SEC Hits Two Investment Advisers With “AI Washing” Enforcement Actions

The D&O Diary by Kevin LaCroix on March 20, 2024

The SEC wants everyone to know that it is watching what the companies and firms it regulates are saying about their use of Artificial Intelligence (AI). SEC Chair Gary Gensler set the stage in a speech he made last December in which he warned companies about “AI Washing” – that is, making unfounded AI claims to the public. Now the agency has brought settled enforcement actions against two investment advisers for making allegedly false statements about their use of AI technology. As if the enforcement actions themselves were not enough to send the message that the SEC is on the AI beat, the agency also released a video statement from Gensler emphasizing the agency’s AI-related concerns.

The Enforcement Actions

According to the SEC’s Administrative Order against the Toronto-based firm Delphia, from 2019 to 2023 the firm made misleading statements in its SEC filings and other disclosure statements regarding its “purported use of AI and machine learning” that incorporated client data in its investment process. Among other things, the Order alleges that Delphia claimed that it “puts collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else does.” The Order alleges that these statements were false and misleading because “Delphia did not in fact have the AI and machine learning capabilities that it claimed.”

To read the full article and to learn more about the “AI Washing” and what the SEC wants everyone to know click here.

Source: The D&O Diary (Permission Granted)

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