The Securities and Exchange Commission is taking aim at investment advisory firms that mislead investors about their use of artificial intelligence. In an enforcement action announced today, the SEC charged two firms – Delphia (USA) Inc. and Global Predictions Inc. – with making false and misleading statements about incorporating AI into their investment processes.
From 2019 to 2023, Delphia made claims in its SEC filings, press releases, and website about using AI and machine learning to analyze client data and “predict which companies and trends are about to make it big.” However, the SEC found that Delphia did not actually possess the AI capabilities it promoted.
Similarly, Global Predictions was charged with falsely claiming in 2023 that it was the “first regulated AI financial advisor” providing “expert AI-driven forecasts.” Like Delphia, the SEC determined these statements about AI usage were inaccurate.
Both firms were accused of violating the Marketing Rule, which prohibits investment advisers from disseminating advertisements containing untrue statements of material fact.
In announcing the $400,000 settlement, SEC Chair Gary Gensler warned that “investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”
Gurbir S. Grewal, Director of the SEC Enforcement Division, echoed those sentiments: “If you claim to use AI in your investment processes, you need to ensure your representations are not false or misleading.”
The SEC’s crackdown highlights the need for truth in marketing as more investors turn to AI-driven investment strategies and products powered by artificial intelligence. Firms cannot simply jump on the AI bandwagon with hyped-up claims. As this case shows, the SEC is watching for “AI washing” and will take action against advisers over misleading AI promotions.