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Federal prosecutors this week charged two men with using artificial intelligence to generate and distribute non-consensual, sexually explicit images of women, representing a significant early enforcement action under the Take It Down Act.

Charges Filed

On Thursday, federal prosecutors in the Eastern District of New York filed charges against Arturo Hernandez of Texas and Cornelius Shannon of New Jersey in separate cases involving alleged AI-generated deepfake pornography.

“The defendants used cutting-edge digital technology to create images that degraded and violated victims across the United States,” stated U.S. Attorney for the Eastern District of New York Joseph Nocella. “This case makes clear that posting deepfake pornography is not a victimless crime.”

Prosecutors allege that Shannon and Hernandez posted thousands of AI-generated images and videos depicting real people—including actresses, singers, political figures, and recent high school graduates—engaged in sexual acts. The men allegedly uploaded more than 470 albums depicting over 140 women to websites, where the AI-generated images and videos received millions of views.

Court filings indicate that the images appeared to use real, non-explicit photographs that were altered with AI software to create sexually explicit content. The men face up to two years in prison.

Take It Down Act

President Donald Trump signed the Take It Down Act into law in May 2025. The legislation makes it a federal crime to knowingly publish or threaten to publish non-consensual intimate imagery, whether authentic or AI-generated. It also mandates that online platforms remove reported content within 48 hours.

The Take It Down Act garnered bipartisan support in Washington and comes as courts grapple with a rising number of lawsuits related to AI-generated deepfakes, including cases accusing Elon Musk’s xAI and its Grok chatbot of creating and distributing non-consensual sexualized images, including images depicting minors.

Several states, including California, Texas, Florida, and Pennsylvania, have enacted similar laws targeting non-consensual intimate imagery and AI-generated deepfakes.

In April, James Strahler, of Columbus, Ohio, became the first person convicted under the law after pleading guilty to federal charges involving over 700 AI-generated sexually explicit images of adults and children.

“This predatory conduct represents a disturbing abuse of technology that inflicts emotional harm on victims, violating their privacy, dignity, and security,” said FBI Assistant Director in Charge James Barnacle Jr. in a statement. “The use of this emerging technology to victimize individuals is not innovative—it is criminal and will be pursued with the full force of the law.”

Kalshi Launches Advocacy Group to Shape Perception of Prediction Markets

Kalshi announced the formation of an advocacy group on Friday, aiming to influence policymakers’ views on prediction markets, positioning the move as a strategy to compete with sportsbooks and casinos.

Group’s Mission and Focus

Americans for Fair Markets (AFM) will actively counter “interests that are focused on protecting their monopolies and seeding lies,” according to a Kalshi blog post. The organization will concentrate on legislation that supports innovation, market integrity, and consumer protection.

Strategic Advisor and Funding

Kalshi stated that the group has appointed Taylor Budowich, a former senior White House staffer who resigned in September, as a strategic advisor. Budowich previously led communications for the White House and a pro-Trump super PAC.

While the organization’s website uses a color scheme similar to Kalshi’s logo, Americans for Fair Markets has other members, a spokesperson told Decrypt. The spokesperson declined to disclose the group’s funding but described it as “well capitalized.”

Context of Increased Scrutiny

The launch of Americans for Fair Markets highlights Kalshi’s efforts to distinguish itself from its main competitor, Polymarket, and traditional betting platforms on Capitol Hill. Prediction markets are facing increased scrutiny from lawmakers due to concerns about insider trading.

On Friday, House Oversight Committee Chair James Comer (R-KY) announced investigations into insider trading on Polymarket and Kalshi. The lawmaker cited suspicious bets on military actions related to Venezuela and Iran, which have led to arrests in the U.S. and Israel in recent months.

Regulatory Differences and Industry Debate

Although both platforms have recently enhanced their safeguards, Kalshi has emphasized its status as a federally regulated exchange under the CFTC. Polymarket also has a regulated platform in the U.S., but most of its bets are placed on its international counterpart.

“A handful of legislators and a gaming lobby want to ban prediction markets outright,” AFM’s website states. “It would push them offshore—onto unregulated platforms with no identity verification, no consumer protections, no insider trading rules, and no cop on the beat.”

