The US Securities and Exchange Commission (SEC) has taken action against investment advisers, Delphia and Global Predictions, settling charges concerning AI washing.
The SEC defines the practice of AI washing, as the deceptive marketing of AI related capabilities by financial firms.
Go deeper with GlobalData
On 14 February, SEC Chair Gary Gensler warned businesses engaging in AI washing against making false claims regarding their AI capabilities.
Drawing a parallel with the agency’s crackdown on greenwashing, Gensler emphasised that securities law explicitly prohibits deceptive claims and mandates companies to provide disclosures that are “full, fair, and truthful.”
The settlements, announced on 18 March, involve the payment of a collective $400k fine by the implicated firms, Delphia based in Toronto and Global Predictions headquartered in San Francisco.
The SEC found that, from 2019 to 2023, Delphia misrepresented its use of AI and machine learning in its investment procedures through various channels such as SEC filings, press releases, and its website.
For example, Delphia claimed to employ collective data to enhance its AI’s predictive abilities, enabling it to forecast lucrative investment opportunities ahead of the market.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataHowever, the SEC found these assertions to be false as Delphia lacked the claimed AI and machine learning capabilities.
Similarly, Global Predictions, in 2023, made misleading statements on its website and social media platforms regarding its AI capabilities, including being the “first regulated AI financial advisor.”
Delphia agreed to pay a civil penalty of $225k, while Global Predictions will pay $175k.
The SEC’s Division of Enforcement, led by Director Gurbir S. Grewal, underscored its dedication to safeguarding investors against AI washing: “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,” added Grewal.
In light of these developments, the SEC’s Office of Investor Education and Advocacy issued an Investor Alert specifically addressing AI and investment fraud.
