SEC Charges 2 Investment Firms, Doles Out $400,000 in Fines, for ‘AI Washing’

The U.S. Securities and Exchange Commission this week said it settled charges against two investment advisers related to “AI washing.”

The firms, Delphia Inc. and Global Predictions Inc, will pay a total of $400,000 in civil penalties for making false and misleading statements about their use of artificial intelligence (AI).

“We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not,” said SEC Chair Gary Gensler, in a statement. “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. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”

Toronto-based Delphia made false and misleading statements in SEC filings and its website from 2019 to 2023, said the regulator. Delphia was also charged with violation of the Marketing Rule, which prohibits an investment adviser from using advertising that includes untrue statements. Delphia claimed that it used AI “so it can predict which companies and trends are about to make it big and invest in them before everyone else,” but it did not have the AI or machine learning capabilities it said it did, the SEC said.

San Francisco’s Global Predictions made false and misleading claims in 2023 on its website and on social media about its use of AI, including that it was the “first regulated AI financial advisor.” It too violated the Marketing Rule, the SEC said.

Delphia and Global Predictions consented to orders that they violated the rules without admitting guilt. Delphia agreed to pay $225,000; Global Predictions will pay $175,000.

“As more and more investors consider using AI tools in making their investment decisions or deciding to invest in companies claiming to harness its transformational power, we are committed to protecting them against those engaged in ‘AI washing,'” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.

Gurbir is right, if you claim to use AI in your investment processes, you must ensure that your representations aren’t false and they aren’t misleading.

My thoughts on AI washing 📽️ ⬇️ https://t.co/v4Dxm1t9xj pic.twitter.com/ntmRuWHsI3

— Gary Gensler (@GaryGensler) March 18, 2024