For many small and mid sized business owners, the promise of automation, artificial intelligence, and passive income can seem like the next logical step in scaling operations or diversifying revenue. Unfortunately, these aspirations are increasingly targeted by bad actors offering fraudulent “AI powered” business opportunities.
The Federal Trade Commission (FTC) has launched a wave of enforcement actions against companies exploiting the appeal of AI to defraud business owners and aspiring entrepreneurs. If your business is considering investing in an e-commerce automation system, working with a storefront partner, or using AI tools marketed as profit drivers, understanding the risks is essential.
A Pattern of Deceptive Business Models
Over the past year, the FTC has shut down multiple companies for deceptive practices that targeted business clients. These schemes often promised:
- “Done for you” Amazon or Walmart storefronts
- AI powered tools that select profitable inventory
- Coaching and support programs that guaranteed high returns
- Passive income with little effort
In reality, many investors lost tens of thousands of dollars and were left with non functioning storefronts, terminated accounts, or significant credit card debt.
Enforcement Cases that Set the Tone
- Ascend Ecom: Charged clients up to $35,000 for AI enhanced storefronts that failed to generate profits. Victims were even threatened for leaving negative reviews. The FTC banned the company and seized assets for restitution.
- Automators AI: Marketed “AI powered” Amazon stores with promises of passive income. Most clients never recovered investments. FTC banned the owners and ordered multi million dollar repayments.
- Ecommerce Empire Builders: Sold training and prebuilt storefronts for $2,000 to $35,000 with claims of $10,000 monthly profits. FTC found these claims unsubstantiated and permanently barred the operator.
- FBA Stores and the “Amazing Wealth System”: Promised success on Amazon but delivered losses. FTC later distributed $9.1 million in refunds to victims.
How AI is Used in the Fraud
AI itself is not the problem. The issue is how scammers use the term to create credibility, justify high costs, or appear cutting edge. This practice, often called “AI washing,” involves using the label without providing meaningful technology.
In a controversial case, the FTC targeted Rytr, an AI writing tool, for offering a feature that generated product reviews with minimal input. The agency argued that this enabled fake reviews and was inherently deceptive. While some commissioners dissented, the case highlights growing scrutiny of AI tool providers and potential legal risks for businesses adopting questionable technology.
Legal and Financial Risks for Small Businesses
Falling for one of these scams can create more than financial losses. Small businesses may face:
- Unenforceable promises: Contracts often contain fine print that prevents refunds or recovery of losses
- Liability exposure: Violating platform rules, such as Amazon’s ban on dropshipping or counterfeit goods, can result in account termination or legal claims
- Suppressed reviews: Some companies penalized clients for leaving negative reviews, often through restrictive clauses
- Debt and reputational harm: Many victims borrowed money or used credit cards to fund investments, leaving them with heavy debt and damaged credibility
Warning Signs to Watch For
If you are considering an AI powered or automated business opportunity, be cautious. Red flags include:
- High pressure sales tactics or limited time offers
- Claims of guaranteed income or effortless results
- No clear explanation of how the technology actually works
- No access to backend systems or real performance data
- Contracts that limit your right to review or pursue legal action
- Company names that frequently change or rely on vague branding
Before you commit, search online for lawsuits or enforcement actions related to the company. A quick review combined with legal counsel can help you avoid costly mistakes.
Protecting Your Business in the Age of AI
The AI boom has created exciting opportunities, but also new dangers for business owners. While automation and e-commerce remain valuable growth strategies, deceptive operators are exploiting that interest with increasing sophistication.
Before you sign any agreement that promises effortless income through AI or e-commerce, consult with legal professionals who understand the risks. At Jimerson Birr, we help small and mid sized businesses review contracts, pursue remedies against fraudulent providers, and establish compliance protocols for legitimate AI partnerships. We also defend businesses in disputes with platforms such as Amazon or Walmart and develop strategies that protect both short term operations and long term growth.
Jimerson Birr is here to help ensure that technology supports your business rather than undermines it. Contact us today to safeguard your investments and protect your company’s future.