The U.S. Securities and Exchange Commission (SEC) has charged two investment advisers for making misleading statements regarding the firms’ use of artificial intelligence (AI), the SEC said Monday.
The SEC charged Canadian company Delphia’s U.S. subsidiary and U.S.-based Global Predictions with violating regulatory marketing rules, or “AI washing.” After the agency issued a cease-and-desist order, the two companies agreed to settle the charges and pay a total of $400,000 in civil penalties.
The SEC said that from 2019 to 2023, Toronto-based Delphia misled investors and regulators about its AI capabilities by falsely claiming its technology used customer data to make smart investments. The SEC said in 2023 that San Francisco-based Global Predictions falsely represented that it provided AI-based predictions as a regulated AI advisor.
“We discovered that Delphia and Global Predictions promoted to customers and prospects that they were using AI in certain ways when in fact they were not,” SEC Chairman Gary Gensler said in the release. “We have seen time and time again that when a new technology emerges, it can not only generate buzz from investors, but also generate false claims from those claiming to use that new technology.
“Investment advisors should not mislead the public into thinking they are using artificial intelligence models when they are not. “This kind of AI washing harms investors,” he said.
“Global Predictions has cooperated fully with this investigation and we are pleased to have completed it,” said Alexander Harmsen, co-founder and CEO of Global Predictions. decryption. “We’ve also clarified exactly how we use AI across marketing,” he said, highlighting a new Global Forecasts blog post clarifying its use of AI.
Delphia did not react to this immediately. detoxification Request for comment.
The SEC has not stopped investigating what it considers illegal securities trading in the cryptocurrency space. Earlier this month, shuttered cryptocurrency exchange ShapeShift agreed to pay a $275,000 fine and comply with a cease-and-desist order that would allow users to trade cryptocurrencies. AI is gaining traction among regulators’ actions without having to register as a broker or exchange with an institution.
As hype around artificial intelligence soars in 2023, SEC Chairman Gary Gensler warned investors against false or misleading labels on products or services containing artificial intelligence features.
“AI washing by financial intermediaries, such as investment advisors, broker-dealers, or companies that raise funds from the public, may violate securities laws,” Gensler said in a video posted Monday. “So everyone can talk about AI, but if you’re an investment advisor, a broker-dealer, a public company, you have to make sure what you’re saying to investors is true.”
Similar to ‘greenwashing’, where an individual or company promotes a project as being more environmentally or socially responsible than it actually is, AI washing refers to claims that a company is AI-centric or more technologically advanced than it actually is.
Last month, Gensler referenced the 2013 film Her, M3GAN (2023) and The Matrix (1999) to highlight the dangers of generative AI, both fact and fiction.
“You don’t want a broker or advisor recommending investments that are hallucinatory about mushrooms,” Gensler said. “Therefore, when brokers or advisors use AI models, they must ensure that the recommendations or advice provided by the model are not based on hallucinations or inaccurate information.”
Edited by Ryan Ozawa.
