On March 18, the Securities and Exchange Commission (SEC) announced that it settled charges against two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., for making false and misleading statements about their purported use of artificial intelligence (AI). Delphia and Global Predictions were fined $225,000 and $175,000, respectively. Without admitting or denying the SEC's allegations, both firms agreed to be censured and to cease and desist from further violations as part of the settlement.
The SEC charged Delphia with making false statements, in press releases and on its website, by overpromising its use of AI to generate early investment predictions based on analyzing data. For example, Delphia claimed that it used collective data to train its AI to "predict which companies and trends are about to make it big and invest in them before everyone else." The SEC's order found that Delphia did not have the AI or machine learning capabilities that it claimed. Delphia was also charged with violating the Marketing Rule, which prohibits SEC-registered investment advisers from advertising untrue statements of material fact.
The SEC charged Global Predictions with making false statements on its website and social media by claiming, in 2023, to be the "first regulated AI financial advisor" and misrepresenting that its platform provided "[e]xpert AI-driven forecasts." Global Predictions stated that it has since clarified how it uses AI in its marketing materials.
SEC Chair Gary Gensler has repeatedly warned businesses against "AI washing," a reference back to the practice of greenwashing, in which businesses misrepresent how environmentally friendly their operations are. In various interviews and comments over the past few months, Chair Gensler has reiterated that AI-related statements, such as all public disclosures, must be truthful and accurate. Businesses should not claim they are using AI in ways they are not and must also "fairly and accurately describe the material risks" of any genuine AI use. The Federal Trade Commission has likewise issued numerous warnings about making false or unsubstantiated claims about AI use as well as failing to prevent biased or discriminatory results from AI.
Lawmakers around the world are currently drafting regulations to govern AI use, including the European Union's AI Act that passed last week. These SEC enforcement actions, however, show that regulators are already focused on using existing laws to govern the explosive growth of businesses' claims and use of AI.
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