Given the frenzy of investment managers, analysts, bankers and brokers touting how they are using artificial intelligence to “revolutionise!!!” their business, this looks like the SEC sending out a pretty clear warning.
Washington D.C., March 18, 2024 — The Securities and Exchange Commission today announced settled charges against two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., for making false and misleading statements about their purported use of artificial intelligence (AI). The firms agreed to settle the SEC’s charges and pay $400,000 in total civil penalties.
“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. “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.”
“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. “As today’s enforcement actions make clear to the investment industry — if you claim to use AI in your investment processes, you need to ensure that your representations are not false or misleading. And public issuers making claims about their AI adoption must also remain vigilant about similar misstatements that may be material to individuals’ investing decisions.”
The SEC says that Delphia said in press releases, filings and on its website that it used AI in its investment process, while Global Predictions bragged that it was “first regulated AI financial advisor” and used “AI-driven forecasts”.
Neither company admitted or denied the SEC’s findings etc etc. But Delphia paid a civil penalty of $225,000 and Global Predictions ponied up $175,000.
The SEC fines follows an Investor Alert in January, when the watchdog warned that “individual investors should know that bad actors are using the growing popularity and complexity of AI to lure victims into scams”.
The puniness of the fines and the triviality of the companies involved might make this easy to dismiss, but it’s the first such explicit AI-mismarketing charges that Alphaville can remember seeing from the SEC.
They probably won’t be the last, either.
Further reading: – The AI-financial complex (FTAV)