US SEC charges two investment advisors with AI washing

Federal regulators on Monday settled charges with two investment advisers that falsely marketed their services as using AI. Similar to greenwashing in general, where companies make false statements about their environmental sustainability, AI washing has emerged as a term to describe companies that make unsubstantiated promises to use AI in their services.

According to the SEC, Toronto-based Delphia has made multiple false and misleading statements in SEC filings, press releases and on its website about its use of AI and machine learning to incorporate customer data into its investment process. I wrote an inviting statement. Delphia claimed that “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.” It was not functional, authorities said. Said. It also accused the company of violating marketing rules that prohibit investment advisers from making false advertising.

San Francisco-based Global Predictions in 2023 falsely posted on social media that it was “the first regulated AI financial advisor” and that its platform offered “expert AI-driven predictions.” said. This also violates marketing rules, the SEC said.

Delphia and Global Predictions will pay a total of $400,000 in civil penalties. Both companies did not admit guilt, but agreed to enter an order for violating the Advisers Act. Delphia agreed to pay a $225,000 civil penalty and Global Predictions agreed to pay her $175,000.

Neither company responded to requests for comment.

The use of AI has exploded in recent years, especially since ChatGPT was introduced to the public. SEC Chairman Gary Gensler said more investors are considering using AI tools in their investment decisions and deciding to invest in companies that claim to harness the “transformative power” of AI technology. Stated.

“We have seen time and time again that when a new technology emerges, it can generate buzz from investors and false claims by those purporting to use the new technology.” he said.

Gensler discussed AI washing during a panel discussion in December 2023, warning companies against misrepresenting their AI capabilities, saying, “You shouldn’t greenwash, and you shouldn’t do AI washing.”

In January, the SEC issued a warning about AI investor fraud and took other steps, including proposing rules to address AI-related trends in the securities industry.

Other federal agencies have also issued warnings about AI cleaning. The Federal Trade Commission advised advertisers not to overpromise what algorithms and AI-based tools can accomplish. The Consumer Financial Protection Bureau warned financial services companies that “if chatbots capture customer communications and provide responses, they risk non-compliance with federal consumer financial law.” [that] It may not be accurate. ”