The US Securities and Exchange Commission (SEC) has leveled fines against two investment advisors for making misleading claims about their use of AI, a practice the regulator described as ‘AI washing.’
The two firms, Delphia and Global Predictions, agreed to settle the charges and pay a combined total of $400,000.
SEC chair Gary Gensler said that the way these companies had marketed their use of AI to clients and prospective customers was false. In reality, neither had been using AI in the ways that they claimed.
“We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies,” Gensler said.
“Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors,” he added.
According to the SEC’s order against Delphia, the firm made false claims about its AI use in SEC filings, in a press release, and on its website. It stated it used AI and machine learning that incorporated client data into its investment processes.
Delphia claimed it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.”
Global Predictions made similar claims on its website and social media, saying that it was the “first regulated AI financial advisor” and falsely suggested its platform provided “[e]xpert AI-driven forecasts.”
Both Delphia and Global Predictions consented to the payment of the SEC’s charges without either admitting or denying the findings of the investigation, with the former agreeing to a charge of $225,000 and the latter agreeing to a charge of $175,000.
‘AI washing’ is a growing issue
Companies like Delphia and Global Predictions are able to participate in AI washing largely because there are serious misconceptions over the use of the technology across a range of applications, experts told ITPro.
Sharpened global interest in the technology over the last 15 months has contributed to an unprecedented hype cycle, which in turn has opened the door for outlandish and, at times, outright misleading claims.
“People are investing without knowing why,” Simon Bain, CEO Omnilndex, told ITPro. “As a result, the greedy can exploit the ignorant by telling them barefaced lies about what AI is and what it is for.”
Both Gensler and SEC enforcement director Gurbir Grewal released videos to X in light of the ruling to make the SEC’s position on AI washing clear.
In the first video, posted via the SEC’s X account, AI washing was defined as “making false artificial intelligence claims, similar to greenwashing.”
Grewal made it clear that AI washing hurts investors and argues that the SEC’s recent enforcement action should “serve notice” about ensuring that AI claims are not false or misleading.
Gensler echoed these sentiments in his own video address to the social media platform.
“Investment advisers or broker dealers should not mislead the public by saying they are using an AI model when they’re not.” Gensler said.
“It’s crucial for everyone at all levels to scrutinize why they are using AI and ensure that there are genuine use cases for it which do not leave them exposed to harm,” Bain said.
