The US Securities and Exchange Commission (SEC) has fined two investment advisers 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 Chairman Gary Gensler said the way these companies had marketed their use of AI to customers and potential customers was essentially false. In reality, neither company had been using AI in the way they claimed.
“We have seen time and time again that when new technologies appear, they can generate rumors among investors, as well as false claims by those seeking to use those new technologies,” Gensler said.
“Investment advisors should not mislead the public by saying they are using an AI model when they are not. This AI wash hurts investors,” he added.
According to the SEC's order against Delphia, the company made false claims about its use of AI in filings with the SEC, in a press release, and on its website. It stated that it used artificial intelligence and machine learning that incorporated customer data into its investment processes.
Delphia stated that “he put[s] collective data to work on to make our AI smarter so it can predict which companies and trends are about to break out and invest in them before everyone else.”
Global Predictions made similar claims on its website and on social media, saying it was the “first regulated AI financial advisor” and falsely suggesting its platform provided “[e]“AI-based expert forecasts.”
Both Delphia and Global Predictions accepted the SEC's fees without admitting or denying the findings of the investigation, with the former accepting a fee of $225,000 and the latter accepting a fee of $175,000.
'AI washing' is a growing problem
Companies like Delphia and Global Predictions may engage in AI laundering largely because there are serious misconceptions about the technology's use in a variety of applications, experts said. ITPro.
Growing global interest in this technology over the past 15 months has contributed to an unprecedented hype cycle, which in turn has opened the door to outlandish and sometimes outright misleading claims.
“People are investing without knowing why,” said Simon Bain, CEO of Omnilndex. ITPro. “As a result, the greedy can exploit the ignorant by telling them blatant 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 clear the SEC's position on AI laundering.
In the first video, posted through the SEC's X account, AI washing was defined as “making false claims of artificial intelligence, similar to greenwashing.”
Grewal made clear that AI laundering harms investors and maintains that the SEC's recent enforcement action should “serve as a warning” to ensure that AI claims are not false or misleading.
Gensler echoed these sentiments in his own video speech on the social media platform.
“Investment advisors or stockbrokers should not mislead the public by saying they are using an AI model when they are not.” Gensler said.
“It's crucial that everyone, at every level, looks at why they use AI and ensure there are genuine use cases that don't leave them open to harm,” Bain said.
