According to CoinDesk, the U.S. Securities and Exchange Commission (SEC) is cracking down on 'AI washing,' a practice where companies falsely claim to use artificial intelligence (AI) in their operations. SEC Chair Gary Gensler recently warned that investment advisors might make false claims about using AI models to improve client returns, and public companies might exaggerate their AI technology to boost stock prices. The SEC has settled charges with two investment advisors, Delphia and Global Predictions, for allegedly making false claims about their use of AI in investment strategies.
Delphia, a robo-advisor business with $187 million in assets under management, was accused of falsely claiming to use machine learning to analyze collective data shared by its members for intelligent investment decisions. The SEC found that these claims were not true when Delphia first made them in a December 2019 press release and continued to be false well into 2023. Global Predictions, on the other hand, claimed to use 'expert AI-driven forecasts' but could not produce documents to substantiate its claim of being the 'first regulated AI financial advisor.' The two companies collectively paid fines totaling $400,000.
The SEC's actions serve as a warning to other companies engaging in AI washing. With 353,928 .ai domain names registered as of January 18, it is unclear how many of these domains belong to companies that actually use AI. The SEC aims to target lies that can be proven in court, such as the recent case against Brian Sewell and his company Rockwell Capital Management LLC, who allegedly raised $1.2 million for a fund to invest in cryptocurrency trading using 'machine algorithms,' 'artificial intelligence,' and a 'machine learning model,' none of which were actually employed. The SEC's crackdown on AI washing is a necessary step to protect investors from fraudulent claims.