01:05 PM EST, 11/26/2024 (MT Newswires) -- (Adds details about settlement proposal and company operations beginning in second paragraph. Also update share price movement in final paragraph.)

Evolv Technologies ( EVLV ) stock was volatile on Tuesday after federal regulators said they were taking action against alleged false claims that its artificial intelligence-powered security screening system can detect weapons in school settings while ignoring harmless personal items.

Under terms of the proposed settlement order filed Tuesday with the US District Court in Massachusetts, Evolv ( EVLV ) agreed to stop making unsupported or misleading claims about the ability of its products to detect weapons by using artificial intelligence.

The company also will allow selected customers to terminate their contracts and must make reasonable efforts to contact those buyers with an offer to cancel their purchases, the FTC said.

Evolv ( EVLV ) did not admit nor deny any of the FTC allegations. The settlement covers school customers that bought its Express security system between April 2022 through June 2023. The company had deployed more than 4,500 Express units through the end of 2023, roughly double the number it placed in schools by December 2022, according to its most recent annual report.

The company did not immediately return messages from MT Newswires seeking comment.

Evolv Technologies ( EVLV ) shares dropped as much as 16% before recovering to a nearly 1% gain Tuesday afternoon.