SEC settles charges against investment advisers for AI misrepresentation

According to the SEC, both companies engaged in what has been termed as "AI washing," where they allegedly made exaggerated claims about the capabilities of their AI technology to attract investors. As part of the settlements, Delphia has agreed to pay a civil penalty of $225,000, while Global Predictions will pay $175,000, totaling $400,000 in civil penalties.

Dr. Ilia Kolochenko, Partner & Cybersecurity Practice Lead at Platt Law LLP, commented on the settlements, noting a growing trend of federal agencies such as the SEC and FTC intervening to curb deceptive trade practices related to AI. He highlighted the increasing prevalence of companies aggressively promoting unproven AI capabilities, capitalising on the excitement surrounding Generative AI.

Dr. Kolochenko warned that such practices not only mislead inexperienced investors but also ensnare professional investors and large funds under the Fear of Missing Out (FOMA) syndrome. He emphasised the importance for companies leveraging AI as a market differentiator to substantiate their claims with tangible evidence of value and benefits.

As the use of AI continues to proliferate across industries, the SEC's actions signal a heightened scrutiny of companies making unsubstantiated claims about AI technology. Dr. Kolochenko's remarks underscore the need for transparency and accountability in AI-driven products and services to mitigate legal risks and maintain investor trust.