Pay No Attention to that Man Behind the Curtain: Federal Regulators Crack Down on AI Washing

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Authored by Andrew Stewart

After more than a decade of development, Amazon has pulled the plug on its “Just Walk Out” technology where Amazon would use artificial intelligence (AI) and machine learning to analyze footage from in-store cameras to calculate your bill.[1] The pitch was intriguing: walk into a store, take what you need off the shelf, and “Just Walk Out.”[2]. The reality ended up being just as intriguing, but for a much different reason: humans operators were instead reviewing the transactions.

In May 2023, The Information broke that Amazon was struggling to get the technology off the ground.[3] Amazon allegedly employed a thousand workers in India, who would manually review the in-store footage from Amazon’s pilot stores. The report said that 700 out of every 1,000 transactions were manually reviewed. Amazon has denied this.[4] However, this is not the first time Amazon has been caught in a scandal allegedly downplaying the role of human operators in its AI technology. In 2019, the news broke that Amazon had actual human contractors listening to customers’ voice commands given to its AI assistant Alexa.[5]

Amazon is not alone. As early as 2016, it was reported that companies such as and GoButler were using human operators to run their “AI.”[6] While the use of human trainers is common in the AI field, many companies struggle to get the training wheels off and instead rely on a “fake it until you make it” strategy. In fact, overexaggerating the use or capabilities of AI has become so popular, there is a term for it: AI washing.

Regulators are taking notice, and over the past year they have shown a willingness to bring enforcement actions over AI washing.

In late 2023, the Securities and Exchange Commission (“SEC”) began signaling an intent to crack down on AI washing.[7] In February 2024, SEC Chair Gary Gensler gave a speech at Yale Law School warning of the dangers of AI washing.[8] The following month, the Commission announced that it had settled with two investment advisers—Delphia (USA) Inc. and Global Predictions Inc.—that had made false and misleading claims about their use of AI.[9] For example, Delphia allegedly told clients it would use the clients’ data to train its AI algorithm to gain an investing advantage.[10] Delphia later admitted that no such algorithm exists.[11] Neither Delphia nor Global Predictions admitted nor denied the SEC’s allegations, but the two companies agreed to pay a collective $400,000.[12]

The SEC is not the only federal regulator that has brought enforcement actions against AI washers. The Federal Trade Commission (“FTC”) has made it clear that no one should exaggerate AI capabilities.[13] In August 2023, the FTC filed suit in the Southern District of California against several companies alleging that—among other fraudulent claims and practices—the companies misrepresented their use of AI when selling ecommerce business opportunities.[14] The parties settled in February 2024.[15] While neither admitting nor denying any of the allegations, the defendants agreed to permanently refrain from selling ecommerce business opportunities and pay more than $21 million.[16]

The Department of Justice (“DOJ”) has also signaled an intention to start cracking down on AI washing. U.S. Attorney for the Northern District of California Ismail Ramsey said in March 2024 that his office is looking into Silicon Valley startups that misrepresent their AI capabilities to investors before IPO.[17]

The key takeaway from these enforcement actions and statements is that businesses should think carefully before touting AI capabilities. AI is more than just a marketing term, and a lack of fully realized AI functionality can lead to serious trouble if capabilities are overexaggerated to third parties. Federal regulators are likely just getting started cracking down on AI washing.

[1] Amazon Fresh kills “Just Walk Out” shopping tech—it never really worked | Ars Technica

[2] Introducing Amazon Go and the world’s most advanced shopping technology (

[3] How Amazon’s Big Bet on ‘Just Walk Out’ Stumbled — The Information

[4] An update on Amazon's plans for Just Walk Out and checkout-free technology (

[5] Amazon Workers Are Actually Listening To Your Alexa Voice Commands: Report | Tech Times

[6] The Humans Hiding Behind the Chatbots - Bloomberg

[7] SEC Chair Warns Businesses Against AI Washing: 'Don't Do It' - Law360; see also SEC Chair Gary Gensler on AI Washing (

[8] | “AI, Finance, Movies, and the Law” Prepared Remarks before the Yale Law School

[9] AI washing meets marketing rule, as SEC fines two advisers for their AI claims - Thomson Reuters Institute; | SEC Charges Two Investment Advisers with Making False and Misleading Statements About Their Use of Artificial Intelligence

[10] Id.

[11] Id.

[12] Id.

[13] Keep your AI claims in check | Federal Trade Commission (

[14] Complaint (

[15] FTC Action Leads to Ban for Owners of Automators AI E-Commerce Money-Making Scheme | Federal Trade Commission

[16] Stipulated Order for Permanent Injunction and Monetary Judgment (

[17] US DOJ to target pre-IPO artificial intelligence frauds, top attorney says | Reuters

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