Ever since the launch of the deeply flawed Microsoft-backed public-facing artificial intelligence (AI) service ChatGPT at the end of 2022, AI has been used to power a whole range of services. But the days of marketing and PR departments simply attaching the words “AI-driven” to over-hype any digital offering in the hope of attracting investors and customers are now hopefully coming to an end.
Earlier this week, the US Securities and Exchange Commission (SEC) fined two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., a total of US$400,000 between them. The SEC’s order against Global Predictions alleged that the San Francisco-based firm made false and misleading claims in 2023 on its website and on social media about its purported use of AI. The order against Toronto-based Delphia alleged that the firm had 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.
SEC Chair Gary Gensler commented: “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.”
‘AI washing’ refers to false claims about digital products
The newly-coined term “AI washing” refers to the now widespread marketing strategy where sellers represent their products as using AI technology, when they don’t or have at best a highly tenuous link to genuine AI and machine learning. The term follows an earlier expression, “greenwashing”, which refers to companies over-hyping their environmental credentials.
Concerned that investors may be blindsided by the faux science behind claims that otherwise ordinary digital technologies are somehow powered by “AI,” the SEC is now preparing to take off the gloves and go toe to toe with organizations guilty of this type of fraud.
“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. Public issuers [of shares] making claims about their AI adoption must also remain vigilant about similar misstatements that may be material to individuals’ investing decisions,” said Gurbir S. Grewal, Director of the SEC’s enforcement division.
The SEC’s Office of Investor Education and Advocacy has also issued an Investor Alert about artificial intelligence and investment fraud. Therefore, bona fide AI-powered offerings must now take pains to provide investors and customers with firm evidence and clear guidelines regarding their genuine use of AI.
