Yogi Berra famously observed: “It’s tough to make predictions, especially about the future.”
Predictions are having a moment, in the form of the predictive language models fueled by artificial intelligence (“AI”) which form the backbone of countless disruptive products and services. Last year we shared our thoughts on the practice of “AI washing,” or the misuse of exaggerated or untrue statements about a company’s AI capabilities to attract investors and customers. The Securities and Exchange Commission (“SEC”) and Federal Trade Commission (“FTC”) continue their enforcement efforts under the new administration, with resolutions to existing cases and new actions underway. Although Congress is on the verge of passing a 10-year moratorium on state-level regulations of AI, that ban does not appear to limit the ability of federal agencies to enforce existing laws against deceptive practices – or the rights of private actors to pursue traditional civil remedies for fraud or breaches of fiduciary duties.
Ecommerce Empire Builders
In September 2024 the FTC charged Empire Holdings Group and its principal, Peter Prusinowski, with falsely claiming that the “Ecommerce Empire Builders” tool could help consumers make up to millions of dollars in e-commerce. The civil complaint alleged that defendants promoted their program though social media channels such as Facebook, Instagram, TikTok, and YouTube, claiming that the tools they built for customers were “powered by artificial intelligence to make your life easier” and could get people “on the road to replacing your full-time income.” The Complaint went on to allege, however, that the program took many hours for clients to review, required significant time and effort to implement, and income, if any, was far from certain. The Complaint alleged five counts against defendants under the FTC Act and Consumer Review Fairness Act.
On May 9, 2025, the FTC and defendants entered a stipulated order banning Empire and Prusinowski from offering this purported business opportunity to the public and requiring the defendants to surrender assets to the FTC in order to refund consumers.
Nate, Inc.
In April 2025 the Acting U.S. Attorney for the Southern District of New York charged Albert Saniger, the former Chief Executive Officer of Nate, Inc. (“nate”), with engaging in a scheme to defraud investors by making false and misleading statements about nate’s use of proprietary AI technology. The indictment alleges that Saniger and nate brought in over $40 million in investments by representing to investors that nate’s shopping app used AI “to intelligently and autonomously complete customers’ merchandise orders across e-commerce websites.” The indictment further alleges that the nate app was not powered by unique AI capabilities, and at times, customer transactions were manually completed by contractors in the Philippines and Romania (the company eventually managed to develop “bots” to assist with some transactions). The indictment charges Saniger with securities fraud and wire fraud. The SEC filed a parallel civil complaint against Saniger, seeking civil money penalties, disgorgement of ill-gotten gains, and injunctive relief.
Possible Moratorium on State-level Regulation of A.I.
Meanwhile, the House of Representatives recently passed H.R. 1, the One Big Beautiful Bill Act (yes, that is the official short title of the bill). Section 43201(c) of the Act requires, subject to modest limitations, that “no State or political subdivision thereof may enforce any law or regulation regulating artificial intelligence models, artificial intelligence systems, or automated decision systems during the 10-year period beginning on the date of the enactment of this Act.” While this is a broad prohibition, two things are clear. First, the moratorium does not tie the hands of federal regulators, who have shown a willingness across administrations to apply time-tested civil and criminal tools against companies and their principals who are engaging in AI washing. Second, private plaintiffs continue to have at their disposal civil claims for false or misleading statements, from federal securities claims under the Securities Act of 1933 and Securities Exchange Act, to state law claims for breaches of fiduciary duties and state claims for false advertising and other consumer protections.
It's Like Déjà vu All Over Again
Despite a change in administrations and a likely state-level ban on A.I. regulation, federal agencies continue to take enforcement action against those who make false or misleading statements about their AI capabilities. Surely private plaintiffs will follow suit.
While AI is cutting-edge technology, companies should continue to apply traditional safeguards to claims about its capabilities. This includes truthful and precise communication, robust internal controls and oversight, and staying informed about regulatory developments and best practices.
For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, Joshua Korr, or Kevin O’Brien.
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