SEC Chair Gary Gensler has denounced “AI washing,” the misuse of artificial intelligence (AI), stating that such actions “may violate the securities laws.” This declaration was made on March 18, coinciding with lawsuits and regulatory measures taken by the SEC against instances of AI washing, wherein individuals in the financial sector make fraudulent claims regarding AI utilization.
Gensler cautioned that investment advisers and broker-dealers may falsely assert the use of AI to promise increased returns on investments. Additionally, he highlighted the possibility of executives at publicly traded companies exaggerating their AI implementation to bolster stock prices.
Asserting the importance of accuracy in all claims, Gensler emphasized, “Here at the SEC, we want to make sure that these folks are telling the truth. In essence, they should say what they’re doing.”
Gensler underscored the transformative potential of AI technology, akin to the impact of the internet, noting its current utilization in enhancing inclusion, efficiency, and user experience within the financial system.
In tandem with Gensler’s remarks, the SEC announced new lawsuits and settlements related to AI. Delphia (USA) Inc. and Global Predictions Inc., two investment advisers, faced charges for disseminating false and misleading statements about their AI utilization.
Delphia claimed to use AI alongside its data to predict promising companies for early investment, while Global Predictions falsely portrayed itself as the “first regulated AI advisor,” offering expert AI-driven forecasts.
According to SEC Enforcement Director Gurbir Grewal, “Neither of the firms had the AI capabilities that they claim they had… simply put, that’s called AI washing, and it hurts investors.”
As part of the settlement, Delphia and Global Predictions agreed to pay civil penalties of $225,000 and $175,000, respectively. The charges against each company included violations of the existing Marketing Rule of the Advisers Act and certain other securities regulations.
The SEC had previously introduced proposals to regulate AI usage in financial markets in 2023. However, the progress of these proposals has stalled following opposition in the Senate.
