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Snap shares fell 5% on Thursday after the Federal Trade Commission said it would refer a complaint against the company to the Justice Department.
The FTC’s non-public complaint includes 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 of Snap after 2014 settlement regarding allegations of misleading the public about 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 was “violating or about to violate the law.”
“The action is in the public interest,” the FTC said in a statement.
The FTC did not specify what its complaint was about the My AI chatbot, but the chatbot has previously drawn attention.
A Snap spokesperson denied the FTC’s claims in a statement to CNBC.
“Unfortunately, on the last day of this administration, a divided FTC decided to vote down a proposed complaint that takes none of these efforts into account, is based on inaccuracies, and lacks concrete evidence,” a 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 artificial intelligence,” Snap believes “a complaint would stifle innovation and competition in a critical and growing sector of the economy.”
Snap debuted My AI chatbot in 2023. It is powered large language models from OpenAI and Google, giving it the ability to answer user questions and provide tips and suggestions similar to ChatGPT and other AI-powered chat tools.
Chatbot is known for providing problematic answers. In one instance, while talking to a reporter pretending to be a teenager, the chatbot responded by explaining how to hide the smell of alcohol and marijuana, The Washington Post reported in 2023. At the time of the first chatbot release, Snap he said that My AI, like other AI-powered chatbots, “is prone to hallucinations and can be tricked into saying almost anything. Please be aware of its many shortcomings, and we apologize in advance!”
In October 2013, the UK Information Commissioner’s Office issued preliminary notice of enforcement against Snap, stating that the company’s My AI risk assessment “did not adequately assess the data protection risks posed by generative AI technology, particularly for children.”
Although the FTC said it voted during the closed-door meeting to make a public statement about its case against Snap and forward it to the DOJ, it noted that FTC Commissioners Melissa Holyoak and Andrew Ferguson were absent.
The FTC also pointed to a contrary statement Ferguson, President-elect Donald Trump appointed in December to replace Lina Khan as the next chair of the FTC.
Ferguson noted that these types of referrals “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-door meeting where this was approved,” he wrote.
Ferguson added that he opposed the FTC’s lawsuit against Snap, but that he could not “release a detailed analysis of its many problems” because the case is not public. Ferguson wrote that the FTC’s interpretation of the law in the complaint is “wrong” and “in direct conflict with First Amendment guarantees.”
If the DOJ files a complaint, Ferguson said he would “release a more detailed statement about this violation of the Constitution and the rule of law.”
