ChatGPT Comes Under Investigation by Federal Trade Commission

WASHINGTON—The Federal Trade Commission is investigating whether OpenAI’s ChatGPT has harmed people by publishing false information about them, posing a potential legal threat to the popular app that can generate eerily humanlike content using artificial intelligence.

In a civil subpoena to the company made public Thursday, the FTC says its investigation of ChatGPT focuses on whether OpenAI has “engaged in unfair or deceptive practices relating to risks of harm to consumers, including reputational harm.”

One question asks the company to “describe in detail the extent to which you have taken steps to address or mitigate risks that your large language model products could generate statements about real individuals that are false, misleading or disparaging.”

The new FTC investigation under Chair Lina Khan marks a significant escalation of the federal government’s role in policing the emerging technology.

Khan, who appeared before the House Judiciary Committee on Thursday, said the agency is concerned that ChatGPT and other AI-driven apps have no checks on the data they can mine.

“We’ve heard about reports where people’s sensitive information is showing up in response to an inquiry from somebody else,” Khan said. “We’ve heard about libel, defamatory statements, flatly untrue things that are emerging. That’s the type of fraud and deception that we are concerned about.”

For critics of the FTC, the probe represented another venture into uncharted territory for an agency that has suffered recent legal setbacks in its antitrust enforcement efforts.

“When ChatGPT says something wrong about somebody and might have caused damage to their reputation, is that a matter for the FTC’s jurisdiction? I don’t think that’s clear at all,” said Adam Kovacevich, founder of Chamber of Progress, an industry trade group.

Such matters “are more in the realm of speech and it becomes speech regulation, which is beyond their authority,” he said.

OpenAI didn’t respond to requests for comment.

Marc Rotenberg, who heads a group that filed an FTC complaint over ChatGPT in March, said it might be unclear whether the FTC has jurisdiction over defamation. But “misleading advertising is clearly within the FTC’s purview,” said Rotenberg, president of the Center for AI and Digital Policy. “And disinformation relating to commercial practices is already, according to the FTC, an area within its authority.”

Rotenberg’s group filed a complaint with the FTC in March concerning ChatGPT, terming it “biased, deceptive and a risk to privacy and public safety,” and arguing that it satisfies none of the FTC’s guidelines for AI use.

The FTC has broad authority to police unfair and deceptive business practices that can harm consumers, as well as unfair competition, but critics say Khan has sometimes pushed its authority too far—as illustrated by a federal judge’s decision this week to dismiss the FTC’s attempt to block Microsoft’s acquisition of Activision Blizzard.

At the House committee hearing Thursday, Khan came under fire for her agency’s investigation of Twitter’s privacy protections for consumers. Republicans say the probe was driven by progressives angry over Elon Musk’s takeover of Twitter and his loosening of content moderation policies. And Twitter asked a federal court Thursday to terminate a 2022 settlement it agreed to with the FTC over alleged privacy violations, saying it had been subject to a “burdensome and vexatious enforcement investigation.”

Khan responded that the agency was only interested in protecting the privacy of users and that “we are doing everything to make sure Twitter is complying with the order.”

In its civil subpoena to OpenAI, the FTC asked the company detailed questions about its data-security practices. It cited a 2020 incident in which the company disclosed a bug that allowed users to see information about other users’ chats and some payment-related information.

Other topics covered by the FTC subpoena include the company’s marketing efforts, its practices for training AI models, and its handling of users’ personal information. The FTC inquiry was reported earlier by the Washington Post.

The Biden administration has begun examining whether checks need to be placed on artificial-intelligence tools such as ChatGPT. In a first step toward potential regulation, the Commerce Department in April put out a formal public request for comment on what it called accountability measures.

The White House’s Office of Science Technology Policy is also working to develop strategies to address both the benefits of AI, such as the possibility of using it to expand access to government services, as well as harms such as increased hacking capabilities, discriminatory decisions by AI systems, and the potential for AI-generated content to disrupt elections.

Lawmakers in both parties—led by Senate Majority Leader Chuck Schumer (D., N.Y.)—also have made regulating artificial intelligence a priority for the current Congress.

In addition to concerns about potential reputational risks, lawmakers say they worry that AI tools can be abused to manipulate voters with disinformation, discriminate against minority groups, commit sophisticated financial crimes, displace millions of workers or create other harms. Lawmakers have been especially concerned about the risks of so-called deepfake videos that falsely depict real people taking embarrassing actions or making embarrassing statements.

But new legislation or other measures are likely months away, if not longer. And lawmakers must worry that any significant action they take will risk slowing the pace of U.S. innovation, in what is shaping up as a vital competition with China to dominate the markets for AI tools.

