Snap shares drop as FTC refers MyAI chatbot complaint to the DOJ

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

The FTC’s non-public complaint involves allegations 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 reviews with Snap following a 2014 settlement regarding allegations of public deception pertaining to data collection by the company.

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

“A proceeding is in the public interest,” the FTC said in its statement.

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

A Snap spokesperson pushed back against the FTC’s claims in a statement to CNBC.

“Unfortunately, on the last day of this Administration, a divided FTC decided to vote out a proposed complaint that does not consider any of these efforts, is based on inaccuracies, and lacks concrete evidence,” the Snap spokesperson said. “It also fails to identify any tangible harm and is subject to serious First Amendment concerns.”

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

Snap debuted the My AI chatbot in 2023. It is powered by the large language models of OpenAI and Google, giving it the ability to answer user questions and provide tips and suggestions similar to ChatGPT and other AI-powered chatting tools.

The chatbot has been noted for providing problematic responses. In one instance while speaking with a reporter who was pretending to be a teenager, the chatbot answered explained how to hide the smell of alcohol and marijuana, The Washington Post reported in 2023. At the time of the chatbot’s initial release, Snap said that My AI, like other AI-powered chatbots, is “prone to hallucination and can be tricked into saying just about anything. Please be aware of its many deficiencies and sorry in advance!”

In Oct. 2023, the United Kingdom’s Information Commissioner’s Office issued a preliminary enforcement notice against Snap, alleging that the company’s My AI-related risk assessment “did not adequately assess the data protection risks posed by the generative AI technology, particularly to children.”

Although the FTC said that it voted during a closed meeting to issue a public statement about it’s case against Snap and its ensuing referral to the DOJ, it noted that FTC commissioners Melissa Holyoak and Andrew Ferguson were absent.

The FTC also pointed to a dissenting statement by Ferguson, who President-elect Donald Trump named in December to replace Lina Khan as the next FTC chair.

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

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

Ferguson added that he opposes the FTC’s complaint against Snap, but that he can’t “release a detailed analysis of its many problems,” because the case is not public. Ferguson wrote that the complaint’s interpretations of an FTC law is “wrong” and that it is “in direct conflict with the guarantees of the First Amendment.”

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

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