SEC Charges Investment Advisors Over Misleading AI Statements
The U.S. Securities and Exchange Commission (SEC) has filed charges against two investment advisors for making misleading statements about their use of artificial intelligence (AI). The SEC accused Delphia, the U.S. arm of Canadian company Delphia, and Global Predictions, a San Francisco-based firm, of breaking regulatory marketing rules in a practice known as “AI washing.” Both companies have agreed to settle the charges and pay a total of $400,000 in civil penalties.
Delphia Misled Investors About AI Capabilities
The SEC stated that from 2019 to 2023, Delphia misled investors and regulators about its AI capabilities. The company falsely claimed that its technology used client data for smart investments. By doing so, Delphia deceived clients into thinking that it was using AI in certain ways when it was not.
Global Predictions Made Deceitful Statements About Regulation and AI
In 2023, Global Predictions made deceitful statements about being a regulated AI advisor and offering AI-driven forecasts. The SEC found that the company marketed itself as using AI in certain ways, but it did not actually do so. This misrepresentation misled clients and prospective clients who were interested in investing based on the company’s supposed use of AI.
SEC Chair Warns Against Misleading Claims
SEC Chair Gary Gensler emphasized the importance of truthful claims regarding AI usage. He stated that investment advisers should not mislead the public by claiming to use an AI model when they are not. Such deceptive practices hurt investors and undermine trust in the industry. Gensler highlighted that new technologies often create buzz among investors but can also lead to false claims by those purporting to use them.
Settlement and Clarification
After the SEC issued a cease-and-desist order, Delphia and Global Predictions agreed to settle the charges. Global Predictions co-founder and CEO Alexander Harmsen expressed satisfaction with resolving the matter and stated that the company has clarified how it uses AI in its marketing. Harmsen pointed to a new blog post that explains the company’s use of AI.
SEC’s Focus on Crypto Space
The SEC has been actively pursuing illegal securities dealings in the crypto space. In a recent case, ShapeShift, a defunct cryptocurrency exchange, agreed to pay fines and comply with a cease and desist order for allowing unregistered trading of cryptocurrencies. The SEC’s actions are increasingly targeting AI-related issues as well.
Gensler’s Warning on AI Washing
In 2023, as the hype around AI grew, SEC Chair Gary Gensler cautioned investors about falsely labeling products or services with AI capabilities. He warned against “AI washing,” which refers to companies making exaggerated claims about their AI-driven or technologically advanced nature. Gensler stressed that such practices may violate securities laws.
Comparisons to “Greenwashing”
The concept of AI washing is similar to “greenwashing,” where companies falsely promote their projects as more environmentally and socially responsible than they actually are. Just as greenwashing misleads consumers about a company’s environmental impact, AI washing deceives investors about a company’s true use of AI.
Dangers of Generative AI
Gensler previously highlighted the dangers associated with generative AI, both in reality and fiction. He referenced movies like Her (2013), M3GAN (2023), and The Matrix (1999) to illustrate how brokers or advisers should not rely on AI models that produce recommendations or advice based on hallucinations or inaccurate information. Accuracy and transparency are crucial when using AI in the financial industry.
Hot Take: Ensuring Truthful Claims in AI Usage
It is essential for companies and investment advisers to be honest about their use of AI and avoid misleading claims. The SEC’s charges against Delphia and Global Predictions demonstrate the consequences of misrepresenting AI capabilities. Investors should be cautious when evaluating investment opportunities that heavily rely on AI technologies, and regulators play a vital role in maintaining transparency and accountability in the industry.
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