The SEC has charged and settled claims with two Investment advisers with making false and misleading statements about their use of artificial intelligence (AI). The SEC found that Delphia (USA) Inc. and Global Predictions Inc. marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not. SEC chair Gensler noted that when new technologies come along, they create buzz from investors and false claims by those purporting to use those new technologies. He admonished investment advisers to not mislead the public by saying they are using an AI model when they are not and that such “AI washing” hurts investors. The companies paid $400,000 in civil penalties.

The SEC’s director of enforcement, Gurbir Grewal, said that these cases are just the beginning of its action against bogus AI claims. He cautioned that if you claim to use AI in your investment processes, you need to ensure that your representations are not false or misleading. And public issuers making claims about their AI adoption must also remain vigilant about similar misstatements that may be material to individuals’ investing decisions. He further noted that as more investors use AI tools in making investment decisions, the SEC is committed to protecting them against those engaged in ‘AI washing,’

In January 2024, the SEC’s Office of Investor Education and Advocacy issued an Investor Alert about artificial intelligence and investment fraud. This alert cautioned on topics such as:

• unregistered/unlicensed investment platforms claiming to use AI
• investment claims that sound too good to be true usually are
• investing in companies involved in AI
• AI-enabled technology used to scam investors, including “deepfake” video and audio
• do not rely solely on ai-generated information in making investment decisions