We’ve all had that moment when we see an ad on social media for a product we were just talking to a friend about. Cox Media Group wanted its customers to believe it was behind this eerily too common phenomenon, but the FTC said otherwise.

On May 21, the Federal Trade Commission (FTC) announced proposed settlements with three companies—CMG Media Corporation, MindSift LLC, and 1010 Digital Works LLC—to resolve charges that they deceived small business customers by selling an advertising service called “Active Listening.”

The companies marketed it as an AI-powered tool that could listen in on consumers’ real-time conversations through their smart devices, identify when someone was in the market for a product or service, and serve up local ads accordingly. According to the FTC, the service did no such thing.

AI-Powered Advertising Claims Under FTC Scrutiny

The complaints allege that the companies marketed Active Listening as a service that “listened in on consumers’ conversations overheard by smart devices, in real time, to target advertising.” The marketing leaned into the worst surveillance fears consumers harbor about their own phones. On its website, CMG declared: “It’s True. Your Devices Are Listening to You.” The companies also promised they could target consumers within a specific geographic area.

But, according to the FTC, none of it was true. Instead, the FTC alleged it “was nothing more than consumer email list buying”—the ordinary practice in which data brokers sell lists of email addresses of people presumed to have certain interests. The companies bought those lists and resold them “at a significant markup,” dressed up in the language of artificial intelligence. Moreover, the FTC alleged that the geographic targeting was also misrepresented and found that the service “generated lists of consumers from across the country, with only a fraction of consumers located near the small business advertising customer.”

Consumer Consent and Voice Data Collection

The FTC alleged that the companies lied when they said consumers had consented to their invasive, but fake, service. The companies told their customers that consumers had “opted in” by claiming that “when you download apps, set up new devices you ‘accept’ the terms…those terms include allowing them to access your microphone.”

Even though the company did not actually provide the service, the FTC took umbrage with this claim and clarified that “clicking through mandatory terms of service does not constitute ‘opt-in consent’ for such an invasive service or for use of consumers’ voice data from inside their homes.” The FTC even emphasized that “if the Active Listening service had functioned as advertised, this collection and use of consumers’ voice data without adequate consent would itself violate Section 5 of the FTC Act.”

FTC AI Washing Enforcement Lessons for Advertisers

The FTC charged all three companies with violations of Section 5 of the FTC Act for misrepresenting the voice-data collection, consumer consent, and geographic targeting capabilities of the Active Listening service. It also charged MindSift and 1010 Digital Works with providing CMG the “means and instrumentalities” to deceive—a reminder that a vendor who hands a partner the tools of deception can be liable too. CMG will pay $880,000, and the other two companies will pay $25,000 each, in customer redress. All defendants are barred from making such misrepresentations in the future.

For consumers this case offers comfort, albeit a bit cold, that at least these advertisers are not listing in on their conversations. For advertisers, the lesson is more instructive. This action fits squarely with the FTC’s broader focus on “AI washing”—dressing up ordinary products with fake AI claims. If you claim your product harvests real-time conversations or uses AI in any way that improves the product, you should be ready to substantiate it.

The attorneys in Venable’s Advertising and Marketing Group have extensive experience evaluating the risks of advertising campaigns for compliance with advertising and marketing law and representing clients before the FTC. For more insights into advertising law, bookmark our All About Advertising Law blog and subscribe to our monthly newsletter. To learn more about Venable’s Advertising Law services, contact one of the authors or click here. And listen to the Ad Law Tool Kit Show—a podcast from Venable.