Even ChatGPT’s creators have urged more government oversight of AI development.

In a hearing before Congress in May, OpenAI Chief Executive Sam Altman called on Congress to create licensing and safety standards for advanced artificial-intelligence systems, as lawmakers begin a bipartisan push toward regulating the powerful new tools available to consumers.

“We understand that people are anxious about how it can change the way we live. We are, too,” Sam Altman said of AI technology at the Senate subcommittee hearing. “If this technology goes wrong, it can go quite wrong.”

Altman has been traveling the world talking about both the promise and perils of AI, including meeting with heads of state including French President Emmanuel Macron and Indian Prime Minister Narendra Modi.

For decades, Australia has leaned into its reputation as the lucky country. But luck, as it turns out, is not an economic strategy.

What once looked like resilience now appears increasingly fragile. Beneath the surface of rising property values and steady headline growth, the Australian economy is showing signs of strain that can no longer be ignored.

Recent data paints a sobering picture. Australia has recorded one of the largest declines in real household disposable income per capita among advanced economies.

Wages have failed to keep pace with inflation, meaning many Australians are working harder for less. On a per capita basis, income growth has stalled and, at times, reversed.

And yet, on paper, things still look relatively solid. GDP is growing. Unemployment remains low. But that growth is increasingly being driven by population expansion rather than productivity.

More people are contributing to output, but not necessarily improving living standards.

That distinction matters.

For years, Australia’s economic success rested on a powerful combination: a once-in-a-generation mining boom, a credit-fuelled housing market, strong migration and a property sector that rarely faltered. Between 1991 and 2020, the country avoided recession entirely, building enormous wealth in the process.

But much of that wealth is tied to property. Around two-thirds of household wealth sits in real estate, inflated by leverage and sustained by demand. It has worked, until now.

The problem is the supply side of the economy has not kept up.

Housing supply is falling behind population growth. Rental vacancies are near record lows.

Construction firms are collapsing at an elevated rate. At the same time, massive infrastructure pipelines are competing with residential projects for labour and materials, pushing costs higher and delaying delivery.

The result is a system under pressure from all angles.

Despite near full employment, productivity growth has stagnated for years. In simple terms, Australians are putting in more hours without generating more output per hour. The economy is running faster, butgoing nowhere.

Meanwhile, government spending continues to expand. Public debt is approaching $1 trillion, with spending now accounting for a record share of GDP.

The gap between spending and revenue has been filled by borrowing for decades, adding further pressure to an already stretched system.

This is where the uncomfortable question emerges.

Has Australia become too reliant on a model driven by rising property values, expanding credit and population growth?

As asset prices rise, households feel wealthier and borrow more. Banks lend more. Governments collect more revenue. Migration fuels demand. The cycle reinforces itself.

But when productivity stalls and debt outpaces real income, the system begins to depend on constant expansion just to stay stable.

It is not a collapse scenario. But it is not particularly stable either.

Nowhere is this more evident than in housing.

The National Housing Accord targets 1.2 million new homes over five years, yet current completion rates are well below that pace. With approvals falling and construction costs rising, the gap between supply and demand is widening, not narrowing.

Housing is also one of the largest contributors to inflation, with costs rising sharply across rents, construction and utilities. Yet the private sector, from small investors to major developers, is struggling to make projects stack up in the current environment.

This brings the policy debate into sharper focus.

Tax settings such as negative gearing and capital gains concessions have undoubtedly boosted demand over the past two decades. But they have also supported supply. Removing them may ease prices briefly, but risks deepening the supply shortage over time.

That is the paradox.

Policies designed to make housing more affordable can, in practice, make the shortage worse if they discourage development. The optics may appeal, but the economics are far less forgiving.

It is also worth remembering that most property investors are not institutional players. The majority own just one investment property. They are, in many cases, ordinary Australians using real estate as their primary wealth-building tool.

Undermining that system without replacing it with a viable alternative risks unintended consequences, from reduced supply to higher rents and increased inflation.

So where does that leave Australia?

At a crossroads.

The country can continue to rely on population growth and rising asset prices to drive economic activity. Or it can shift towards a model built on productivity, innovation and sustainable growth.

The latter is harder. It requires structural reform, long-term thinking and political discipline.

But it is also the only path that leads to genuine, lasting prosperity.

The question is no longer whether Australia has been lucky.

It is whether it can evolve before that luck runs out.

Paul Miron is the Co-Founder & Fund Manager of Msquared Capital.

ChatGPT Comes Under Investigation by Federal Trade Commission

FTC is examining whether the artificial-intelligence app harmed people by publishing false information

As housing drives wealth and policy debate, the real risk is an economy hooked on growth without productivity to sustain it.