SEC Charges Investment Advisers for AI Washing

In a recent announcement, the U.S. Securities and Exchange Commission (SEC) disclosed settled charges against two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., for falsely representing their use of artificial intelligence (AI). The firms have agreed to settle the charges by paying a total of $400,000 in civil penalties.

The SEC’s Chair, Gary Gensler, emphasized the importance of transparency in technological advancements within the investment industry. He highlighted that misrepresentations about AI usage, termed as ‚AI washing,‘ could mislead investors and harm their interests. Gensler stressed that investment advisers should not falsely claim to use AI models when they do not possess such capabilities.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, echoed Gensler’s sentiment, stating the SEC’s commitment to protecting investors against deceptive practices related to AI. He emphasized the need for accuracy in representations about AI adoption, both by investment advisers and public issuers, to safeguard investors‘ interests.

According to the SEC’s findings, Delphia made false and misleading statements regarding its use of AI and machine learning from 2019 to 2023. Similarly, Global Predictions misrepresented its AI capabilities on its website and social media platforms in 2023. Both firms violated securities laws, including the Marketing Rule, which prohibits disseminating false or misleading advertisements.

As part of the settlement, Delphia and Global Predictions neither admitted nor denied the SEC’s findings but consented to orders finding them in violation of the Advisers Act. They agreed to cease and desist from further violations and pay civil penalties of $225,000 and $175,000, respectively.

The SEC’s Office of Investor Education and Advocacy issued an Investor Alert to caution investors about investment fraud related to artificial intelligence.

The investigations were conducted by the SEC’s Division of Enforcement, with assistance from the Division of Examinations and the Division’s Office of Risk and Strategy.

The SEC’s actions underscore the regulatory scrutiny surrounding the use of AI in investment processes and emphasize the importance of accurate representations to maintain investor trust and market integrity.

For further details, refer to the SEC orders against Delphia and Global Predictions.