The Securities and Exchange Commission on Monday fined two advisers for using misleading marketing materials related to their use of artificial intelligence.
In a recent statement, SEC Chairman Gary Gensler emphasized the importance of taking enforcement action against “AI washing,” which falsely claims to use AI for certain investment functions.
Toronto-based advisor Delphia Inc. was fined $225,000 for misleading statements it made between August 2019 and August 2023. According to the SEC, Delphia has disclosed in its SEC filings, press releases and website that the company uses AI and includes machine learning in its investment recommendations.
The SEC found that Delphia did not have the technical capacity to provide the services it claimed to provide. The company started collecting data in 2019, but did not apply that data to its artificial intelligence technology. According to the SEC, the SEC's Division of Examinations identified the issue in 2021, but Delphia did not properly update its disclosures until 2023.
Global Predictions Inc., a San Francisco-based advisor, was awarded $175,000 for making false statements about its use of AI, multiple violations of marketing rules unrelated to AI, and tort liability hedging provisions in its advisory agreement. was fined.
According to the SEC, Global Predictions falsely claimed that it was the “first regulated AI financial advisor” and that it used a chatbot to generate AI-driven asset allocation recommendations.
Additionally, Global Predictions was unable to substantiate specific performance claims, including claiming that the company beat IMF forecasts by 34% without disclosing the IMF forecasts in question. The advisory firm also uses virtual performances on YouTube pages that reach a general audience when SEC marketing rules require that virtual performances be delivered only to specific and relevant audiences. did.
Although the SEC's fine announcement was framed as related to AI-specific violations, if another technology is fraudulently presented, the violation would be illegal under the Marketing Rule. Jay Gould, special counsel at Baker Botts, said the SEC is “reminding registrants that false claims claiming the use of AI need to be accurate.”
Mr Gould added: “I think it’s framed this way to let everyone know that the SEC has the latest information on AI and technology in general. This is exactly what the SEC should be informing the industry about.”
