize an order against DoNotPay, the company that spent years marketing itself as the world’s first robot lawyer. The order bars DoNotPay from claiming its product performs like a licensed attorney unless it has evidence to back that claim, requires notice to every subscriber from 2021 through 2023, and imposes 193,000 dollars in monetary relief. DoNotPay had promised customers they could sue for assault without a lawyer and generate perfectly valid legal documents in no time. According to the Commission’s complaint, the company never tested whether its chatbot’s output matched a human lawyer’s work, and it never hired or retained a single attorney to check.

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DoNotPay is one entry in a much longer list. The Federal Trade Commission opened Operation AI Comply on September 25, 2024, with five simultaneous enforcement actions, and brought roughly a dozen more AI washing cases through 2025 under new leadership, proving the initiative survived a change in administration. Rytr LLC settled for 193,000 dollars in 2024 over a feature that let subscribers generate fabricated consumer reviews, but the Commission later reopened and set aside that order in 2025, concluding the theory placed an undue burden on artificial intelligence tool developers. That reversal narrows Section 5 exposure for the tool itself while leaving full exposure in place for anyone who markets the tool for a deceptive purpose. FBA Machine and its principal, Bratislav Rozenfeld, face a stipulated judgment exceeding 15.7 million dollars for falsely guaranteeing income from AI powered online storefronts, and Ecommerce Empire Builders and owner Peter Prusinowski were banned from selling business opportunities in May 2025 after making similar claims. The per violation civil penalty under FTC Act Section 5(m)(1)(A) rose to 53,088 dollars effective January 17, 2025.

The Securities and Exchange Commission runs a parallel program with its own statute and its own penalties. On March 18, 2024, the Commission charged Delphia (USA) Inc. and Global Predictions Inc. under Sections 206(2) and 206(4) of the Investment Advisers Act of 1940, the Marketing Rule, and the Compliance Rule. Delphia had overstated its use of artificial intelligence and machine learning in its investment process. Global Predictions had falsely called itself the first regulated artificial intelligence financial adviser. Delphia paid 225,000 dollars and Global Predictions paid 175,000 dollars. On January 14, 2025, the Commission charged Presto Automation Inc., a formerly Nasdaq listed company, in the first AI washing case against a public operating company, over statements to investors about its Presto Voice speech recognition system. The Commission imposed no penalty, citing Presto’s cooperation and remedial steps, which shows that early self correction narrows exposure without eliminating the underlying violation.

State attorneys general have opened a third track. The Texas Attorney General settled with healthcare AI company Pieces Technologies on September 18, 2024, the first state settlement of its kind, requiring the company to substantiate future marketing claims under the state’s consumer protection statute. The Massachusetts Attorney General reached a 2.5 million dollar settlement with student lender Earnest Operations LLC in July 2025 over AI underwriting models alleged to produce disparate outcomes for Black, Hispanic, and non-citizen applicants. Private shareholders have opened a fourth track: Apple investors sued in June 2025 after delayed Siri upgrades coincided with a stock decline that erased nearly 900 billion dollars in market value from its peak, and Microsoft investors sued in June 2026 over Copi