Snap shares fall as FTC refers complaint about chatbot MyAI to Justice Department

Tie up shares closed up 5% on Thursday after the Federal Trade Commission said it would refer a complaint against the company to the Justice Department.

The FTC’s undisclosed complaint alleges that Snapchat’s My AI chatbot poses “risks and harms to young users,” the commission said in a statement. The complaint stems from the FTC’s compliance audit of Snap after 2014 settlement regarding allegations of public fraud related to the company’s data collection.

As part of the FTC’s compliance review of Snap, the agency said it discovered the possibility that the company “is violating or is about to violate the law.”

“The procedure is in the public interest,” the FTC said in a statement.

The FTC did not specify what its complaint focused on with the My AI chatbot, but the chatbot has previously attracted scrutiny.

A Snap spokesperson denied the FTC’s claims in a statement to CNBC.

“Unfortunately, on the last day of this administration, a disunited FTC decided to vote down a proposed complaint that ignores any of these efforts, is based on inaccuracies, and lacks concrete evidence,” a Snap spokesperson said. “It also fails to identify any appreciable harm and raises serious First Amendment concerns.”

The spokesperson added that while the company shares “the FTC’s emphasis on ensuring the thoughtful development of generative artificial intelligence,” Snap believes the “complaint will stifle innovation and competition in a critical and growing sector of the economy.”

Tie up debuted My AI chatbot in 2023 That’s right with food by OpenAI and Google’s big language models, giving it the ability to answer user questions and provide tips and suggestions similar to ChatGPT and other AI-powered chat tools.

The chatbot was noted for giving problematic answers. In one instance, during a conversation with a reporter posing as a teenager, the chatbot responded by explaining how to hide the smell of alcohol and marijuana, The Washington Post informed in 2023 At the time of Snap’s initial release of the chatbot said that My AI, like other AI-powered chatbots, “is prone to hallucinations and can be tricked into saying anything. Bear in mind his many faults and apologize in advance!”

In October 2013 United Kingdom Information Commissioner’s Office issued preliminary notice of enforcement against Snap, asserting that My AI’s risk assessment related to “inadequate assessment of the data protection risks associated with generative AI technology, particularly for children.”

While the FTC said it voted in a closed-door meeting to publicly state its case against Snap and then refer it to the Justice Department, it noted that FTC Commissioners Melissa Holyoke and Andrew Ferguson were absent.

The FTC also pointed to a another statement Ferguson, President-elect Donald Trump named in Dec to replace Lina Khan as the next chair of the FTC.

Ferguson noted that these types of appeals “are not disclosed unless and until a complaint is filed in court by the Department or the Commission.”

“I did not participate in the farcical closed session at which this issue was approved,” he wrote.

Ferguson added that he opposes the FTC’s complaint against Snap, but could not “provide a detailed analysis of the many issues” because the case is not public. Ferguson wrote that the FTC’s interpretation of the law in the complaint is “incorrect” and that it “directly conflicts with First Amendment guarantees.”

If the Justice Department files a complaint, Ferguson said he will “issue a more detailed statement about this affront to the Constitution and the rule of law.”

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