Back in December, Chair Gensler gave a speech to an AI Summit and warned about companies overstating their use artificial intelligence tools. From there, you can see the SEC approaching the concerns as part of fundraising fraud and marketing fraud. Chair Gensler probably knew that the Securities and Exchange Commission was actively working on two enforcement cases that got announced this week.
- “the first investment adviser to convert personal data into a renewable source of investable capital”
- “uses machine learning to analyze the collective data shared by its members to make intelligent investment decisions”
- “turns your data into an unfair investing advantage”
- “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”
- “expert AI driven forecasts”
- “first regulated AI financial advisor”
- “the models are outperforming IMF forecasts by 34%, and the platform keeps improving”
These are quotes from the marketing materials for Delphia (USA) Inc. or Global Predictions Inc.
Section (a)(2) of the Marketing Rule says that an advertisement may not:
(2) Include a material statement of fact that the adviser does not have a reasonable basis for believing it will be able to substantiate upon demand by the Commission;
When asked by SEC examiners to substantiate those claims.
They could not. These appear to be the first cases by the SEC against investment advisers for AI-washing. And two of the few cases under the Marketing Rule.
Sources:
- SEC Charges Two Investment Advisers with Making False and Misleading Statements About Their Use of Artificial Intelligence
- SEC Order – Delphia
- SEC Order – Global Predictions
- SEC Chair Warns Against “AI Washing” by Kevin LaCroix