The Securities and Exchange Commission (SEC) has settled charges against two investment advisers, for making false and misleading statements about their purported use of artificial intelligence (AI).
One of the settled charges was against Delphia, a Toronto-based firm that allegedly made false and misleading statements in its SEC filings, in a press release, and on its website regarding its purported use of AI and machine learning. This occurred from 2019 through 2023.
For example, according to the order, Delphia claimed 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.” The SEC found that these statements were false and misleading because Delphia did not in fact have the AI and machine learning capabilities that it claimed. Further, the firm was charged with violating the Marketing Rule, which prohibits a registered investment adviser from disseminating any advertisement that includes any untrue statement of material fact.
The other charge was against Global Predictions, a San Francisco-based firm. According to the SEC, in 2023, it also made false and misleading claims on its website and on social media about its purported use of AI. For example, the firm falsely claimed to be the “first regulated AI financial advisor” and misrepresented that its platform provided “[e]xpert AI-driven forecasts.” Global Predictions also violated the Marketing Rule, falsely claiming that it offered tax-loss harvesting services and included an impermissible liability hedge clause in its advisory contract, among other violations.
“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,” SEC Chair Gary Gensler said. “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.”
Without admitting or denying the SEC’s findings, Delphia and Global Predictions agreed to cease and desist from violating the charged provisions. Also, Delphia agreed to pay a civil penalty of $225,000, while Global Predictions agreed to pay a civil penalty of $175,000.
“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,’” Gurbir Grewal, director of the SEC’s Division of Enforcement, said. “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.”