The Securities and Exchange Commission has fined two investment advisers for allegedly making false statements about their use of artificial-intelligence technology, following through on its warning to go after businesses involved in so-called “AI washing.”
Delphia (USA) and Global Predictions settled with the SEC Monday and agreed to pay a total of $400,000 in civil penalties, without admitting or denying the SEC’s allegations. Delphia agreed to pay a $225,000 civil penalty, while Global Predictions agreed to pay $175,000.
AI washing, an informal term that describes businesses’ making unfounded AI claims to the public, has emerged as a recent target of the agency’s enforcement efforts. The term echoes the greenwashing phenomena, which refers to companies misleading the public that their products or services are environmentally sustainable.
SEC Chair Gary Gensler in a December speech warned businesses against AI washing, and added that securities laws bar phony claims and require companies to give “full, fair and truthful” disclosures.
“Don’t do it,” said Gensler at a conference in December hosted by The Messenger, a news outlet. “One shouldn’t greenwash and one shouldn’t AI wash.”
The SEC alleged that between 2019 to 2023, Toronto-based Delphi misled the public in SEC filings, a press statement and on its website about its use of AI and machine learning and how it used client data in its investment strategy.
Delphi’s assertions that it “put[s] 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,” were false, the SEC said. It added that the firm admitted in July 2021 to the SEC’s Division of Examinations that it didn’t use any client data and that it hadn’t created an algorithm to use client data. The SEC alleged that despite this admission, and after later saying it would review its current marketing and regulatory disclosure documents, the firm kept making false statements in its advertisements about the use of client data through August 2023.
The regulator also outlined alleged compliance deficiencies, including a failure to put in place policies and procedures adequate to ensure advertisements didn’t include misleading or false statements, and a lack of policies around the use of social media.
The SEC alleged that San Francisco-based Global Predictions in 2023 made false statements about its use of AI on its website and on social media, incorrectly claiming that its platform provided “[e]xpert AI-driven forecasts” and unable to produce documents substantiating its claim to be the “first regulated AI financial advisor.”
The agency added that Global Predictions couldn’t substantiate performance claims upon demand and that it failed to disclose material conflicts of interest from relationships with certain individuals giving testimonials.
Delphia didn’t respond to a request for comment. Global Predictions said it has fully cooperated with the SEC probe, and “is pleased to put this behind us.” The firm added that it has clarified in its marketing materials how it uses AI, and has published a blog post detailing its use of AI and how it has repositioned its flagship PortfolioPilot product.