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The Federal Trade Commission (FTC) — a US consumer protection agency — announced a final rule prohibiting fake testimonials that “misrepresent that they are by someone who does not exist, such as AI-generated reviews.”

On Aug. 14, the FTC claimed that they will be combating fake reviews and testimonials by prohibiting the sales and purchases of such violators. The government entity also warned that they will impose civil penalties on violators who break the law. 

The FTC Chair Lina M. Khan stated that fake reviews not only waste people’s time and money but also “pollute the marketplace and divert business away from honest competitors.” Khan further stated the purpose behind the final rule, claiming:

“By strengthening the FTC’s toolkit to fight deceptive advertising, the final rule will protect Americans from getting cheated, put businesses that unlawfully game the system on notice, and promote markets that are fair, honest, and competitive.”

Apart from prohibiting fake consumer reviews and testimonials, FTC’s final rule also bans businesses from buying positive or negative reviews. The final rule also bars reviews and testimonials to be written by company insiders “that fail to clearly and conspicuously disclose the giver’s material connection to the business.”

According to the final rule, companies are also banned from selling or buying fake indicators of social media influence, and from using “groundless legal threats” or physical threats as a means to remove negative consumer reviews.

The rule will become effective 60 days after the date it’s published in the Federal Register. 

The final rule announcement came after years of rising reports of crypto scams. Back in June 2022, the FTC reported that 46,000 people faced a loss of over $1 billion in crypto to scams since the start of 2021. Meanwhile, the median individual reported loss was at $2,600. 

The reported losses in 2021 were nearly 60 times higher than what they were in 2018. Moreover, nearly half of the people who fell for these scams reported that they started with “an ad, post, or message on a social media platform.” 

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