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On March 18, 2024, the Securities and Exchange Commission announced that it had settled charges against two SEC-registered investment advisors for making false and misleading statements about their alleged use of artificial intelligence (“AI”). Did. The companies have agreed to resolve the SEC charges and pay civil penalties totaling $400,000.
cause of the act
One company’s charges stem from its use of misleading statements about its use of AI in SEC filings, press releases, and websites over a four-year period. They claimed to have used AI to create an edge in their investment process, but they did not have such resources. Additionally, these statements were also deemed to violate marketing rules. A second company was also found to have violated marketing rules, and his AI fraud at the company stemmed from the use of the term “AI-driven predictions by experts.”
what’s next
These settlements come on the heels of the SEC’s July 2023 proposed rules regarding the use of AI by investment advisers. The July rules will prohibit investment advisers from using AI in a way that creates a conflict of interest between the firm and its clients. Specifically, investment advisors must adopt policies and procedures regarding their use of AI. Advisors must also comply with record-keeping requirements, such as when the technology was implemented or significantly changed.
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