However, the gaming lobby argues that prediction platforms are the ones engaging in deceptive practices, as American Gaming Association President and CEO Bill Miller made clear during testimony before Congress on Wednesday.

“These so-called prediction markets are deceptively calling sports betting financial contracts and investing,” he said. “Despite messaging designed to beguile policymakers and the public, they are increasingly being exposed as backdoor sports-betting operations.”

Hearing on Modernizing Anti-Money Laundering Laws

Executives from the cryptocurrency industry, policy researchers, and national security experts testified before a House subcommittee on Thursday, offering insights on how to modernize anti-money laundering (AML) laws in the age of artificial intelligence and digital assets.

The House Financial Services Committee’s Subcommittee on National Security, Illicit Finance, and International Financial Institutions held a hearing on “Modernizing the BSA for Financial Crime in the 21st Century,” focusing on the Bank Secrecy Act (BSA), the 1970 law that mandates banks and financial institutions to report suspicious activity and large transactions.

The hearing took place as crypto firms, banks, and civil liberties groups advocate for a shift in the BSA’s focus toward actionable intelligence rather than the volume of reports, while the Trump administration is expanding its reach over non-citizen customers.

Ari Redbord, Global Head of Policy at TRM Labs, testified before the subcommittee, stating that North Korea stole over $2 billion in digital assets in 2025 and another $600 million in early 2026, while “pig butchering” networks defrauded Americans of more than $35 billion last year.

Redbord warned that AI-enabled scam activity surged by 500% over the past year, and illicit funds now move across wallets within 24 to 48 hours. This compresses response windows to the point where “retrospective reporting frameworks are structurally incapable of generating a response in time” because “the framework that helped us win yesterday will not be enough to win today.”

The Bank Secrecy Act is the foundation of U.S. anti-money laundering law, requiring banks and crypto firms registered as money services businesses to file suspicious activity reports, currency transaction reports for amounts over $10,000, and to verify customer identities.

Subcommittee Chairman Warren Davidson (R-OH) opened the hearing by describing the BSA as a “bloated surveillance machine demanding endless reports without delivering proportional results,” noting that institutions file nearly 5 million suspicious activity reports (SARs) and 21 million currency transaction reports (CTRs) annually.

Proposed Reforms and Concerns

Redbord proposed formal recognition for stablecoin financial intelligence units like T3 FCU, a collaboration between Tether, TRON, and TRM that has frozen over $450 million in illicit USDT since September 2024, and a “digital asset hold law” granting exchanges a statutory safe harbor to freeze suspect funds pending law enforcement review.

He also suggested that institutions should hold “the least amount of information that they need on an individual customer in order to make a decision” about illicit risk, warning that every new database is “a honeypot” for ransomware groups and state-sponsored hackers.

During the hearing, Cato Institute researcher Nicholas Anthony argued that the problem with the BSA was not inefficiency but surveillance itself, stating that “the history of financial surveillance has been a history of ever-moving goalposts” from tax enforcement to “fraud and immigration.” He presented options ranging from adjusting thresholds for inflation to repealing the BSA regime entirely.

John Court, general counsel at the Bank Policy Institute, supported reform rather than repeal, calling the Treasury’s proposed AML rule “a vast improvement” and advocating for higher reporting thresholds, simpler filings, risk-based oversight, and explicit approval for banks to use AI in transaction monitoring.

Atlantic Council Senior Fellow Carole House cautioned against significant cuts to the framework, noting that reducing the compliance burden should not come at the cost of “opening the door to adversaries seeking to harm Americans and U.S. national security interests.”

AI as a Point of Consensus

AI was a point of consensus among most witnesses. Davidson, Redbord, Carole House, and Court all supported the broader use of machine learning and AI in transaction monitoring. Redbord was particularly enthusiastic, telling lawmakers that “AI investigative tools can compress weeks of manual analysis into minutes” and calling for federal funding of AI-native investigative tools across various agencies.

The hearing occurred shortly after President Donald Trump signed an executive order directing regulators to strengthen customer due diligence and customer identification requirements under the BSA while expanding scrutiny around account ownership and financial risks associated with immigration enforcement. The order directs the Treasury to tighten BSA customer due diligence rules and flag risks tied to ITIN use, off-the-books wages, and foreign consular IDs, while also asking the CFPB to weigh potential deportation risks in lending decisions.