SEC charges two investment advisors with making false and misleading statements about the use of AI

“We found that Delphia and Global Predictions advertised to customers and prospective customers that they were using AI in certain ways, when in fact they were not using AI.” said SEC Chairman Gary Gensler. “We have seen time and time again that the emergence of new technology can generate buzz from investors and false claims by those purporting to use the new technology. Investment advisors should not mislead the public by saying they are using AI models when they are not. This kind of AI laundering harms investors.”

“A growing number of investors are considering the use of AI tools when making investment decisions or deciding to invest in companies that claim to harness the power of transformation. We are committed to protecting them from those who engage in it,” said Gurbir S. Grewal. Director of the SEC’s Enforcement Division. “As today’s enforcement action has made clear to the investment industry, if you claim to use AI in your investment process, you must ensure that your representations are not false or misleading. Public issuers that make claims about their AI implementation must also remain wary of similar misstatements that could be material to individual investment decisions.”

According to the SEC’s order against Delphia, from 2019 to 2023, the Toronto-based company made false and misleading statements in SEC filings, press releases, and websites that purported to use AI and machine learning that incorporated customer data. I wrote an inviting statement. In the investment process. For example, according to the order, Delphia “[s] By leveraging the data we collect to make artificial intelligence smarter, we can predict which companies and trends are poised to grow and invest in them before anyone else. ” The order found that these statements were false and misleading because Delphia did not actually have the AI ​​or machine learning capabilities it claimed. The company was also charged with violating marketing regulations, which prohibit registered investment advisers from distributing advertisements that contain false statements about material facts.

In its order against Global Predictions, the SEC found that the San Francisco-based company made false and misleading claims on its website and social media in 2023 purporting to use AI. For example, the company falsely claimed to be the “first regulated AI financial advisor” and claimed that its platform was “[e]Expert AI-driven predictions. ” Global Predictions also violated marketing rules, falsely claimed to provide loss recovery services, and committed securities law violations by including impermissible liability hedging provisions in its advisory agreements.

Delphia and Global Predictions neither acknowledged nor denied the SEC’s findings, but instead agreed to enter an order finding that they had violated the Advisers Act and ordering them to cease violating the provisions accused and charged. . Delphia agreed to pay her $225,000 civil penalty and Global Predictions agreed to pay her $175,000 civil penalty.

The SEC’s Office of Investor Education and Advocacy has issued an investor alert regarding artificial intelligence and investment fraud.

The SEC’s investigation was conducted by Anne Hancock, HelenAnn Listerman, and John Mulhern, with the supervision of Kimberly Frederick, Brent Wilner, Corey Schuster, and Andrew Dean of the Enforcement Division’s Asset Management Division. Ragni Walker, Thomas Grignole, and Peter J. Hagerty of the Division of Inspection, and Roberto Grasso of the Division’s Office of Risk and Strategy assisted in the investigation.